Should I incorporate in Canada?

Question

Hey BP fam! I am looking to start my real estate investing journey here in beautiful central British Columbia, in 2020! My main goal is to acquire rental properties (BRRRR strategy), but also fix and flips should good opportunities to do so arise. My question here is two fold...

1) should I incorporate right away? I have my eyes on a few properties that could make great rentals, would it be advised to start a provincial or federal cooperation right out of the gates and put all my future investment properties in the companies name?

2) How does this effect my application process for funding? When applying for funding, will it still be based off of my personal credit score/history and personal income, etc? Even though the property will be in the companies name?

Any guidance here is much appreciated, or recommendations for where to go to find more info on the subject as well.

Thank you in advance!

Steve

Roy N. · Answer

@Steven Wocknitz

The decision of 'if', 'how' and 'when' to hold real estate in a corporation will depend on your personal financial situation, your road map for the business and whether you will have partners in the venture.  Unless you are already personally in a top income bracket, or your funding is coming from a source other than your personal capital, there is typically little motivation to incorporate in the beginning.

It would be best to put together a bullet-form list of your near, mid and long-term goals and spend a little money to sit down with an accountant and attorney who can assist you in selecting an ownership model that fits your short term needs, but that can easily (and with little tax consequences) be evolved to meet your longer term requirements.

If you do hold property in a corporation, residential financing will continue to be based off your personal income and credit and you will be required to provide a personal guarantee.

A good primer for you to read before authoring your goals and visiting an accountant or attorney is Steven Cohen and George Dube's "Legal, Tax and Accounting Strategies for the Canadian Real Estate Investor."

Account Closed · Answer

@Steven Wocknitz

Definitely read the Dube book listed above. Excellent resource.

The short answer (often) is “no” simply because you’re going to sign a personal guarantee for the mortgage anyway. From what you described I’m seeing sfh’s or possibly duplexes, that’s another check in the “no” column.

As a grossly generalized comment, doesn’t make sense unless you’re bringing in several partners, or else buying 5+ unit buildings right away. There are benefits, but there are drawbacks. Consult your real estate lawyer AND your real estate accountant then make a decision based of combining those two opinions and your personal situation.