Limiting Personal Liabilities (Ontario, Canada)

[Nathan Visser]

Hi all,  

While continuing research into the investment of real estate income properties, I am becoming more excited about the opportunity of buy/hold investments. However as a newbie, and with high RE prices in my area (Ontario, Canada) I feel it is natural that I am worried about personal liabilities.

Although I understand there will always be risk involved, and am willing to expose myself to some risk in return for all that it offers, I was wondering what ways there are to hedge against personal liabilities.

More specifically, I am wondering if there is a corporate structure that I can set up, allowing me to distance myself from the mortgage, and at the worst-case-scenario of negative cashflow and a mortgage worth more than the property, have the ability to declare business bankruptcy rather than personal bankruptcy. 

In case it makes a difference: I am interested in investing in multi-family properties with a partner, using a Buy/Hold strategy.

Thanks for your help,

[Samuel Sedore]

Hey Nathan

At this point in your investment career it just wouldn't make sense to incorporate unless you plan buying 3+ properties in your first year. Holding them as a renting corporation will mainly mitigate tax liability not personal.

With regards to limiting your personal mortgage liability, that just won't work. Financial institutions will require a personal guarantee on purchasing these properties, unless you have a huge down payment or established corporation making a profit. In the case of large downpayments you're not maximizing the returns.

I would recommend buying the first 1 or 2 properties under your personal name using a JV partnership with your intended partner. As you acquire more bite the bullet and pay the double land transfer tax if you start getting that far and incorporate.

I'am not against incorporating, it's just not nearly as effective here in in Canada as it is in the U.S. Litigation is much less common specifically with property owners and injuries.

Here is a good article laying out the benefits and drawbacks. Read it and come up with your own opinion on whats best for you.

http://bdoreinvestor.ca/2015/10/25/qa-when-do-i-mo...