All Forum Posts by: Dominika M

@Steven Hamilton II, @Roy N.
thanks for the details. Details are good.

Roy,
1. what if my US buy-and-hold real estate business just kept the money in the US (reinvesting) and I didn't repatriate - would i then have to pay Canadian taxes on top? Do we pay Canadian taxes on all income or just the part that we realize and repatriate to use here?
2. If we pay Canadian taxes on all income, then it doesn't seem to matter what we do in US to lower US taxes (like making it dividend) because due to Canadian corporate structure (discussed earlier - corporate structure is to protect from US liability) we will be paying the 47% passive income rate (minus whatever we paid in US). The bottom line will still be that 47%.
Since my personal (for sole proprietorship) rate would only be around 35%, i'm hugely concerned about the corporate passive income rate. You don't seem to be so concerned about it... Is there a way to lower the rate from 47%?

@Haidar Nasser,
welcome to BP. Aah, to be 18!
It's so important to have that urge to learn while you have the energy and the time!

@Dion DePaoli, @Roy N. Thanks for your input on this topic. All Canadians are listening.
@Roy N.
following an off-shoot. Roy wrote:
"If you are doing business in the U.S.A, I would recommend doing so from a Canadian Corporation (e.g a real estate holding company). This Canadian entity would, in-turn be a member/share-owner in any U.S.A. entity (LLC, partnership, corporation) which would hold the real estate. I am thinking of this from a pure protection with respect to any liability concerns (in either direction). "
But then this corporation income would be taxed at higher passive Canadian corporate rates, correct?
Would you care to comment on best entity for Canadians investing in US? In Canada I was going to start investing as sole proprietorship so i could get the lower tax rate ( the need for liability protection via corporate structure is lower in Canada). In US it seems to be very unwise to have no protection (via corporation), but then our Canadian corporate tax rate for passive would be high (I believe around 47%. In contrast, the individual tax rate for me would be around 35%).
Thanks,

@Peter Rigakos,
hello from Ontario!

Hi Shahriar, I hope this topic gets some traction, because I was hoping to find out more.
@Roy N.?
I've read before on BP about LLC not being a good option for Canadians because we don't have the same structure here and it may trigger double taxation (I have not reserached this at all, --just giving caution).

Thanks @Roy N.!

@Roy N. This was such a good reply, that I keep going back to it in trying to make my long term strategy. Follow up question: could you elaborate on the part below.

Roy wrote:
"If you can produce signed leases and tenant estoppels for the property you are purchasing, most of the banks will count 50% of the rental revenue in addition to your earned income {some use to count up to 70%, but most have pulled back} for qualification.

Finally, #2-#4 are essentially rinse & repeat: you will have to qualify for each subsequent property considering the debt of prior mortgages, but you will also get to use 50% of existing rental income. "

My DTI can only accomodate 100,000 additional mortgage. If i can't find a way to finance a 2nd property, then I won't bother tying up all my money here.
If i purchase 2nd property within 1 year of 1st property, will the bank still look at my rental income in considering my DTI? Or do they need to see some kind of track record? You mentioned having signed leases in place when negotiating mortgage - then i'm more likely to get financing when buying an existing rental proerty with tenants in place rather than bying SFH and making it a rental? Correct?

Thanks a lot,
Comments welcome from all,

Hi all,
I'm working out my long term strategy and seeing if I can stay in Canada and somehow be able to buy more than one property. @Roy N. gave me an awesome long answer on buying past the 1st property (see below). Follow up question is on re-financing.
Roy did not mention re-financing, but I know that refi and getting initial investment out (e.g. buy smart at $200,000 (with 40,000 downpayment), force appreciation to $240,000, wait 6 months or so and refiance, getting initial 40,000 out and free to do something else (!!!)
Would appreciate comments from Canadian investors on your experience with refinancing.
@Michael Sadler, @Gary McGowan - your thoughts welcome here too.

@Roy N. October, 2013
The Canadian banks are starting to tighten-up their lending for investment properties ... yet they will still give our large - albeit insured - mortgages for owner occupied. RBC, Scotia (who just tighten things last month), and BMO still appear to be in the market for investment mortgages.

That said, if the bank has capped you at 100K mortgage - which won't buy a pretzel stand in TO - you need to check your debt to income {some banks will use DTI calculations similar to the US, others may also look at the "total household after-tax income to household debt" ratio}.

Making accelerated payments on your own home is an excellent strategy as that debt is not earning you any money. However, if you have grossed-up your payments, in addition to paying bi-weekly, your monthly debt service may be sufficiently large the bank has concluded you could not service more than another 100K of debt.

If you are planning to make a conventional purchase (LTV <=80%) you will get more cooperation from the banks ... thought some my try to convince you to ensure it even with a downpayment of 20-25% {ignore them}. You should also be able to secure a rate below 3.0% if you are willing to go with a 5-yr term variable rate product.

Now, if you mortgage broker is finding you products from tier II lenders, then you will get a larger mortgage (though technically you still need to qualify at the BoC 5yr posted rate w/ a 25yr amortization) as they have more appetite for risk ... you will also pay for that appetite 4.5 - 7%

If you can produce signed leases and tenant estoppels for the property you are purchasing, most of the banks will count 50% of the rental revenue in addition to your earned income {some use to count up to 70%, but most have pulled back} for qualification.

Finally, #2-#4 are essentially rinse & repeat: you will have to qualify for each subsequent property considering the debt of prior mortgages, but you will also get to use 50% of existing rental income.

When you arrive at mortgage #5 things change. Some banks, RBC as an example, will only entertain 5 residential mortgages {including your personal residence} ... and that's not 5 with them, but 5 in total. Others have their own internal policy and limits. That said, by the time you reach five residential mortgages your DTI likely will be flirting with the threshold ... probably long before that in the GTA.

For properties 6+, you might be able to still use conventional financing, depending on how much equity you have built in your prior properties and to what degree you have improved the rental revenue ... but the process gets more difficult each time. It was at this point we decided to pursue commercial properties only (financing is based more/mostly on the property itself and not your salary). You can also find yourself one or more private lenders who would be willing to carry a mortgage ... you will pay 6-10% interest which in our current markets will really limit the properties which service that level of debt and still cash flow adequately.

@Brandon Turner, thanks for the tips.

Ontarians, everyone seems to prefer January, so we'll do a poll then to narrow down the date.
Happy Holidays everyone!
Dominika

@Michael Sadler, thanks a lot for your input.
I know that I could benefit financially from people who will default again, but that strategy is not my cup of tea. I'm contemplating this strategy based on reading a book, but i'm not willing to try it until i get sufficient info from people on the ground on actual experience in this field.
The strategy i'm contemplating would be very dependant on finding the right tenant. Not just somebody who wants to keep their house after mismanaging, but somebody who is at the point where they've realized their mistakes and started taking steps to repair their credit and have the necessary behaviours to do so. Michael, from your experience, is this wishful thinking? (i.e. finding that ideal tenant who needs my services but has high income and will not default)?