Retirement: A home in the sun

Neil and Amanda Goodman have dreamed of owning a second home in Arizona for 15 years. But for years that dream remained tantalizingly out of reach. Neil, a marketing consultant from the Edmonton area, and his wife, both 48, watched helplessly as Arizona real estate prices climbed steadily during the 1990s, but they had their hands full just covering the mortgage payments on their Alberta bungalow. Then everything changed. First they finished paying off the mortgage about a year and a half ago. Then they watched as U.S. property prices collapsed, interest rates declined to historical lows, and the buying power of their Canadian dollars strengthened to over 90 U.S. cents. Debt-free with solid finances, they were suddenly able to move from the financial sidelines to the driver’s seat.

Two months ago they bought a three-bedroom condo with a swimming pool, tennis courts and a club house in Scottsdale, Ariz. The couple (whose names we’ve changed) remortgaged their Canadian home for funds and paid just US$160,000 for a property that had peaked a few years before at US$350,000. Now they will rent out the Arizona condo until they retire in 10 to 15 years to live the snowbird life and winter in their Scottsdale condo. “We’re setting up for the future,” says Neil.

With the approach of Canadian winter, it’s easy to appreciate the warm-weather appeal of the snowbird lifestyle. And this year, dramatically reduced U.S. real estate prices provide another attraction. But it’s not just real estate bargain hunters who are finding attractive deals. Whether you buy or rent, the snowbird lifestyle may be more affordable than you realize’as long as you do it right.

Take Nancy and Gord Hopcraft, for example. The retired Timmins, Ont., couple enjoy spectacular sunsets and walks along the beach for three months each year in Panama City, located in Northern Florida. They rent a one-bedroom condo on the beach each winter for about US$1,000 a month. If that’s too much for your budget, Nancy says you can rent attractive units in older buildings away from the beach in Panama City for about US$500 a month.

If you want to buy, but don’t want to spend a lot of money, consider the example of Bob and Lois Slack. The retirees from Athens, Ont. (north of Brockville), visit their manufactured home in the Winter Haven area of central Florida for almost six months every winter. While “manufactured home” may conjure images of trashy trailer parks, many of these communities are anything but. The Slacks own a two-bedroom, two-bathroom unit in a well-maintained community and love to use the private golf course, club house and swimming pool. Bob says resale values of manufactured homes in his community range from about US$50,000 to US$135,000, depending on size and features.

Interested in the snowbird life? These tips from the experts will help you make the best of it.

Don’t overstay your welcome. Canadian citizens and residents can normally visit the U.S. for up to six months in a calendar year while keeping their main home in Canada. Follow those rules to stay onside with U.S. border officials and maintain your Canadian medicare coverage. “It’s a privilege to be able to come to the States. It’s not a right. You need to follow the rules,” advises Brian Wruk, a cross-border financial adviser who wrote The Canadian Snowbird in America with business partner Terry Ritchie. Scrutiny by U.S. border officials seems to be on the increase, says Ritchie. To help avoid unnecessary border hassles, Ritchie and Wruk advise snowbirds to cross the border with a “border binder” of documents to prove their main home remains in Canada.

You can’t escape the Canadian tax man. Canadian snowbirds have to pay Canadian income taxes based on worldwide income, including income from U.S. property and investments. You generally won’t also have to file U.S. income taxes unless you rent out your U.S. property or sell it. But you may still have to do some extra paperwork to avoid U.S. taxes. That happens if you get caught by a complicated calculation called the “substantial presence test.” In rough terms it can be triggered if you stay in the U.S. for more than four months a year for several years (get the exact formula if it might apply). Then you’ll need to annually file a special U.S. Internal Revenue Service form to establish your “closer connection” to Canada.

Insure your health costs. You can get good travel health insurance for medical emergencies in the U.S., but you have to know what you’re buying. Unfortunately, many policies are inadequate for snowbirds, says travel health insurance expert Milan Korcok. That includes many of the policies that come with Canadian credit cards, he says.

A few days in a U.S. hospital can cost tens of thousands of dollars, so you’ll need ample dollar limits. Expect your provincial medicare will only reimburse you for a small fraction. If you want to ensure you’re covered for existing medical conditions, you may need a “medically underwritten” policy requiring you to submit your medical history.

If you’re unclear about any details in your medical history, get your doctor’s help to fill out the medical questionnaire. It’s essential for it to be fully accurate and complete. “I have seen $40,000, $50,000 and $100,000 claims denied by the insurer because people did not complete their medical application accurately or completely,” says Korcok. Fortunately, there are several good travel insurance providers, he says. (Medipac, offered through the Canadian Snowbird Association, is one of the most popular.)

Shop exchange rates. For converting large sums of money, you’ll probably get better exchange rates from a reputable currency broker, such as Custom House Currency, rather than your bank. For converting and transferring regular monthly amounts, consider the Canadian Snowbird Association‘s foreign exchange service. Once a month, they’ll automatically withdraw money from your Canadian bank account, convert it to U.S. dollars at a favorable bulk exchange rate, then deposit your money in your U.S. bank account, all for a monthly fee of $2 for members.

THE RIGHT WAY TO BUY HOMES IN THE STATES

Get U.S. property financing in Canada
Many Canadians (including the Goodmans) found they could get their best financing rates by borrowing against their home equity in Canada. “You can get mortgages in the U.S. but generally it’s going to cost you more than getting it here in Canada,” says Cameron Roach, author of Buy Florida, a guide for Canadians buying real estate in that state.

Consider Canadian-owned U.S. banks
If you’re intent on financing your property in the U.S., consider U.S. subsidiaries of Canadian banks (such as Royal Bank’s RBC Bank (USA) in the southeast U.S., and Bank of Montreal’s Harris Bank in Arizona and Florida). Canadian-owned U.S. banks have a reputation for treating snowbird mortgage applicants better than their U.S.-owned competitors.

Get a local agent who understands Canadians
Local U.S. real estate agents who cater specifically to Canadians can help you navigate cross-border financing and tax issues. For example, the Goodmans used Phoenix real estate agent Marc Brodeur, a U.S.-Canada dual citizen who is among several Arizona agents who festoon their websites with Maple Leafs and specialize in helping Canadians buy Arizona real estate.

Distressed deals
You can get exceptional deals going after distressed properties, but beware of pitfalls. Distressed properties include short-sales (sold by owner at less than the mortgage value, with bank sign-off) and bank-owned foreclosures. But many are not well maintained. (No fluffers here.) And bank negotiations often drag out. A client of Brodeur’s spent six months to secure a short-sale deal on one property. “There’s a reason [short sales] are the best deals—because you go through hell to get it,” says Brodeur.

Check out condo reserves
If you’re buying a condo in a building with many foreclosures, beware of the risk of depleted condo capital reserves. This could result in special additional future assessments to the remaining solvent condo owners.

Consider extra local costs
In Florida, expect to pay high property taxes (non-residents pay higher taxes than locals) and high property insurance (due to all those hurricanes).