Quote from @James N Beliak:
Quote from @Francis Faucher:
Quote from @James N Beliak:
Hi everyone. My name is James. Besides our home , I own a condominium and some property with other investors. I have done the Rookie Boot Camp which was very beneficial to me and I am now doing the Multi Family Boot Camp.
I was interested in buying some US property in Tennessee, Ohio & Florida. I was looking to Rent to Retirement and another similar company.
However, liability issues came up about a Canadian owning US property outside of an LLC , but also the heavy taxation of an LLC for a Canadian. There is a solution for Canadians, from NCH out of Nevada to use a regular corporation to hold limited partnerships. Apparently, there are other strategies I don't know about yet.
The issue with high interest rates is they are even higher for foreign investors. Therefore , the down payment amount has to be higher so the property cash flows to break even.
I also would like to take advantage of Vendor Takebacks or other forms of using other peoples’ money. The process continues.
Best wishes to Everyone.
Hi James,
I'm from Canada too, interested to invest in the US Market.
In terms of structure, having a C Corp is not necessarily the best option, because of the FAPI Rule. You might end up paying taxes on the personal side for money you wouldn't even distribute to yourself.
One of the structure that was recommended by a US-CAN CPA to avoid double taxation and stay protected was the following: Real estate A is owned by LLC A, Real estate B is owned by LLC B, Real Estate C is owned by LLC C (or you can put some of them together instead of having many LLCs). All the LLCs are owned by a USA Limited partnership. The Limited partnership is owned 1% by your GP (Either LLC or C Corp) the LLC or C Corp is 100% owned by you. The other 99% of the limited partnership is owned by the LP which would be yourself in Canada.
Only drawdown with all that is the cost and you have many returns to do every year. That could be hard on the cash flow. Other solution is to start your Visa application and then get a SSN OR you could buy in your personal name and have an Umbrella Insurance if ever you get sued.
If ever you receive any other recommendation, I'd be more than open to hear it because I'm currently in that process right now!
Let's talk!
Francis
Francis,
I may not have stated it in my post, but that is the similar advice I got too from a Nevada law firm. Thank you. I want to thank Rent To Retirement & Zach, who got me a free consultation for.
The costs to do this do reduce cash flow as well as the administrative time to file the different returns/reports are real, but it is worth it to reduce liability for the long term.
But further concern for me was that interest rates (which for a US resident doing an investment loan without the other methods available in the USA, is high) the interest rate is higher for a nonresident. That meant that a higher down payment is required to cashflow. I therefore, didn’t do anything. I have been looking here in Ontario, Canada for now. But I have found that to get a mortgage through my holding company based on the merits of the deal does not necessarily get me as good a rate as a personal mortgage. I am still a newbie to this and do have get out my comfort zone to pursue this.
Thank you Francis.
james
Thanks for your reply James!
I don't know Ontario's market, but here in Quebec, all the laws are tenant friendly. Even for evictions for non-payment, it takes months and months and months and months. They live here for "free". The tenant decides if he/she wants to stay, meaning you can't decide to take back the apartment, renovate it and rent it at a higher price, unless the tenant agrees to leave (which is usually really pricy). That's the main reason why I decided to look south. In some states (usually red states), the laws are favorable for landlords.
In terms of financing, what you will usually see is a lower LTV and somewhat a higher interest rate. Now, what most lender told me is that if you have an LLC that is owned 25%+ (some are 50%+) by a US Resident, they would finance based on that person and you would get the same financing as a US person (rates, LTV, etc). One of the project we did in Florida was like that. They didn't really care about us, but they looked at the US Person (FICO Score, experience, etc). That being said, even if you own 50% of the LLC, you can have a different agreement or charge several fees to that LLC or to your project to receive more than 50% of the profit. Example, analysis fees, marketing fees, management fees, etc. All these fees needs to be arm's length rate of course and need to be documented.
The interest rate is one portion of your deal. FINDING THE DEAL is what you should look first, because if you have a really good deal, it would still make sense, even with a higher interest rate. Let's take an example, a property at 115k, let's pretend it's turnkey for now.
Purchase Price: 115k
Cash down: 30% (foreigner) = 34 500
Loan: 80 500
Payment (Interest rate 8%, 30yr fixed): 591/mo
Payment (Interest rate 9%, 30yr fixed): 648/mo
See? The difference is only $57/mo and the only metric I changed is the interest rate. Of course, I haven't include the taxes, the insurance, the property management, maintenance reserve, vacancy, etc. My point was simply to make you understand that a difference of 1% in the interest rate, should not be the only criteria you look at, but finding a good deal is.
Because Imagine if you could rent that property for $1250/mo let's say because you found a good deal. That would give you about $600 for the remaining expenses (650 goes to the mortgage). Let's assume 8% Management fee, that's 100 less. 500 remaining. Let's assume another 100 for maintenance reserve, 400 remaining. On that 400, you need to pay taxes and Insurance. That's where you need to find states that are investor friendly where the prices and taxes are not too high for the rent you can get. Let's say you now have about another 100 for taxes and insurance. You now have 300 remaining. There's a lot of buffer for mistakes you did in your calculations.
Personally, needing to pay a higher interest rate should not be the main concern, because usually, if you have good deals (I mean real good deals, not the good deals according to your broker), you should end up not too bad at the end.
Same thing for multi residential or bigger project. How many times I bought projects or land that people assumed were too expensive, but after what I did in renos or ground up, my IRR was higher than most investors had when they bought their "cheap" asset.
Anyways, hope that sort of helped and if you have any questions do not hesitate!
Francis
