# Need Advice - Real Estate Rental Corporation



## MoneyTalks (Jun 23, 2012)

Want to put together a corporation that owns/pays the mortgage for a rental triplex. Reason for the corporation is limited liability for what happens in the triplex. 

*First Question *I've attended a free information session for one of Donald Trump's Real Estate training seminars. They mentioned something interesting - A corporation triangle. Under the umbrella there is a corp that is responsible for owning the physical property, another corp to manage the property/tenants, and there was another one that I'm not quite sure what it was... can anyone remind me of what the third one is? Also, any detailed books on this type of subject that anyone can recommend would be very helpful.

*Second Question * If I have personal RRSP and my wife has personal RRSP, are we allowed to combine our personal RRSPs to put a downpayment on the triplex that is owned by the corporation we would like to establish... that is to make our RRSP an investment in the corporation? Or should this corporation be funded strictly from liquid cash in a bank account? How do I make this work with RRSPs? What kind of person would I have to consult to find more information or is there a book written about this kind of topic.. or link ?


----------



## Just a Guy (Mar 27, 2012)

Most banks in Canada would want a personal guarantee on any mortgage. This basically nullifies the benefit of the corporation in your case. Also there would be higher accounting fees. 

There are some benefits to holding real estate in a corporation, like income splitting and probate though. 

The laws in Canada are different than in the USA, don't confuse what you can do down there with what is possible up here.


----------



## Cal (Jun 17, 2009)

You should consult with an accountant.

I am doubtful that the practices you mention are viable for a triplex. It would be different if you had several properties.

And as mentioned above, I am sure the bank would want a personal guarantor.

My guess is that the 3rd corp would cover issues such as maintenance.

Personally I would want to fully fund through a loan or mortgage.


----------



## Quotealex (Aug 1, 2010)

MoneyTalks said:


> Want to put together a corporation that owns/pays the mortgage for a rental triplex. Reason for the corporation is limited liability for what happens in the triplex.
> 
> *First Question *I've attended a free information session for one of Donald Trump's Real Estate training seminars. They mentioned something interesting - A corporation triangle. Under the umbrella there is a corp that is responsible for owning the physical property, another corp to manage the property/tenants, and there was another one that I'm not quite sure what it was... can anyone remind me of what the third one is?


They were probably refering to the following:
1-Holding Company
2-Management Company
3-Real Estate Company(ies)

The holding company  owns both the management company and the real estate company(ies). 
The management company take care of all the properties affairs which are owned by the real estate companies to increase assets protection while reducing income taxes.

Nice on paper but not easy to apply in reality, especially if you plan on have less than 5 full time employees and/or trying to obtain financing from a bank


----------



## Mall Guy (Sep 14, 2011)

MoneyTalks said:


> . . . can anyone remind me of what the third one is?


it's either the casino that your father owned in Atlantic City that bailed you out with those casino chips . . . or The Hair Club For Men! Seriously, all this for a triplex ?


----------



## MoneyTalks (Jun 23, 2012)

Lol... after talking to some friends and some friends who are lawyers it doesn't make sense to run this with a corporate umbrella. 

I'm becoming interested in the lowend housing market:
http://www.realtor.ca/PropertyResults.aspx?&vs=Residential&ret=300&curPage=propertySearch.aspx&sts=0-0&beds=0-0&baths=0-0&ci=hamilton&pro=2&mp=0-175000-0&mrt=0-0-4&trt=2&owntg=1&of=1&ps=10&o=A

Anything < $100K to < $150K. Something manageable if a tenant fails to make payment. Something that allows atleast 2 different tenants to live in to help diversify the risk. If I purchased for < $100K and was planning on using the equity from one house being paid off to help finance the puchase of a second house of similar value, at what point would any of you consider opening up a corporation to help remove liability? I'm looking forward to having this income property idea expand and expand.


----------



## Berubeland (Sep 6, 2009)

Real Estate crack... and the biggest problem is none of these seminars even bother to translate their "wares" into idea that have even the smallest chance of working in Canada. At the worst, you can go to jail for fraud at the best you waste tons of time on schemes that never work.


----------



## Just a Guy (Mar 27, 2012)

What liability are you trying to limit? In Canada, you won't get a mortgage without a personal guarantee, so it won't be from the banks. Insurance will cover you from mishaps. Are you expecting lawsuits from tenants?

The only reason to put real estate into a corporation that I can see is if it's commercial real estate for your company, or if you earn a lot and want to lower you taxes. 

Canada is not the USA.


----------



## MoneyTalks (Jun 23, 2012)

Just a Guy said:


> What liability are you trying to limit? In Canada, you won't get a mortgage without a personal guarantee, so it won't be from the banks. Insurance will cover you from mishaps. Are you expecting lawsuits from tenants?
> 
> The only reason to put real estate into a corporation that I can see is if it's commercial real estate for your company, or if you earn a lot and want to lower you taxes.
> 
> Canada is not the USA.



I'm worried about simple lawsuits that range from something breaking in the house that injures someone to why the ice was not removed on the sidewalk when someone slips and breaks their leg.

I'm beginning to believe I could hire a property management firm who could come in and verify the right type of tenants as well as take care of small issues that arise... that's why I would be paying them... perhaps I could extend liability for incidents onto the property management firm?


----------



## Just a Guy (Mar 27, 2012)

I think you worry too much. Get proper insurance, screen your tenants, and remember this type of investing is work, not free money.


----------



## alvanson (Dec 13, 2012)

Receiving rent income within a corporation (passive income) attracts the worst kind of tax, so that's not recommended until your rental operation employs more than 5 people full-time. At that point, the income is considered business income and it would make sense to incorporate.

Something I've heard about before: you might want to look into holding your property through a bare trust, especially if the property is in a province with a high land transfer tax. This will help you avoid paying the tax again if you bring in partners into your operation or eventually incorporate. Probably something a lawyer would help you through.


----------

