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Buying beyond the border: Weigh the prospects against the pitfalls before taking the plunge
January 2011
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Hasan Al-Shawa, President & CEO of
Shawa Enterprises Canada Corp. |
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By Clare Tattersall
Despite the U.S. Treasury Secretary’s announcement in mid-2010 that the recession is over, the world’s largest national economy continues to sputter. According to Realty Trac Inc., a U.S. foreclosure listing service, lenders repossessed more homes in the third quarter of 2010 than in any three-month stretch since the housing market began to bust in 2006. As well, the Canadian Press recently reported the U.S.’s unemployment rate is still sitting above nine per cent.
The depressed economy, increase in homeownership foreclosures and decline in employment have strongly affected the U.S. apartment sector, with more and more people moving into rental housing. This, in turn, has impacted the vacancy rate. Earlier this month, real estate research company Reis Inc. reported that the national vacancy rate fell to 6.6 per cent, its lowest level in more than two years. As a result of the tighter supply, rents rose by 0.5 per cent to an average of $1,042.
These results bode well for U.S. apartment owners. They are also enticing to Canadian investors who, in light of the challenge of finding good investment opportunities in their home market, are interested in exploring the prospects of buying multi-unit properties south of the border.
However, Hasan Al-Shawa of Shawa Enterprises Canada Corp. cautions that investing in the U.S. market is not for the faint at heart.
“The U.S. market offers a lot of prospects and pitfalls at the same time,” says the company’s President and CEO. “Challenges include a very different tax system (and) a very different way of acquiring and dealing with real estate. Plus, (there’s the fact that you’re) doing business in a very litigious environment.”
That being said, Al-Shawa says that the multi-residential market offers the least risk compared to other sectors.
To be successful, he recommends that Canadians focus on one geographic region instead of spreading their dollars across the country. As well, he advises investors to consider partnering with an already established American player in the multi-residential real estate sector.
“These people have the infrastructure and access to deals, financing and relationships with local authorities to be able to source deals,” says Al-Shawa, whose Montreal-based private investment group has been operating in the U.S. for more than 20 years.
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