Does Investing in Florida Real Estate Still Make Sense For Canadians?
Many Torontonians are intrigued by the prospect of investing in rental properties, especially investing in Florida real estate. Rental properties are a great way for individuals to diversify their portfolio and earn passive income.
When considering the purchase of a rental property, there are a few variables you’ll want to consider. The cost of the property is obviously of utmost importance, as you can only purchase properties that fall within your budget. Additionally, you’re going to want to ascertain how much rent you’ll be able to collect from a property to cover the costs of your mortgage, and other fees that are required for home ownership (such as property taxes and insurance). Lastly, you’ll want to speculate as to your potential for capital gains. Assuming that you will dispose of the property at some point, you’ll be looking for a property that will appreciate in value significantly.
Where should you purchase a property?
Let’s examine two places Torontonians would likely consider purchasing a property: Toronto VS. Orlando
The Toronto Property Market
Figure 1: Toronto real estate prices are significantly higher than those in Orlando. However, nominal price shouldn’t be the only factor. It’s important to look at what rent a property can yield, as well as what level of capital appreciation can be expected.
Figure 2: According to the Toronto Real Estate Board, the average rent for a 2 bedroom condo in Toronto is around $2200.
Market reports provided by the Toronto Real Estate Board were used to find pricing data for Toronto.
The Orlando Property Market
Figure 4: The average rent price of $1,234 per month in Orlando. The Metro area has even higher rents, averaging $1,326 (but likely has commensurately higher home prices).
Analysis of Rental Income
The profiles of real estate in Toronto and Orlando look very different. Toronto real estate comes with a high upfront cost, but also higher potential for rental income. In Orlando, the average property costs $138,700 and yields a rent of $1,234, or about 0.89% of the home value per month. In Toronto, a 2 bedroom condo costs about $400,000 and rents out for $2,200, or 0.55% of the home’s value. At an exchange rate of USD/CAD of $1.33, a $400,000 CAD investment would be equivalent to $300,752 USD. Using the $400,000 CAD to invest in Orlando property ($300,752 USD), this would yield a monthly rent of $2,676.
It’s clear that investing in Orlando property yields superior rental income, but the other variable is capital appreciation. As seen in Figure 3, the Florida housing market is rebounding slowly, as the market in Orlando is far from its highs. Zillow projects a modest 2.2% increase in housing prices in Orlando in 2016. As for Toronto, housing prices continue to rise steadily higher, despite concerns of a bubble.
There are several other considerations you must assess as a Canadian looking to invest in property in the United States. Some of these include:
- Obtaining a mortgage is difficult.
- Canadians will be required to put down 30% as a down-payment.
- Insurance costs will be higher in Florida (floods, hurricanes, etc.).
- Exchange rates are subject to fluctuate, which if you have a specific timeline for property sale, could be problematic.
- Estate planning difficulties.
Ensure you carefully consider these factors before making international property purchases.
The Final Verdict
- Orlando rental properties earn 22% more rental income than Toronto condos, on a dollar-for-dollar basis.
- Capital gains are very difficult to predict given the respective states of the Orlando and Toronto housing market.
- There are many other factors to be considered when investing in foreign property.
Overall, properties in Orlando appear to offer a compelling value proposition to Canadian investors. The market is still far away from previous highs, and the rental income is substantial.
All data is publically available and can be found here. Use the link to compare Toronto to a different city in Florida. Data for properties in Toronto is courtesy of the Toronto Real Estate Board.
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