Business structure

[stevieb]

Hi everyone,

I am very new to the entire idea of real estate investing. That said, I have a relatively decent understanding of financial intelligence, good access to accountants, investors and large business leaders. Most of who I know and what I know stems from running my own company a few years ago that failed during a divorce. I want to learn as much as I can before I approach them however.

I`m well on my way with creating a tentative plan, but I have a few questions I`m hoping I can get some direction with. Here is my scenario:

I have about $10k in equity I could squeeze out of my live-in property. I have another $10k in paper assets (RRSP). I don`t want to touch the RRSP at this time (I will be re-evaluating its position in the near future). I also am at the late stages of building a new business system to put into my asset column. This new business will harness my expertise in the field I currently work, and within one year, I will have been able to acquire a strong team to take over the business so I can focus on real estate. I estimate (not conservatively) approximately $40-$60k in net income from the business within the first year.

What I am confused about is how to structure my businesses. What I am thinking is that said new business should be its own legal entity. I also believe that my real-estate holdings should be under another corporate entity.

The sole purpose of the newly created business is to use most of it`s income to purchase real estate.

How do I (or what kind of lawyer/advisor do I need to seek out) to legally transfer the income from the new business to the real estate holding company? Can the non-real estate business `loan` the money to the real-estate corporation?

Or can my `holding` company also perform consulting services in a completely different industry?

Thanks for any guidance!

Steve

P.S. I live in Ontario, and when the corporation(s) are established, they will be incorporated within my province.

 

[Thomas Beyer]

QUOTE (stevieb @ Oct 3 2008, 12:07 PM) Hi everyone,

I am very new to the entire idea of real estate investing. That said, I have a relatively decent understanding of financial intelligence, good access to accountants, investors and large business leaders. Most of who I know and what I know stems from running my own company a few years ago that failed during a divorce. I want to learn as much as I can before I approach them however.

I`m well on my way with creating a tentative plan, but I have a few questions I`m hoping I can get some direction with. Here is my scenario:

I have about $10k in equity I could squeeze out of my live-in property. I have another $10k in paper assets (RRSP). I don`t want to touch the RRSP at this time (I will be re-evaluating its position in the near future). I also am at the late stages of building a new business system to put into my asset column. This new business will harness my expertise in the field I currently work, and within one year, I will have been able to acquire a strong team to take over the business so I can focus on real estate. I estimate (not conservatively) approximately $40-$60k in net income from the business within the first year.

What I am confused about is how to structure my businesses. What I am thinking is that said new business should be its own legal entity. I also believe that my real-estate holdings should be under another corporate entity.

The sole purpose of the newly created business is to use most of it`s income to purchase real estate.

How do I (or what kind of lawyer/advisor do I need to seek out) to legally transfer the income from the new business to the real estate holding company? Can the non-real estate business `loan` the money to the real-estate corporation?

Or can my `holding` company also perform consulting services in a completely different industry?

Thanks for any guidance!

Steve

P.S. I live in Ontario, and when the corporation(s) are established, they will be incorporated within my province.
the business structure is NOT that relevant when you start this small .. the deal and its profitability are far more important .. and with a small property purchased you have to consider overhead costs that are larger with a separate corporation than a personally owned property or an exisiting company.

If you still wish to establish a NEWCO, get the money into the corporation as a shareholder loan with nominal equity (say $100).

Another option is to open a subsidiary company of the existing one, and keep RE assets in there for liability purposes !

 

[Dan_Eisenhauer]

Several other factors to consider when operating NEWCO is that operating costs are higher. You have annual corporate registration fees of several hundred dollars, higher accounting costs, higher income taxes in many cases, and higher tax preparation costs, higher financing fees.

There are several REIN members who own MANY doors in their personal names. Their are several who own just a few units in a corporation. (I used to be one of the latter.)

Speak to both a good tax accountant and tax lawyer. They will have different opinions. But, judge those comments for what you think best suits your needs. The lawyer will say, "Incorporate to CYA." The accountant will say, "Save money by doing it in your name."

I can think of one scenario that I would recommend incorporation... buying a larger multi-family bldg where there are several partners, and you were planning to convert to condo.

There is no single right answer.

 

[Avoidconfusion]

I like what Dan had to say. The extra cost are higher with a NEWCO, I am paying them now, in hindsight I would not go there for a individual properties. My next properties are going to be in my own name and I have been told to make sure I have extra liability insurance as an added protection.