Cross Border investing and partnership.

Buying & Selling Real Estate
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Cross Border investing and partnership.

Marc Jolicoeur
Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes

Hi folks,

I am a US citizen and a novice RE Investor but my parents are Canadians living in Canada. I would like to gather some basic information from Canadians who are investing in the US because I would like to have my parents join me as partners in my RE business.

My style of RE investing is Buy-and-Hold for cash flow. Of course we will consult with attorneys and cross border accountants before we set anything up, but I am looking to get the basic concepts here.

- How can my parents invest in US Real Estate? Do they need to set up a business or trust in the US or in Canada, or both?
- Can they be partners in my US-based LLC?
- My parents are mostly retired and have lower income. They do have assets they can invest. Are there strategies they should consider to help reduce their overall tax obligation?
- What are the best ways to get money transferred from Canada to the US? Is there paperwork to file?
- What are the best ways to transfer monthly income from the US to Canada?
- What are the considerations for estate planning? (I am one of two siblings)

Again, not understanding the basics ,we would like some general ideas of what we need to think about before we engage in any deal. I am sure some of you Canadians have most of this figured out. How would it work differently if you had a US partner?

Marc

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    1 - Yes.

    2 - Yes.

    3 - Hmmm. Real estate investing is probably not the proper investment given the "mostly retired and have lower income" statement. Investing is a partnership with a novice definitely seems too risky for me. I would recommend against putting more than 10% of your assets into any one deal. Is 10% of your parents assets enough for you? Are you prepared to make up their losses? Some parents are willing to put their own financial future in jeopardy for their kids. Some kids are willing to take advantage of that. Don't be that kid.

    4 and 5 - I can't answer this but any bank should be able to. They will have to pay taxes in the US.

    6 - I'd strongly recommend spending some time with an estate planning attorney. This is a separate question from the others. If they invest in your partnership or give you a loan that will be an asset for them. That would get distributed to their heirs (you and your sibling, probably, after each other) according to their will, how their assets are titled and applicable laws.

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    I have a US co-worker in my office that has an investment property in Canada and is married to a Canadian living here in California and files Canadian taxes. He said that the money/tax issue is fairly simple for them due to the agreements between US and Canada. I know that doesn't specifically answer your question, but is what he has found in his personal experience.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    I'm not Canadian but I work with a ton of Canadian buyers. You absolutely want to make sure the tax and entity structuring is correct before any buys are made. Like, Canadians should not form an LLC as most would think because the tax penalties are really strong. I believe it's an LLP (?) they need to form instead? The bank accounts should go through certain banks as a lot will make promises and not keep them.

    If you qualify for a mortgage, you might think about just using them as cash partners and keeping their names off the buys and just use yours.

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  • Marc Jolicoeur
    OP
    Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
    13y

    @John Holdman: Our plan is not to take advantage of my parents retirement nest egg but to be business partners with them! My parents feel US real estate as a great vehicle that can provide income superior to other investments in Canada. My Dad sees how my current rental is cashflowing over $500/month and there is a potential for future appreciation. Monthly Cash Flow is what he is looking for and he understands RE.

    Certainly Canadian RE might still be in a bubble which makes it riskier to get into right now and the Canadian economy is fickle tracking with commodity prices and emerging markets. I don't even think you can find a property in Canada that would provide cash flow because they are very overpriced relative to rents.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    $500 a month in cash flow would be an excellent rental. Don't mistake phony cash flow for real cash flow:

    phony cash flow = Rent - PITI

    real cash flow (with a PM) = (rent * 50%) - P&I
    real cash flow (if you manage it for free) = (rent * 64%) - P&I

    Of course actual results will vary. Some years can be somewhat better, some years can be much worse. My point is that if you plan your future based on the phony cash flow number, you're setting yourself up for failure. And many people do use exactly that number.

    Appreciation is great. Many people who bought in 2006 had high exceptions about appreciation. Now they have short sales or foreclosures on their credit reports.

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    Marc Jolicoeur I don't think Jon was trying to say you are planning on taking advantage of your parents, just that they may be less cautious than they should be becoming "business partners" with their "lower income" retirement meaning if you blow it they have less possibility to replace it unless they're willing to start working full time again.

    I invest with my parents no problems(as far as the family aspect) and yes we lost some money in 2007 and we're all still here and working together so it is doable just make sure everyone really knows what they're about to get into.

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