All Forum Posts by: Andrew Pettitt

I am a Canadian looking to purchase properties in Washington (Seattle, Tacoma) and have been looking for assistance finding banks or mortgage brokers to assist with attaining a US mortgage as a Canadian citizen. 

Has anyone done this and what was their experience? Was there any main hurdles/challenges in this process?

I'm curious if there is an arbitrage to utilize US lending to purchase properties in Canada as a Canadian citizen. It seems there are less strict requirements to attain a mortgage in the US, along with lower/lagging interest rate hikes. 

Has anyone had experience in this or attempted to go this route?

I've been researching how I should structure my real estate investments. I currently have all my assets under my personal name. As I grow my portfolio, I want to reduce risk, taxation and free up my personal cash vested. The best way to do that seems to be setting up an incorporated company. I'm interested in hearing other recommendations or thoughts on the below structure.  

Here is what I'm contemplating..

Corporation A - Holding Company (Passive Corporation) 

Each property under this corporation requires its own, separate corporation. This limits liability - For example, if you had someone sue you due to an incident/injury at Property #1, they cannot come after the value of property #2 as it is in a separate corporation.  As you purchase new properties, keep adding them into new corporations under the main, passive holding corporation. 

• Corporation A.1 - Property #1
• Corporation A.2 - Property #2
• Corporation A.3 - Property #3

Corporation B - Property Management Company (Active Corporation)

This corporation maintains your properties and provides invoices to each Corporation/Property for services. Usually 10% of the monthly rent. You can also look to pay the corporation in dividends. Dividends paid between connected corporations are often non-taxable. Corporations are connected when one corporation owns shares, of the other, that represent more than 10% of the votes and more than 10% of the corporation’s value.

To set this up, I am assuming mortgages need to change from residential mortgages into commercial mortgages. This will increase mortgage rates (usually around 2%) changing the profitability of each property. If you've done this, I'd love to hear the details of your experience. I've read that some lenders will take 10% down payments. If acquired, this could free up 10% of your cash as Canadian real estate requires a 20% down payment on secondary residential mortgages. Who doesn't want 10% of their investments back into their pocket? 

Taxation

It seems the best way in terms of taxation is through dividends otherwise there is a 38% (active) and 50% (passive) taxation rate on corporations in Canada. Is there some sort of arbitrage that can provide a financial benefit through receiving 100% dividend income? The rate varies based on a person's overall taxation but its an average of around 29%.

Thanks Paul. My bank is integrated with TransUnion which shows basic information like account summaries, inquiries and a list of credit accounts when logged into the banking app. There's no description of the change. I'll wait it out another month or two and see if it rises back up.

It would be interesting to hear if anyone has submitted real estate income to banks and what that benefit is.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $237,000
Cash invested: $47,500

1 unit, 670 sq/ft, 1 bed, 1 bathroom. Built-in 2013.

What made you interested in investing in this type of deal?

My girlfriend was pushing to get our own place. She didn't care and just wanted our own space (rent or buy) - I didn't want to rent. I knew the value of real estate investments. She went and picked up keys to a rental on a Monday and had the approval to move in for Friday of the same week. This kicked me into gear. I found a home where my monthly costs were less than the price of renting so I pulled the trigger. She returned the keys to the rental on Thursday. Whew. This week was a whirlwind.

How did you find this deal and how did you negotiate it?

I saw the listing on MLS and called the realtor. A person had purchased this unit as an investment from out of town. No one had been living in it, it was a smaller unit and it was losing the investor money. The property had been listed for over a year so I offered a low price. We met on the lower end of my offer and closed the deal.

How did you finance this deal?

Personal cash. I covered the down payment (20% down) from savings. Roughly $190K is financed through a traditional mortgage.

What was the outcome?

I ended up house hacking about 6 months after moving into the property. I moved out and started house-sitting while renting out this property on short term leases. I eventually transitioned to Airbnb and rent the place out on a nightly basis.

Lessons learned? Challenges?

This was my first home purchase. It was a lower-cost home (based on the geographical region) and was a great buy to get a taste of real estate processes.

I'm a Canadian real estate investor and recently purchased a few rental properties which net positive cashflows.  

• Duplex Side A -  $2,500/month or $30K/year - 2-YR lease set up
• Duplex Side B - $2,500/month or $30K/year - 2-YR lease set up 
• Airbnb - $4K/month or $50K/year (2-YR average) - Nightly Rates

I purchased the duple in November 2019 and just noticed my credit rating dropped the day I made this purchase. Has anyone experienced this before? 

Is there a way to show banks' property revenues to keep credit ratings up? Is this even possible?

Investment Info:

Single-family residence buy & hold investment in Victoria.

Purchase price: $630,000
Cash invested: $60,000

2 Condo Units, 507 sq/ft, 1-bed, 1 bath

What made you interested in investing in this type of deal?

I was interested in scaling my real estate portfolio and looking for low cash investments.

How did you find this deal and how did you negotiate it?

I was researching real estate in high growth markets. I found a realtor that had listings for an entire condo building in pre-sales. The project required 15 units sold to start construction - They were sitting at 13. I leveraged this and showed interest in two units. This helped bring my per-unit price down and negotiate terms for payments.

How did you finance this deal?

I set my own dates and cash amounts for the deal - This allowed me to forecast my own finances and make payments at a comfortable rate until the build is completed. I used a line of credit to make the first payment and will either use a line of credit or cash to make the second payment during construction.

How did you add value to the deal?

I tipped pre-sales to 15 units sold so construction could start. I also added an assignment clause into the deal allowing me to sell the property without getting a mortgage on it. This gave the realtor potential for future commission within the next year and allowed me to negotiate harder on my purchase price.

What was the outcome?

The unit is currently in development. Once the build is completed, I'll have a final payment to finish the 20% down and attain a traditional mortgage. Or.. if the market has increased substantially, I can sell the unit without getting a mortgage for a quick flip and low investment.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $778,000
Cash invested: $155,000

2 units, 1680 sq/ft per unit, 3 beds, 2.5 bathrooms. Built November 2019.

What made you interested in investing in this type of deal?

I have been house hacking my primary residence (I moved out and rent it nightly on Airbnb). The earnings and growth potential made me want to get more into real estate. I thought this would be a good experience to go through my projections/forecasts prior to the deal and then compare them to reality a few months after the purchase. My first property was purchased for myself so I didn't go through any rental projections, etc.

How did you find this deal and how did you negotiate it?

I saw the listing on MLS and called the realtor. Construction had not started on the unit so I used that as leverage to strike a deal for two units.

How did you finance this deal?

A mix of personal cash and existing equity. I pulled equity out of my primary residence to cover 2/3 of the down payment (20% down). I used cash to cover the remaining 1/3 balance. Roughly $620K is financed through a traditional mortgage.

What was the outcome?

The purchase nets $5,000-month in rent.