Can this Toronto artist buy real estate in the US with $70,000 in savings?

Joy is a Toronto-based artist and recent graduate who makes a living creating new work for galleries or on commission.

On average, the 33-year-old earns $4,000 a month and eventually wants to own real estate – just not in Toronto.

“I know I can’t afford to buy in Toronto,” says Joy. “And having lived in the US and being familiar with the market, it feels like the best choice.”

Joy’s savings goals are to buy an investment property south of the border in the next year or so.

“I’d like to be able to put down 20 percent and limit my mortgage to about $250,000,” says Joy.

Joy rarely eats out and is diligent about saving. She lives next door to a grocery store, so even when she doesn’t have time to cook, she grabs a prepared meal instead of getting takeout, which is much more expensive.

She has $70,000 in a tax-exempt savings account (TFSA) and $30,000 in a registered retirement savings plan (RRSP) and now wants to know the best way to prioritize her savings and finances to achieve her goals.

“I like the security of savings, so I don’t want to use it all for my down payment costs, but I’d like to get to market as soon as possible,” says Joy. “Currently, both funds are invested in long-term growth accounts.”

“Since I work as an artist and my income isn’t a regular monthly, it’s critical to save some retirement money on my own.”

We asked Joy to track two weeks of expenses to see what she can do.

Joy has $70,000 in a TFSA and $30,000 in an RRSP. The TFSA money can be easily withdrawn and used as a deposit. The RRSP Home Buyer’s Plan is only for the purchase of an eligible home in which the account holder will live, and so cannot be used for a rental home.

She hopes to put down a 20 percent down payment and borrow no more than $250,000 (U.S.). This suggests an upper limit of about $400,000 (Cdn.) with an $80,000 down payment.

There are certainly rental properties she can buy for less in the US depending on where she wants to own.

A Canadian resident can typically borrow money in the US from a bank to purchase a rental property.

They may need 20 percent or more as a down payment. It’s probably best to get pre-approved for a mortgage before you start house hunting. Joy would have to file a US tax return and also report the rental income on her Canadian tax return. Any U.S. tax paid must qualify for a foreign tax credit in Canada to avoid double taxation.

Joy’s investments are said to be long-term growth investments.

If her potential purchase is imminent, she may want to rethink that strategy. If your time horizon is less than 5 years, and especially well below, you may not want to have exposure to the stock market. Stocks often have a negative return over a year, and while it is unusual to have a negative return for several years in a row, it is possible.

You need to have enough runway to make investing in the stock market worthwhile, so be careful about taking too many risks with funds intended as a down payment or for other short-term uses.

Joy rarely eats out and luckily lives next door to a grocery store, so she can even opt for a ready meal if she needs something quick. Ready meals may be more expensive than cooking from scratch, but they’re definitely cheaper than takeout, especially delivery.

Week one spend: $309. Week two spend: $1008.

Take away food: Joy said it was helpful to think about the tax implications of buying a house south of the border and “to think about reducing the market exposure of my down payment savings.”

“I think a lot of millennials in Toronto who are interested in real estate ownership will probably start looking at the opportunity to own in the US soon”

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