Why Investors Misread Canada vs US Commercial Real Estate

By Arun Ghosh

Most real estate investors are burning money because they don't understand one simple fact: Canada and the US commercial real estate markets are as different as hockey and baseball. Same playing field, completely different games.

I've watched too many smart people lose their shirts because they assumed what works in Dallas works in Toronto. Spoiler alert: it doesn't.

Here's what nobody tells you about the real differences (and how to actually make money on both sides of the border).

The Tax Reality Check That'll Save You Millions

United States: Depreciation is your best friend. You can depreciate commercial buildings over 27.5-39 years depending on the property type. Cost segregation studies can front-load depreciation. 1031 exchanges let you defer capital gains indefinitely if you play it right.

Canada: Capital Cost Allowance (CCA) rates are lower - typically 4-6% annually for most commercial buildings. No equivalent to 1031 exchanges. But here's the kicker - 50% of capital gains are tax-free if structured properly.

The bottom line: US gives you better cash flow optimization. Canada gives you better exit strategies.

Financing: Where Dreams Go to Die (Or Get Rich)

United States:

• Higher leverage available (often 80-90% LTV)
• More creative financing options
• Non-recourse loans are common
• Shorter amortization periods (20-25 years typical)

Canada:

• More conservative lending (typically 65-75% LTV)
• Personal guarantees are standard
• Longer amortization periods (25-30 years)
• Stress testing requirements since 2018

Reality check: US financing looks sexy until interest rates spike. Canadian financing looks boring until you realize you sleep better at night.

The Foreign Buyer Trap (And How to Avoid It)

Canada's Foreign Buyer Taxes:

• British Columbia: 20% tax in Metro Vancouver
• Ontario: 25% in Greater Golden Horseshoe
• Federal: 1% on vacant land

US Considerations:

• FIRPTA withholding (15% on sale proceeds)
• State-specific restrictions in some areas
• Corporate structure requirements for tax efficiency

The hack: Structure through Canadian corporations for Canada deals. Use Delaware LLCs for US deals. Don't try to be clever - follow the boring, proven path.

Market Dynamics That Actually Matter

Canada:

• 6 major markets control 70% of commercial activity (Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa)
• REITs control larger market share
• More stable, less volatile
• Lower yields, higher quality tenants

United States:

• Hundreds of viable secondary and tertiary markets
• More institutional competition
• Higher volatility = higher potential returns
• Wider yield spreads between markets

The opportunity: Canada for stable cash flow. US for value-add plays and higher returns.

Legal Structures: Don't Let Lawyers Complicate This

Canada:

• Provincial jurisdiction creates complexity
• Stronger tenant rights in most provinces
• Environmental liability more stringent
• Easier foreclosure process

United States:

• State-by-state variations
• Generally more landlord-friendly
• Complex environmental regulations
• Foreclosure timeline varies dramatically by state

Pro tip: Hire local lawyers who eat, sleep, and breathe commercial real estate in your target market. The $500/hour you save using your cousin's divorce attorney will cost you $50,000 later.

The Numbers Game: Cap Rates and Cash Flow

Current Market Reality (2025):

Canada:

• Office: 5-8% cap rates
• Industrial: 4-7% cap rates
• Retail: 5-9% cap rates

United States:

• Office: 6-10% cap rates
• Industrial: 4-8% cap rates
• Retail: 6-11% cap rates

But here's what matters more: Cash-on-cash returns after accounting for financing, taxes, and currency fluctuations.

Currency: The Silent Profit Killer

The CAD/USD exchange rate can make or break your returns. A 10% currency swing can wipe out two years of cash flow or double your profits.

Hedging strategies that actually work:

1. Natural hedging (earn and spend in same currency)
2. Forward contracts for large transactions
3. Currency ETFs for portfolio hedging

Don't speculate. Hedge your bets.

The Winning Play for 2025 and Beyond

If you're starting out: Pick one country. Master it completely before crossing borders.

If you're experienced: Canada for defensive plays and steady cash flow. US for opportunistic value-add deals.

If you're sophisticated: Currency-hedged cross-border portfolio for diversification and arbitrage opportunities.

The Bottom Line

Most investors fail because they chase shiny objects instead of understanding fundamentals. The biggest opportunities exist for those who truly understand the structural differences between these markets.

Canada rewards patience and conservative underwriting. The US rewards speed and aggressive value creation.

Pick your poison based on your risk tolerance, not what sounds cooler at dinner parties.

Want more insights on cross-border commercial real estate investing? Continue exploring Hutfin.com for data-driven analysis and actionable strategies that actually work in today's market.

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Always consult with qualified professionals before making investment decisions.