Recreational real estate: creating your own "affordable" waterfront home
Recently, the government introduced HST easing measures aimed at transitioning the HST to the GST/PST. One of those initiatives is a rebate of up to $42,000 if you buy a secondary piece of real estate or “recreational” property outside the Greater Vancouver Regional District under $850,000.
Some people wondered why a stimulus was needed for recreational real estate, but it was.
It wasn't that long ago that many of us dreamed of a house on the water. A cabin, shack or a plot of waterfront land to camp on. I recall a senior from Mayne Island telling me to “get a piece of some now, they aren't making anymore.” That was back in early 2002, and recreational real estate was becoming more valuable.
By 2005, recreational real estate on the waterfront was soaring to over a million dollars in all reasonable commutable distances from Vancouver. New models sprang up for recreational ownership: quarter share ownership, tenth share, bare land strata, just so everyone could get their “piece.”
Now, you can pretty much pick and choose. Although you may not see advertised prices severely reduced, working with an agent that knows the areas intimately will point you to the listings that really need to sell.
Recreational real estate is hurting right now. Usually, within four to five months of a boom in Vancouver, real estate the Sunshine Coast market starts to heat up. They are still waiting at the ferry for us to arrive. What happened?
Arizona, Nevada, and California. That's what happened.
Canadians: "foreign buyers" in U.S. real estate
Canadians are pouring money into Arizona and Nevada and California. Stories of people buying a two-bedroom condo for $70,000 and renting it out for $200 to $300 more per month than the line of credit cost abound. The Canadian dollar at par makes it tempting. I have agents calling me from Arizona looking to connect with my Canadian clients. We are the off-shore buyers in the USA, and they welcome us.
I went down to Arizona to check it out, and yes, it's warm and sunny, most of the time. The region has beautiful sunsets. I've never seen so many shades of brown and red. Shopping, dining, and hiking in the foothills kept me busy. I had an eerie feeling about the lack of water, though. You really need to be a golfer or shopaholic to fully benefit from a place down in Arizona. But the real estate prices can’t be beat.
Nevada has a great rental return, as there is a huge workforce in Las Vegas. But the area is perhaps not the best for family recreation property. I have heard Las Vegas is being propped up by Macau, or it too would be in a lot of trouble. An interesting statistic to look at is rent ratio. Divide the cost of the home by its rent return for a year. Nevada comes up with about a six. As for Vancouver? Over 36.
California is always a great place to visit and super for surfing, but in the dead of winter it's not hot like Hawaii. There has been a downturn, but even with foreclosures, the deals are not quite as good as Arizona.
Taxes to consider when buying U.S. homes
There are tax implications of buying in the U.S. For one, you will pay 10 per cent of the sale cost to the U.S. government, regardless of if you sell it for profit. You will be filing rental income tax forms if you decide to rent it out.
It is also anyone's guess if the U.S. will eventually start taxing foreign owners differently (read: MORE). The government currently is actively going after U.S. citizens living abroad who haven’t filed tax returns in the U.S.. It would be a risky move on their part to tax foreign money coming in but seriously they have to start finding money somewhere, trillions of it. Who knows what they will think of.
We are quick to be frustrated with B.C. Ferries in our recreation commute, but can you imagine being at the mercy of the airlines? (I flew with a fellow traveling back from his Florida vacation home recently, heading to Vancouver -- via Texas!)
So what about here at home? That waterfront on the coast is cheaper than it was a few years ago, but the weather isn’t any better. A decent piece of waterfront will be over $700k for sure, many still ask the million.
A different vacation home
Back in 2005, we opted for a different kind of vacation home. Because we are continually fixing up or remodelling our home in town, the last thing we wanted was another work project. I also didn’t like the idea of having to pick my dates a year in advance with a quarter share or one tenth share ownership. So we bought a piece of a hotel. From a very rocky start the Black Rock Oceanfront Resort is starting to be a great option for us. Hit hard by the falling economy, unfavorable tax treatment from the local government, and greatly reduced property values, the resort is rebounding to become a fantastic getaway. The ever pleasant Julie in the bar makes me feel like Eloise at the Plaza. The location only gets more spectacular the worse the weather is. The heated pool keeps the kids happy.
My husband finally has a fantastic chef who cooks for him every night in the waterfront restaurant. It is the opposite of everyone's vacation cabin. We go from roughing it at home, (suffering through my cooking in a half-painted kitchen) to a gorgeous high end waterfront condo with bar, restaurant and spa a few stair flights away. We have a full Miele kitchen if we want to stay in. In the morning a brisk walk all along the Wild Pacific Trail is breathtaking. The fresh air straight off the Pacific Ocean is healing and we are back home in a four hour commute. When we aren’t staying there, they mail us checks for the 55 per cent of room revenue. It will take awhile for values to return but in the meantime, the resort is taking care of itself and we just close the door and walk away.
Perhaps this tiny bit of help from the government will make some people reconsider a little getaway place. I do know some people consider selling in Vancouver and renting back in the area, freeing up cash to get that away place. Whether that away place will be local or international remains to be seen.