Tips for Canadians Looking to Buy Real Estate in California
I have had several conversations with Canadians this last year that are dreaming of heading south to California and other states to both beat the cold and to invest in real estate. The strong Canadian dollar (or should we say weak U.S. dollar) combined with a hurting housing market in the U.S. is providing
Canadians with arguably as good of a time as any to buy real estate in the U.S. in the last 30 years.
If you are looking to move, invest, or purchase a second home, you should first have a basic grasp of the key differences between buying real estate in Canada versus buying real estate in the U.S. Regarding Taxes: When it comes to taxes I will never profess to be an expert. This is too critical and the best is to contact a CPA (Certified Public Accountant) to talk about your situation and issues that you might need to look out for. Here in Santa Barbara, CA., I would be happy to recommend my father, Mike Schmidtchen at 805-963-0881. He has been a local CPA for roughly 30 years.
With that said, here for example are 2 key points that might be different than in Canada. 1) Here in the U.S. 1031 exchanges allow for capital gains taxes to be deferred from an investment property and rolled into another investment property several times over. From what I understand, this apparently is very different in Canada where this option is not allowed. 2) For a primary residence here in California, you are able to right down the interest paid on your mortgage as well as property taxes.
Regarding Lending: With the crisis that has gone on in the last 12+ months here in the U.S., lending practices are changing weekly.
So if you are looking to finance a property here in California, check back home in Canada as well as with a local lender in the U.S. to see about the options you may have. The most recent that I have heard is that you would need at least 30% for a down payment and proven liquid funds for 6-12 months that would cover your payments.
Regarding Escrow: After you have talked with experts on taxes and lending (or if you are in the fortunate position to pay cash) and you have ultimately decided to look into a real estate purchase here in California, then here are some basics about the escrow process.
1) Escrow is simply the term we used to describe the time from when your purchase offer has been accepted to the time that you close sale on the property. Here in the Santa Barbara, CA. area, a "normal escrow" is around 30-45 days.
2) When writing up a purchase contract, you will need proof of funds (bank statement, letter from a lender etc.) that covers your down payment as well as earnest money (roughly 3% of the purchase price). Your Realtor will then provide you with the paperwork that is needed to write the offer.
3) Upon acceptance of your offer, your earnest money is cashed and deposited into a neutral 3rd party escrow company within 3 business days. So this is money that you will readily need available.
4) As a buyer, you have 2 major contingencies, the loan contingency and the physical inspections contingency. Generally these last 14-21 days from acceptance of your offer. During this time you will receive numerous disclosures about the property from the seller as well as other general disclosures. Also, during this time you will do a home inspection of the property and then based on the results of this and the disclosures you will hire experts to look into any negative issues/concerns about the property, go over potential requests for repairs, etc.
Ultimately, this is the time to negotiate if needed and make sure you feel comfortable about the home you are buying. If you do not feel comfortable or can not reach terms with the seller under the contingency period, you can cancel escrow and your earnest money is returned to you.
5) Upon releasing contingencies, you will sign loan documents (if needed) generally within 4-6 days before the close of escrow. Money from you for the down payment or the entire purchase is generally needed within 36-48 hours before the close of escrow date.
Regarding Costs: As a buyer here in California, the costs you will incur are for escrow fees, lending fees, home inspection fees etc. There are no fees to work with a Realtor for the purchase of your property. Commissions to Realtors are 99% of the time paid for by the seller. For example, with a purchase price for a property of $1 Million, you are looking at estimated costs of $2300-$3200 at the time of close.
Regarding Property Taxes: Here in California, Proposition 13 has set property taxes as 1.02% of the purchase price of your property. So again with a purchase of $ 1 Million, you are looking at roughly $10,200 for the year which is again a tax right down. Property taxes can be paid in full once a year or in 2 installments, due December 10th and April 10th.
For information on Santa Barbara Real Estate, Montecito Real Estate and/or our surrounding areas, as well as any other aspects of life in our area, please don’t hesitate to contact Kevin Schmidtchen at Berkshire Hathaway.
Thank you for reading. I hope you find Santa Barbara Real Estate Voice informative. Please feel free to contact me or comment below with any thoughts.
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