Why investing in the U.S. can leave you broke: author Douglas Gray

Gray says that investors who believe the U.S. housing recovery is underway are forgetting that the hardest hit area will most likely undergo another 10% drop in home values as more homes are foreclosed.

“You could end up in a situation with a property that’s worth even less. And who’s actually going to buy it from you,” he told CRE Online.

With 1.8 million distressed properties already on the market, stricter lending requirements and an unemployment rate hovering at 9%, it’s unlikely that the U.S. will experience a rebound in real estate values anytime soon. 

Many investors, however, say that they’re buying properties with a long-term strategy in mind and will simply rent their properties out until the U.S. market turns around.

But as talk of structural unemployment continues in the U.S., Gray says it’s quite possible that there could be a lack of renters soon too.

Then there are taxes. Because the U.S. and Canada have a trade agreement that protects North Americans from being double taxed, many Canadian investors have rushed into buying U.S. properties thinking that they’ll escape double taxation altogether.

“But the foreign tax credit has to do with federal taxes. Generally speaking, it’s a dollar-for-dollar tax credit. But my question is what about state taxes,” Gray says. “That’s not governed by the protocol. What about municipal taxes.”

He says he’s seen numerous cases in which unwitting Canadian investors have had to unload their U.S. properties because of excessive taxation.

And Florida has even introduced legislation to charge non-resident owners higher taxes.

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