6 Rules To Protecting Yourself When Buying Outside of Canada.
Don’t allow this weather to also freeze the logic part of your brain!
By Don R. Campbell
It is that time of the year again. The wind is blowing, the ice is formed, the snow piling up – the time when our thoughts turn to warmer climates, relaxation and recreation. Especially given the winter weather most of Canada is experiencing at the start of 2014.
Sadly, this weather seems to freeze the logic portion of some people’s brains as they head south to thaw their bodies. (sorry, if that is a little harsh, but sadly true). We land in these little warm retreats and begin to fantasize about ‘owning a piece of paradise.’ That is when the justifications begin and as we all know humans can find a way to justify anything they really want in their life.
Canadians Have Targets On Their Back
Not only do we see it every year, so do the big sales teams. They know Canadians begin to make desperate decisions at this time of the year as winter closes in and feels like it may never end. We are especially targeted with ‘selling the dream’ only to see those dreams turn to nightmares when reality hits home.
Sure a piece of tropical or recreational paradise may make sense for some but before you take the plunge please ensure you are following the 6 Rules For Canadians Buying Outside of Canada. Not only will these rules protect you from “Holiday Brain” but will also protect you from the often ignored tax, legal and currency issues.
The idea of owning recreational or vacation property outside of Canada has appeal to some, with most of that appeal being based on a dream. This dream can quickly become a financial nightmare if an investor does not protect them self from the sales pitches and the hidden risks of buying outside of Canada. Risks that can be overcome, but can not be ignored. Although many treat buying tropical real estate as if it was like hopping over the border to get cheap shoes, the reality is much different. Buying out-of-country real estate with the inherent tax, immigration, currency and investment risks that come along with it can prove to be profitable or disastrous. The difference is whether or not the Canadian goes in with their eyes completely open and their emotions in check.
The truth is, buying out of the country requires substantially more due diligence than buying in Canada, and sadly, most people do substantially less. There is sometimes a feeling of deadline pressure because they want to do it all during their short vacation trip, other times the pressure comes from the sales team, while other times we start to blindly believe our justifications and just say “I want it, I’m going to get it.” All of which you wouldn’t do if you are buying an investment piece of real estate in Canada where you KNOW all the rules, so you can imagine what trouble that would bring buying in a country where you only barely know the rules.
I have almost 20 years of experience with business and real estate (including tropical countries) and during that time I have seen just about everything, from outright fraudulent developers selling Canadians a dream (and NEVER intending to complete the project), to individuals flying into a region, doing their OWN homework and finding the perfect retirement or investment property. From this experience I have developed the 6 Rules to Real Estate Investing Outside Canada.
SPECIAL WARNING: Most vacation real estate IS NOT a real estate investment. You often only own a % of a project and you don’t own the title. That, by definition, IS NOT a Real Estate Investment – it is a Financial ‘Security’ and should never be considered a real estate investment. Don’t allow yourself to be fooled – either you own the title outright with the right to do with it whatever you choose, or it isn’t a real estate investment.
Let’s set the stage.
Vacation and tropical real estate is a true emotional sell and has proven to be the easiest real estate to sell on earth. Combine this easy sale with the HUGE commissions that are paid to the promoters in Canada and you have a situation ripe for abuse. And unlike Canadian real estate, it is unregulated. There is no dispute resolution process, there is often limited land title guarantees, and the contracts can’t be signed in Canada due to the developers/promoters trying to do the deals without scrutiny.
What is So Alluring About Throwing Money Away?
Be Honest, Does Ego Play a Big Role In This Transaction?
Vacation (especially Tropical) real estate has some obvious draws (warmth, holiday mind-set); however, one of the top reasons people justify buying this type of real estate is because saying “I own Real Estate in Costa Rica” or “I own in Whistler” sounds exciting when you tell your friends and family. It’s like name dropping – only it’s country dropping. Imagine that – we can allow our egos to justify a property purchase. That does NOT make it a good investment.
The second reason we see people buying this type of real estate is the “Grass is Greener” Syndrome. Anything ‘far away’ seems to have appeal to the untrained investor, even if they live in the best economic region of the world. There is always a draw to something foreign, which is fine for food and products but not for real estate.
Buying, owning and operating property outside of Canada is completely different to what we all have come to know here. For instance, titles are not the same (or as accurate), the closing process is not the same (or as reliable), and the financing process is not the same (or in some cases non-existent). Plus, the immigration and tax laws can come back to haunt you… and that is just the beginning. Sadly, most people do more due diligence and fret more about buying a property in their own neighborhood than they do with one located outside of Canada.
That’s why there are very specific investing rules that we all need to follow BEFORE we sign on the dotted line for a foreign property. Protect your downside, reduce your risk and then you can know that you have done all you can to make it a winning proposition.
I will be revealing rule number one later this week, so be sure to check back for first rule to be presented!