By Don R. Campbell
If you missed the first 3 parts of this series, I suggest you read them first before diving into this one. Here are the links:
Intro – Rule #1 – Rule #2 – Bonus Rule
Now on to Rule #3 – “Wow, that’s not how it works in Canada!”
It still amazes me how many times I receive notes and emails from investors who purchased outside the country only to find that the laws, the closing process, the tax structures and the clarity of property title didn’t match what they expected.
You are NOT covered by Canadian Law. Knowing the local property, tenant and tax laws is absolutely critical. If you don’t, you’re playing with fire.
The first step in this rule is to find out what restrictions are put on a foreign property holder. Don’t assume that what occurs here in Canada will look anything like what occurs in another country. Tax laws, ownership laws, immigration laws – they ALL affect you
As a very basic beginning you need to have answers to the following questions, many of which you wouldn’t have to ask when buying in Canada:
· What is the Maximum Length you can stay in the country?
· Do you need a Work or Business Visa to do business (i.e buying real estate) in the country? If Yes, what type? How easy is it to get and how long does it last?
· How must the Ownership of the property be held by a foreigner? A trust, fee simple or other?
· What are the squatters’ Rights Laws? Often these are very strong in tropical countries.
· What appropriation rights do the many levels of government hold in the region?
· Do locals appreciate or disapprove of foreigners buying up their properties? What types of problems can that lead to?
· What are the property tax implications of a foreigner buying?
· What licenses or fees must be paid by foreign owners? Are they annual or one time?
The one question I highly recommend you use when investigating the local laws is, “What question am I not asking that I should be asking?” You’ll be amazed at what you find out with this simple question.
Even after this investigation, it’s important that you investigate how stable the government system is. If the government changes, is it likely that some of these foreigner rights will change along with it? If you are buying in the US, it is important to know that many of the states are in deep trouble financially and know that property taxes and taxes on property owners are the easiest taxes to increase. Check the financial status of the state in which you are buying so you can plan for the inevitable.
Since the 2009 recession, immigration and tax laws are being enforced more strictly in many countries and states. Now is not the time to take the risk of, “I won’t get caught.” The penalties are just too high. With unemployment continuing to be very high in many regions and countries, even the ownership of a corporation that owns US real estate can lead to immigration issues. Ask the questions before blindly jumping in.
As you investigate, you will hear from promoters that these issues are not really a problem and they have never heard of anyone who’s ever been caught. Well, I personally have seen too many Canadian investors who’ve received a major negative on their passport file (some of whom have been banned from entering US) by not doing this properly. Remember, the consequences are yours, not the promoter’s or realtor’s. So play it safe – find out the reality.
Make yourself aware of the property laws and the zoning requirements. Especially look at the ‘deforestation’ rules if you are buying a lot to build upon. Don’t assume that what occurs here in Canada will look anything like what occurs in another country.
In many of the tropical countries, squatters and renters have amazingly strong rights, most people ignore these when investigating the potential purchase only to find out too late as they fly back into their property to have people living in it (yes, it happens).
Make sure you are very aware of the accuracy of the land title and the registry of ownership. In many areas, especially beautiful tropical areas, this line of ownership and surveys are, shall we say, quite challenging (read: inaccurate) which can and has led to many a lawsuit.
I am not trying to scare you away from owning your own personal piece of paradise, I just want you to ensure that you are asking the right questions, going in with your eyes open and know both the risks and rewards this purchase brings to your life.
Paradise can remain paradise, if you purchase properly and protect your downside. You definitely don’t want to take up all of your relaxing holiday time sitting in lawyer or bureaucrats offices – heck, you can do that at home without the expense of flying south.
Next up Rule #4 – You won’t believe the costly mistake that so many make with this one…