Opportunity Knocks?

Most of us know about the well-worn real estate adage of location, location, location. Now, thanks to a rare confluence of events, Canadians are positioned to snap up prime U.S. vacation properties at bargain prices. And many are doing just that.

Dave Koszegi, a real estate agent from Port Alberni, B.C., purchased a Palm Springs, Calif., condominium for his young family last spring. Koszegi, 35, got such a great deal, he convinced his brother George, 50, to buy a unit in the same condo development.

Credit a strong domestic economy, which has boosted Canada’s loonie to par and — for a time — beyond the U.S. greenback, as well as a made-in-the-U.S.A. credit and mortgage crisis that has forced many Americans to sell properties well below the prices they commanded just a few years ago.

“This market trend shift has created an opportunity for Canadians to afford something,” Koszegi says. He purchased the two-bedroom, 1,385-square-foot condo unit for $190,000 (all prices U.S.), compared to the $280,000 selling price it garnered 2-1/2 years ago. Koszegi’s brother purchased a similar condo in the 200-unit building for $185,000. “At that list price [in Port Alberni], you don’t get a condo with a swimming pool, never mind five swimming pools, matching hot tubs and seven tennis courts,” Koszegi marvels. “It was beyond my expectations as to how far my dollars would go.”

The Koszegi brothers are unusual in that both were strangers to the Palm Springs area and they bought their condos sight unseen, aside from e-mailed pictures of the two units. The brothers engaged the services of a transplanted Canadian, Paul Taylor, who set up shop as a real estate agent in California four years ago, and is now with Re/Max in Palm Springs, specializing in western Canadian buyers from Manitoba to British Columbia.

Taylor had not intended to utilize his cross-border connections in his real estate practice, but he has happily latched onto snowbirds anxious to strike while the iron is hot. “It is the market here,” he says. “Canadians are the ones who are buying. These are baby boomers who are working or are in semi-retirement and are making good money, and they are hard bargainers.” Despite the recent strength of the dollar, Canadians are still approaching the market with trademark caution, Taylor concludes. “The Canadians are going in and they are low-balling.”

His Canadian clients include those looking to buy vacation properties as much for investment as for pleasure. This faction of the market generally wants to occupy their southern residences during the slower months of November and April, and rent them out during the peak winter season. “There has been about a 30 per cent drop in value here,” Taylor says. “For a property that you might have purchased three years ago for $400,000, it is now worth $300,000 or even $275,000.” Given the numbers, it’s perhaps not surprising that the busiest part of the market is in the $300,000 to $500,000 range.

House price data released in mid-May by the National Association of Realtors in the U.S. shows that in former housing-boom hot spots like Florida, Nevada and California, single-family home prices have dropped between 20 per cent and nearly 30 per cent in the past year. It sounds like a dream come true if you’re looking to buy now, but that same decline is putting a squeeze on some snowbirds who purchased sunshine property in the years before the recent real estate crash.

Ontario resident Bryan Tranter, who purchased a lot in 1978 and built on the Florida Gulf Coast’s Palm Island just over a decade ago, has been trying to sell his three-bedroom vacation home for the past year. The house-on-stilts went on the market for $1.7 million; the price has been reduced to $1.3 million to spur buyer interest. “I just got a letter from my realtor, who said things are starting to pick up now because the bottom-feeders are jumping in,” he says.

What’s motivating Tranter, 73, and his wife to sell is the spiralling cost of owning and maintaining their dream home. “Taxes are ridiculous,” he says, noting that in five years, his taxes more than doubled from $4,000 or $5,000. Blame the Sunshine State’s discriminatory ad valorem tax regime, which has seen soaring home prices carry taxes skyward and which punishes both Canadian and American out-of-state retirees.

Tranter’s real estate agent said prices have fallen an average of 15 per cent on the island over the past year or so, but he’s not seeing any tax relief on the horizon. (Resident Floridians are exempt from the punishing tax scheme, which caps tax increases at 3 per cent a year for “homesteaders.”) Add to the whopping tax bill hurricane, flood and wind insurance (which reached $6,000 but has been reduced with government intervention), plus regular fire, theft and liability insurance (about $1,500 annually until the government intervened), and the cost of obtaining in-country health insurance each winter, and people like the Tranters are getting priced out of the market.

“We’re a golden cow and they are milking it,” Tranter says of the tax regime’s treatment of out-of-state vacation homeowners.

The couple’s recent experience is proof that all is not sunny in U.S. vacation hot spots. Experts say potential buyers should realistically look at the rising costs of travel (by either vehicle or plane) and insurance, and get a firm grasp of local issues, such as taxes, before signing on the dotted line.

Taylor advises Canadians to obtain the necessary financing back home, rather than from American financial companies, which have been hit by the subprime mortgage crisis. “Dealing with the mortgage industry and banks here right now is very difficult,” he observes. It’s “easier and cheaper” to use companies in Canada, ?he says.

The good news is that in many U.S. locales, the Canadian blight of land transfer taxes does not exist. But there are some other unique issues that may arise depending on the state and specific property. For example, in Palm Springs, Taylor explains, it’s crucial to determine whether your dream home sits on “Fee Land” or Indian Lease Land. “Fee Land has more value because there is less uncertainty and you don’t have to make a lease payment to a third party.” Despite its rather confusing name, an owner of property on Fee Land actually owns the land. Palm Springs is one of the ?few areas in the U.S. where much of the land is owned by a local tribe that charges an annual fee for leases that generally run for many decades.

The lesson in all this? Look for any potential negatives and ?pitfalls that as a Canadian you wouldn’t necessarily think about. Otherwise, you may just want to stay home.


PROS: The most populous state in the U.S., it boasts a varied climate and a dozen distinct?geographies — from Pacific coast to Sierra Nevada mountains to desert in the southeast to forests in the northwest. Residential real estate prices have declined 20 to 25 per cent recently.

CONS: Prices are generally higher among the Sunbelt states, says San Diego-based mortgage broker Brian Brady.


PROS: The area includes gambling and shows, lakes nearby and mountains a two-hour drive away.

CONS: Sin City is booming, which is taxing the infrastructure, Brady notes.


PROS: A favourite for western Canadians, prices are lower than in the comparable desert destination of Palm Springs, Calif. Property taxes are the lowest of the three states and golf courses are plentiful.

CONS: Expect triple-digit (100 degrees-plus F) temperatures in th
e summer.


PROS: The Sunshine State, being a huge peninsula, has plenty of waterfront. On the U.S. East Coast, it is a favourite destination for eastern Canadians seeking sun.

CONS: A mature tourism haven, real estate can be pricey, even before factoring in a discriminatory tax regime. Florida also features wild weather, so hurricane and flood insurance is likely a must.