# Incorporation of a business for real estate investment



## Muns59 (Nov 15, 2017)

Hi I am new to the forum but have been going through a lot of the posts similar to mine before posting. 
I am looking to purchase a property with no financing. The question arises do I buy personally or through a corporation. 
I was advised I can register a corporation as the sole shareholder / director and purchase the real estate property via the corporation. I am not planning to rent it so the business would have no income for the tax year. The reason of buying through a corporation is if I decide to sell it due to an increase in equity I can just "transfer" the shares of the company to the buyer and reducing my capital gain taxes. 
I know the annual tax fees for a small corporation are expensive but my Accountant buddy said he will do it for me. 
He is the one who gave me the advice of buying through a corporation. From reading I know most tend to just buy via personal and this is where I am wondering if I am being given good advice. It sounds more simple than I expecteded it to be. 
Can anybody advice me on the disadvantages of this method? 
What stops someone from registering multiple corporations and buying individual properties with the possibility of selling the corporation later on? 
Thanks


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## nobleea (Oct 11, 2013)

The main reason why no one does this is that financing is hard. No one will lend to a corp with no assets. It's also very expensive.

You're making an assumption that a buyer would want to buy the corp's shares. I wouldn't. Why would I want to deal with all that incorporation headache just to buy a place? Am I going to be able to get financing to buy a corporation?

You have to get the money in to the corp to begin with. It can be startup equity (then getting it out is harder) or a shareholder loan (then you have to charge and claim interest).

I wouldn't say its uncommon for a corp to buy a place, but from what I know, a buyer in the future wouldn't buy the corp, just the property.


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## Mortgage u/w (Feb 6, 2014)

Not sure the advice you are being given is thorough. 

When deciding on whether holding rental properties in a corporation not, it makes sense when there are multiple properties, or is a commercial property, or a very large multi-unit property. When there is only 1 rental, doesn't make much sense.

You also mention you are not financing the property nor renting it out. Aside from the question of why you are purchasing this property, it makes even less sense to incorporate as you have no income to offset expenses.

Yes, you can transfer capital gains onto another corporation, however, you will be taxed when you eventually take money from the corp. The 'free' transfer is beneficial if you intend to purchase another property and build from there.

Transfering 'shares' to another buyer is not as easy either. For one (and this is if we are talking about a purely residential property), there are not many buyers out there with holding corps. And those who do have a holding corp who require financing will be very limited - there are very few banks that lend out to corps on the residential side.


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## redsgomarching (Mar 6, 2016)

this is dumb. your buddy is dumb. dont do it.


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## Muns59 (Nov 15, 2017)

Thanks for the comments guys. Yes I agree I thought it was odd advice. I didn't see any advantage of it and saw more work from it. Just wanted to get other opinion. 
And from that stemmed me thinking about the legality and feasibility of a big player buying multiple properties via multiple corporations. If it was that sensible then it would be more common. 
Thanks again


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## Nerd Investor (Nov 3, 2015)

Muns59 said:


> Thanks for the comments guys. Yes I agree I thought it was odd advice. I didn't see any advantage of it and saw more work from it. Just wanted to get other opinion.
> And from that stemmed me thinking about the legality and feasibility of a big player buying multiple properties via multiple corporations. If it was that sensible then it would be more common.
> Thanks again


Sounds like you're not going to go through with it anyway, but I thought I would point out there is no tax advantage to what you're proposing. 

Scenario 1: Buy a property for $500,000. Sell the property for $600,000. Report a capital gain of $100,000. 
Scenario 2: Incorporate a company and throw in $500,000 to buy a property. Sell the shares for $600,000. Report a capital gain of $100,000.


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## spiritwalker2222 (Nov 7, 2017)

...and if this is your principal address, you'd be paying taxes on capital gains instead of it being tax free.


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## imclumzy (Nov 24, 2017)

New member but have owned investment real estate in a corporation for more than 10 years so here's my $0.02. For me the benefit of owning investment property in a corporation is about limiting liability. In the event of a bad situation where someone sues the property owner you are have a layer of protection for your personal assets, over-and-above your insurance policy(ies). You could argue that it's unlikely and therefore unnecessary, until it becomes necessary. 

Although you've indicated that you intend to pay for the property outright, for those that are considering opening a mortgage from your corporation it is totally doable from the big banks even. You simply need to speak with the chosen institution's mortgage specialists to understand the pre-reqs. 

Good luck!


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