All Forum Posts by: Gord Stevenson

I am Canadian and hold properties for rental in the US.  When I started I did a lot of research into entities and taxation.  The simple summary was:

1) LLCs are good for US residents but not for Canadians because tax paid in the US is paid by the individual personallay and cannot be claimed back in Canada through a Foreign Tax Credit against corporate tax and Canada sees an LLC as a Corporation, so no to LLCs for Canadian residents.

2) To minimize US tax you do want the tax to be classed as personal and not corporate tax. So LLC (already ruled out for Canadian residents), LLP, or hold the property in your own name. I chose LLP (Limited Liability Partnership) over holding in my own name to get the lower tax treatment but still have Liability protection. Among experts that was the consensus unless you wanted to get really fancy with Trusts etc but those are complex to administer. An LLP has the same liability protection as an LLC but is a partnership rather than a Company.

However...now in 2016 I am hearing that the CRA (Canada) is now going to start treating US LLPs as corporations in the same way that LLCs are. Rats! They are planning to grandfather the treatment of LLPs for a year or two so those of us that used LLPs have some time to fix it. But I would not use an LLP if starting out now. I think the LLP path is to convert to an LP...but I don't think an LP offers full liability protection for all of the partners.

So, if I were starting out fresh I would hold the properties in my own name and do my best to protect against liability with a lot of liability insurance,  it wouldn't be a cap or firewall, but with lots of liability insurance the risk would be reduced.  

I would also, as I did, use a professional Property Manager in the US...(a) because "non resident aliens" are not allowed to work in the US without the proper visa, and (b) to help limit personal liability (hey, I hired a professional).

This is my opinion.  I have no professional credentials.  Happy to learn if anyone has other thoughts.  Cheers!

Do you have appropriate clause(s) in the agreement to look after your interests if one of the tenants moves out?  If he leaves again you don't want to be short rent, and have the other(s) saying "well I paid my portion".  I would focus more on that than logistics of who gets what portion of the deposit refund.  The deposit is important but you hold the cards while that gets sorted out later.

Be careful. It is relatively common knowledge that LLC's can be problematic for Canadians because they may cause double taxation. Canada (CRA) considers an LLC to be a corporation for tax purposes while the US considers it to be a partnership and taxes it via personal taxation. The Canada-US Tax Treaty does not let you claim back personal tax paid in the US against corporate tax paid in Canada via a Foreign Tax Credit. Conversely, it has been the prevailing opinion that LLP's work ok because Canada considered them as partnerships for tax purposes.

But now, I am seeing reports starting in spring 2016 that the CRA is going to start considering LLP's as corporations like they do LLC's. Apparently this initially applies to LLP's only for two states (Delaware and Florida as I recall), but it seems likely that will be extended to other states as well. Reports I have seen say that there will be a temporary grandfather clause that applies to current LLP's until some time in 2018.

For now, I am waiting to see how the dust settles before determining how to respond for my existing LLPs. It sounds like the suggested approach is to convert LLP's to LP's...but that will lose the liability isolation protection (which was the whole point) as I understand it. On the other hand moving a property entirely out of an LLP would probably trigger capital gains tax. Anyway, I am going to wait to see.

If I was just starting up investments in the US (as a Canadian investor) I would probably just hold the properties in my own name and protect myself with as much liability insurance as I could find.

I am just an investor who reads, and have no credentials to offer advice.  Please do not take this as advice, other than "to be careful".  

I am also from Canada and have invested in the US.  @Matthew Drouin. As far as I know a Canadian investor who is receiving income from a property in the US will need to file a US tax return claiming that income.  That would require having a US tax number...an ITIN if the individial is a foreigner according to the IRS.  He or she would also have to claim that income on his/her Canadian tax return and also claim a Foreign Tax Credit to get back the tax paid to the IRS.  That is how I understand it anyway.   Cheers!

I am not familiar with Kentucky, but in Arizona it is pretty easy to set up an LLC yourself by following the instructions online and submitting your own forms. Certainly under $100 even if you have to advertise it in a newspaper to finish the process. In Az I don't think there is even an annual fee for LLCs. The most difficult part of setting up an LLC is creating an Operating Agreement which details the rules by which the LLC will operate, and if there are Partners who has what authority, and how assets will be distributed when winding up the LLC etc. For that it is useful to have a template from another LLC to start with. Personally I wouldn't pay a lawyer to set it up. But do check the fees etc for an LLC in your state. It might be different there.

Hi @Tony Akhigbe,

You may have misread my posts. I also believe BRRR is difficult in Alberta. That is why I have been investing in the US, even with the unfavourable currency exchange,

I have no plan to buy real estate in Alberta.  I do have a principle residence in Calgary, and if I was solely focused on wealth creation I would have sold that too and rented for our own shelter needs.  It is cheaper to rent than own in Calgary.  But I didn't do that because we don't want to move frequently and do like to maintain our residence to our standards rather than be subject to a landlord's investment decisions.

Cheers!

Gord

If you send me your phone number I will give you a call.  I understand how the cross-border complexities work.  Cheers!

hi Cody, I live in Calgary so I totally understand the challenge of finding properties that you can afford, and that will generate a reasonable return when rehabbing/renting.  So, question:  have you considered investing in other cities where the numbers work?  My choice was to invest in the US.  It is more complex when investing across the border.  But doable.  Something to consider.  

hi Irene, I am late to the discussion but maybe you are still looking.  I live in Calgary and started investing in real estate in 2009, but not locally.  I focus on buy/hold/rent rather than flipping etc.  For me the numbers didn't, and still don't work in Calgary.  Purchase prices are high (with some downside risk with Energy Industry difficulties) and the ratio of rent-to-purchase-price is too low.  So, I focused on the US.  Cross border has some complexity, especially in terms of taxation.  If that is of interest I would be willing to have a phone discussion.  Good luck with your investing.  

That would have been my guess as well. But in converting the LLP to a LP we lose liability containment for the General Partner, right?