Garry Marr, Financial Post
Based on the tales of real estate professionals and financial planners, multiple home ownership is becoming more common as the wealthy spread out beyond just owning a cottage to having a U.S. address or even some European digs.
Statistics are hard to come by but if the latest numbers from the National Association of Realtors are any indication, foreign buyers are having an impact in the United States. Increasingly those buyers are Canadian.
The Washington-based group said international buyers purchased US$82.5-billion worth of property in the U.S. for the year ending March 31, 2012, compared to US$66-billion a year earlier. Canadians represent about a quarter of those buyers.
Considering it’s impossible to be in more than one place at the same time, unless you’re renting property you’ve got real estate sitting empty. Is that really a sound investment decision or just one of the luxuries that comes with being wealthy?
Author Talbot Stevens questions the wisdom of owning property that is going to sit mostly vacant and says, “No matter what income you are, if you are only using something 10% or 20% of the time,” it doesn’t make financial sense.
“If you are looking at diversifying into real estate, why not just buy some income property?” Mr. Stevens. “These are people that can stay at the Four Seasons anyway.”
As he puts it, what is the point of having a French home for two months, complete with all the costs?
“The same logistics apply to a cottage if you are only going to use it three or four weeks a year. It becomes very expensive. Even those who are mega-wealthy have to ask, ‘What is the most effective use of your money?’ ” Mr. Stevens says. “The bigger challenge might be people who do this and can’t even afford it.”
He says so much of this multiple ownership is for ego’s sake. “People just want to say ‘my house in the south of France.’ To be honest, I have more respect for people who are truly wealthy and don’t need to let anyone know.”
Toronto condominium developer Brad Lamb, one of those multiple home owners, says having another address is a convenience many are willing to pay for and it’s not an entirely new concept.
“What’s the difference between owning a condo in New York for $800,000 or a cottage on a lake, it depends on what your thing is,” he says. “You get wealthy investors who have a pied-à-terre. I own a condo in New York City and a condo in Miami. I go to New York probably 12 times a year and Miami six times or eight times a year. I bought them to have an address in the city but also bought at the bottom of the market when they were giving away real estate.”
Mr. Lamb says the idea of having a place to call home in another city is probably at least partially behind the Canadian housing boom as foreign investors pour into luxury condominiums.
He agrees it is a luxury to have a place to call his own when he comes to town. “I have ample room. You can cook your own food, have your own clothes,” Mr. Lamb says.
He says Toronto, at least partially, has become home to that investor/homeowner.
“There is that element to it,” says Mr. Lamb, estimating it equates to 10% to 15% of the condo market. “The building I live in, one of the sub-penthouses was sold to a wealthy South American family that uses it when they are in Toronto. The rest of the time their daughter [in school in Toronto] uses it.”
Multiple ownership usually starts with a cottage but the U.S. is fast becoming a popular place to hold a third property, says Prashant Patel, vice-president of high-net-worth planning services at RBC Wealth Management.
“That’s probably one of the main issues our team deals with quite a bit, all the tax and financial planning issues of owning U.S. real estate,” says Mr. Patel, adding even if you don’t have an income-producing property, you need to think about tax and legal implications.
He says some clients may have roots in other countries, having immigrated to Canada, so it’s not uncommon for them to own property in their native country.
“When we have clients saying, ‘I’m thinking about buying a cottage or a property in the U.S.,’ we say, ‘Let’s step back and make sure it does not impact your future retirement or lifestyle’, ” says Mr. Patel, adding most of the purchases south of the border are for personal use and lifestyle.
“We typically recommend them doing a financial plan to see what the impact would be if they buy that cottage or property and how it affects their cash flow, particularly if it’s not an income property and it’s a personal-use property.”
The good news for those buying is an industry has sprung up to support multiple home ownership, says Kimberley Marr, author of How To Buy U.S. Real Estate.
“The big one is Canada-U.S. but there is a growing trend of Boomers purchasing abroad, especially in Europe,” said Ms. Marr, pointing to the steep drop in the euro, as well the decline in property prices, as fuelling demand among Canadians for homes in places like Spain, Portugal and France.
She says a wealthy owner might have $5-million to $10-million in real estate, about 10% to 20% of their net worth.
She’s a member of International Real Estate Society, which is an alliance of real estate professionals around the globe.
“Say I have a property of a Canadian in Toronto, it’s higher-end. The buyer could be someone from Toronto but it could be someone from France, Germany, Hong Kong,” Ms. Marr says. “Through the network, they market [property]. Someone in Paris might market their property in Toronto.”
She says clients might be in some of their “homes” for one month a year while the rest of the time the unit is rented out for income. “In the higher end, you’re generally dealing with professionals renting it out on your behalf,” says Ms. Marr, adding the property manager gets a fee but it includes services like a concierge to take care of clients. “When you get to a place like Paris, there is someone there to greet you, walk you through the apartment, give you the keys. The renter has someone to contact, if they need to.”
It may sound a bit like a timeshare but the difference is these people are in full control of their property, leaving them with all the profit from price appreciation and potentially all of the losses.
“You have all the control but also all the responsibility and the liability,” Ms. Marr says.
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