Should I Buy Real Estate in a Corporation?
Did you know that you can buy real estate in a corporation? This can be a holding company or an operating company, but any Canadian can easily set one up through a lawyer or accountant.
The main reason people explore this option is for tax advantages on rental properties. Everyone wants to pay less tax, so it's not a matter of if, but when, this question will come up in a mortgage conversation, whether someone is an experienced landlord or looking to buy their first investment property.
A quick Google search for "real estate investing" will reveal hundreds of online forums with strong opinions on the topic. It can be tough to sort through and figure out what the right thing is for you. Here's my advice:
WILL YOU PAY LESS TAX?
Possibly, but most people won't, and you could even end up paying more. The bigger your portfolio, the more you could save, but most Canadian investors never buy more than 1-2 rental properties. What are your needs and goals? Get the right advice from a qualified accountant.
WILL YOU SAVE MONEY?
Maybe. If you've calculated the savings, have you considered the costs? A corporation is a business, and businesses have expenses. In addition to set up fees, there are recurring legal and bookkeeping expenses, which can add up to thousands of dollars annually.
WHAT ABOUT FINANCING?
Definitely doable, but options are limited. Non-personal mortgages are a tiny piece of the market, and are considered higher risk, so only a few lenders offer this solution. That's why you'll need more downpayment (35% is typical) and can expect to pay higher rates for less flexible terms.
There are pros & cons for estate planning, legal protections, and insurance coverage. Which is why you should ask your lawyer, accountant, mortgage broker, insurance advisor, and wealth management consultant before making this decision - and be prepared for five different answers.
FOR MOST CANADIANS
The cost and complexity of buying real estate in a corporation usually does not make sense. However...
THERE ARE EXCEPTIONS
The one time this strategy almost always makes sense is when flipping real estate, otherwise the CRA could take half(!) of your profits. Or, if you own too many properties (it's a thing) and no one will lend to you, incorporating can be a good solution.
Should you buy real estate in a corporation? It depends!
Pro tip: this is the answer to every mortgage question.