Affordable U.S. investment markets

Affordability remains a challenge in the Toronto and Vancouver metropolitan areas, but the safest investment bet might not even be within Canada’s borders.

“A lot of people don’t realize that in the U.S. we’re getting the lowest interest rates we’ve had in the last three years,” said Alain Forget, RBC Bank’s director of business development in the U.S. “At one point, they were above 4%, but now they’ve fallen. The challenges in key markets like Vancouver, most of B.C., and the GTA are affordability and, additionally, the mortgage stress test. The tighter mortgage lending restrictions affect the market from a diversification standpoint, but a lot of markets in the U.S., like Florida and Arizona, are affordable for Canadians.

“And in the U.S., we don’t have a stress test.”

Moreover, a copacetic ROI in Toronto and Vancouver is becoming as cumbersome as passing the stress test is for an investor keen on portfolio diversification. 

In Naples, Bonita Springs and Estero, located in southwest Florida, there were a total of 12,622 sales during the 12-month period ending May 31, 2019, which is a 4.7% rise over the same period a year earlier. Available inventory hit 7,698 units, which was up 11.8% from a year earlier.

“For mortgage rates in the U.S., there’s a window of three-to-seven year terms and they’re the lowest rates we’ve had in the last three years,” said Forget. “When we qualify investors for financing and leveraging in the U.S., a lot of Canadians don’t realize that RBC helps with this.”

The Sun Belt states offer some of the best value in Canada and the United States, he added.

In Orlando, they have short-term rental zoning because the city has 1,000 people moving there each week and 68 million visitors a year. It’s a very unique market. Florida, Texas and Arizona are good markets, as well, because they’re affordable and you can find something for $200-300 per square foot—in Miami, L.A. and New York, you’re looking at around $1,000 per square foot—and you can rent it out and make good income.”

Compared to Ontario, Forget believes the aforesaid markets offer much better diversification opportunities through real estate.

“When you have strong economic fundamentals, like Florida and Arizona do, besides the lifestyle and weather they’re great markets because a lot of companies and people move there. They’re good fundamentals for the long-term, which means you can increase the performance expectations of your investments.”

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