Is a corporation necessary for first investment property?

Question

Hello BP Community,

I am trying to decide if I should start a corporation before buying my first investment property.

I live in Toronto and am looking to invest in Alberta. I have decided to partner up with another investor to buy this property together. We are looking at multifamily 2-5 units. We intend on building a large portfolio together.

We were thinking that it would be best that we start a corporation together before we buy. Although after speaking with other investors, some are telling us that it is not necessary to start a corporation for our first investment and its better to just buy in our personal names and incorporate later.

This sort of advice that we have received is based on the information that a corporation costs more to start up and maintain.

Should we incorporate now or later? and what are the pros and cons of either scenario?

Alecia Loveless · Answer

@Matt Barakett Make sure you have exit strategies laid out in your partnership agreement. I made the mistake twice of not doing this and ended up in court both times.

Nathan Gesner · Answer

Yes, a corporation is going to take time, money, and effort to set up and maintain. It's rarely necessary or beneficial for a beginning investor. I wouldn't consider it until you have at least $1 million in equity, and even then there are other ways to protect yourself.

What you do need is a solid partnership agreement. How will you split proceeds? How will you pay for a new fridge or roof? What if something changes and one partner wants to leave?

John Mason · Answer

Maybe a good idea to have a reputed and vetted attorney to draft and execute it.Partnerships can sometimes have misunderstandings even among close friends

Is a corporation necessary for first investment property?

Is a corporation necessary for first investment property?

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