It wasn’t so long ago that the last thing on a U.S. realtor’s mind was attempting to divine the motivations of potential Canadian buyers. But times have changed, as this excerpt from one real estate investing website reveals: “Canada is a busy city where people lead a rough life trying to be the fittest. There is always a continuous race for power and money. Relaxing in Canada is almost impossible. To run away from the busy and competitive life, people usually opt to go abroad, especially to a sunny place.”

Can’t argue with that—but why the effort to understand a people from such a cold and faraway, er, city? Well, the answer should be obvious: Last May, 20% of Canadians responding to a Leger Marketing survey said they were interested in buying U.S. real estate, and increasingly they’re translating their interest into action. According to the National Association of Realtors, non-residents of the United States accounted for some $41 billion (all currency in U.S. dollars) of real estate purchases in 2010, and as of late 2011, 23% of all international sales were to Canadians, up from just 11% as recently as 2007. The action is mostly focused on the Sunbelt, with Florida still the most popular destination for international purchasers, accounting for 31% of sales; next in order were the southwestern states of California, Arizona and Texas. In fact, in Arizona, Canadians recently supplanted Californians as the leading out-of-state buyers.

For both snowbirds and investors, Arizona does indeed reign as the Southwest’s real-estate hot spot—a descriptor that takes on added meaning during the eight months of the year when temperatures in the desert often exceed 40 C. The bazaar-like and even bizarre quality of the current market is nowhere more apparent than at Maricopa County’s daily foreclosure auctions—carried on before a crowd clad in shorts and flip-flops on the courthouse steps—where more than 1,000 homes are sold every month. Almost 60% of homes sold in Phoenix and surrounding Maricopa County are distress sales of one kind or another, although the percentage has lately been creeping downward as prices nudge the other way. The median selling price on MLS appears to have bottomed out last summer at $112,000, and had inched up to $119,000 by November. “In May and June, I was making below-list offers,” says Wendy Fedoruk, a Calgary-based investor, consultant and broker whose US Property 101 Real Estate Consulting Services has worked on about 60 transactions, mostly foreclosures and short sales (in which distressed homeowners receive bank approval to sell for less than the money owing on their mortgage in order to mitigate damage to their credit rating). “Now the banks are asking for an extra $8, $10, $12,000.”

Nevertheless, prices still appear almost absurdly low, and returns can be high. About 75% of Canadian buyers in Arizona are snowbirds, who typically pick up homes selling for $200,000 or more in better neighbourhoods and resort areas, says Fedoruk. The investor-oriented deals she looks for are mostly rental properties in cookie-cutter suburbs such as Phoenix’s East Valley and West Valley. These are priced between $60,000 (for about 1,300 square feet) and $90,000 (for about 2,000 square feet), and rent for $800 to $1,000 per month. Typical returns begin around 9% in the first year and increase to 12% or more in subsequent years, once expenses are factored in. Canadian buyers are able to finance about 70% of the purchase price from either banks or private lenders, and often use home equity lines of credit for the down payment to “generate cash flow with almost 100% leverage,” says Fedoruk.

There’s some risk involved, of course. Fedoruk finds herself cautioning young investors that houses sometimes need repairs or sit empty. Still, although Phoenix has a rental vacancy rate of about 8%, finding renters is rarely a problem, she says, since the boom city’s population appears to be rising again and a river of foreclosed-upon homeowners is flowing into the rental pool. Not surprisingly, the investor market is brisk, with the best deals now going almost instantly. In fact, for homes priced under $200,000, inventory has dropped to about three months of listings at the current sales pace, compared to the five or six months that is considered a balanced market. By contrast, both sales and prices are softer for the kind of recreational and retirement homes that most snowbirds are looking for.

Source: ctv.ca