Newbie Grandma from Montreal

[Christine O'Meara]

Hello!

Finally introducing myself after 6 months of learning with the BP Community. What a GREAT place to learn! and man, some of you are SOOO young! LOVE the energy!

Perhaps I can show you what a 62 year old grandmother of almost 9 children(twins on the way) is able to achieve...

I am presently in the "finding property stage" and "making offers" is just around the corner.

So exciting!

My question to you today is : would it be better to purchase a revenue property under a personal name or a company name; and what are the advantages and disadvantages of each?

Thank you so much in advance, and I will be eager to hearing your comments. 

You guys rule!

Christine

[Antonio Coleman]

Thanks @Christine O'Meara for joining BiggerPockets

[Ben Leybovich]

Wow!

K - enough of that...  If you are planning on using a mortgage for portion of the acquisition, you should know that in order to get a residential type of a loan, you'll need to take title in your own name.  Company will have to finance the purchase with a commercial note...

Good Luck! 

[Lucas P.]

Welcome to BP @Christine O'Meara

Checkout the podcast section of this site and tune into podcast 109. Listen to it a couple of times, it really helps you to understand what's required and the pros and cons.

Also look into setting your LLC in states such as Delaware or Wyoming for maximum protection. You can do some further reading here: http://www.corporatedirect.com/

Check the link under Bulletproof Your Corporation. Garrett Sutton is very knowledgeable and speaks on the Rich Dad circuit. I use this company for my corporate formation and management and am happy with their work. I don't receive anything for endorsing them.

Happy investing!

[Jerry W.]

@Christine O'Meara thanks for posting.  If you are buying in Canada I cannot help you much.  We do have some canadian members you can search for.  their advice will be more on point than mine.  When it comes to forming Canadian companies I know virtually nothing, sorry.

[Roy N.]

@Christine O'Meara

Ben is incorrect if you are purchasing a property in Canada.  Similarly, Lucas' advice is U.S.A. specific.

Here you may obtain a residential mortgage if title is held by a company.  Most lenders will require you be a major shareowner and officer of the company - some may require you be the controlling shareowner - and all will require you personally guarantee the mortgage note {at least until the company has an established track record and sufficient revenue and assets of its own}.

Now, the bigger question is whether you should hold the property in your personal name or in a company.  The answer is it depends on your personal situation and my advice would be to see your accountant (or find one) and determine what ownership approach is best for you in the present and as your plans evolve.

If you search the {Canada} forum(s), you will find a few threads discussing organisation of property ownership.

A quick list of things to consider are:

1) Taxation:  Most real estate investments are considered passive income.   Due to this passive income, a real estate holding/investment company  pays taxes at the highest corporate taxation rate rather than at the small business tax rate.  If you are personally in one of the highest marginal tax brackets you would be paying a similar income tax rate on any investment income if the properties were held in your own name.  However, if you are in a lower tax bracket, it may be more {tax} advantageous to hold property in your own name.   Additionally, if you hold the property in your name, expenses can be deducted against your income (even that portion which does not come from real estate).  If property is held in a company, expenses are deducted against the companies revenue.

Obviously the taxation discussion is more detailed than this little blurb ... go see your accountant :-)

2) Income "sharing" - If the real estate is held in a company, it is easier to have multiple owners of that company (each with their own class of dividend paying shares) which means the retained earnings of the company can be "shared" amongst the various shareholders: ie, a spouse, {adult} children or grandchildren {you need to be careful paying dividends to minor children as the CRA taxes them at a higher rate {search "Kiddie tax"}}.

3) Trusts - if your objective is to build a significant real estate holding which you may wish to leave as a legacy to take care of those nine grandchildren, then you will want to consider the possibility of a trust down the road.  How you setup your real estate holdings now, will have a bearing on how easily they can be rolled into a trust down the road with minimal tax consequences.   This is another part of the discussion to have with your accountant.

4) Liability: If the real estate property is held by a corporation, the liability for that property lays with the corporation and there is not recourse to your personal assets (in general).  There are certain situation where officers/owners of the corporation can be held accountable for the obligations of the corporation, but these are typically cases of negligence or "questionable" conduct.  You may need to have a conversation with an attorney about this matter. 

As part of your own pre-accountant visit, education, I suggest picking up a copy of Steven Cohen & George Dubé's, "Legal, Tax & Accounting Strategies for The Canadian Real Estate Investor".

[Victor Menasce]

I can give you several contradictory answers to that question. I am based in Ottawa and I invest in Canada and the US.

I have multiple Canadian and US entities.

It depends. There are pros and cons.

If you're simply investing in a couple of properties in Canada and not taking it much further, then it's fine to keep them in your own name. The cost of owning a company outweighs the benefits.

If you plan to scale up to hundreds or thousands of units, then a company (perhaps several companies) becomes essential.

Tell me what your goals are and I can offer a more specific opinion.

[Marlon Wilson]

Hey Christine!

Welcome to biggerpockets community!

Glad that you are enjoying everything about what this group can give you! I know that nothing worthy comes easy but with passion and interest on your chosen career everything liitle good thing follows! Keep the positivity and Wishing you success!