Incorporate or Not

Tina Myrvang

Client Care Lead
Staff member
REIN Member
Nov 15, 2010
It would be GREAT if there was a clear black and white answer to this question, but each person's personal and business situations differ and therefore the investment structures differ.

The biggest problem you will have with investing within a corporation is financing. Banks aren't big fans of loaning on single residential property in a corporate name. In most cases, they will drive up the interest rate (above the best deals you can get if it is in your name), send you over to the 'commercial' desk where approvals are more difficult, and then, even after all of that, still ask you for a 100% personal guarantee on the mortgage.

You do not generally need to incorporate to start buying and owing real estate. As mentioned, it is an expense and aggravation that can be avoided. One liability issue is, what I call, protecting the property from you (rather than the other way around). Say you are in a business or profession that attracts possible liability, for example an engineer, doctor or (heaven forbid) lawyer, the point there is that you may want to shelter the real estate in a different name so that any liability that you might sustain personally does not transfer over to the property. But this is usually not a huge concern either since, if you work in a high liability / risk profession, you will likely have insurance that would cover any exposure in that area.

Regarding protecting yourself from liability, the first and most important aspect there is to get the right insurance. That would include fire, rental interruption and liability. Speak to an insurance broker on that issue. There is a lot of knowledge and experience within the REIN community on the kind of insurance you need for any particular property and also you will get many referrals. Make sure you speak with a quality Investment Real Estate Insurance Expert (such as Meyers Insurance) to get the best coverage for your deals.

In my experience, incorporating is usually done for matters of convenience and organization. In other words, there are a number of partners and there is the need to accommodate different levels of interest. Again, this will usually arise in a larger investment situation rather than, say, a single family property or small apartment complex.

As far as tax matters go, you should really discuss this with your financial advisor. The answers will depend on your personal financial arrangements. But remember the increased costs and inconveniences of trying to operate your property business within a corporation may not off-set the positives of the move. In your REIN Package (Red Binder) you received a certificate for an 'incorporation discussion' with a veteran corporate lawyer, take advantage of this advice as they will look at your full situation and help you decide (considering all of the pros and cons) before you incorporate. This is not just a tax (accountant) question either, you will want to look at all aspects. Bookkeeping and tax filing expenses increase, corporate costs increase (over what you would pay if in your own name), and bottom line is it really doesn't reduce your liability much if you are the sole share-holder. THAT is why quality liability insurance is so important to have on your properties - the safe guard to your system.

Also, one last key step to take: Call the mortgage broker or banker you are planning on working with and have this discussion with them as well. Get ALL of the info from all of the parties, only then can make a clear decision.

George Dube – Real Estate Accountant, Tax Advisor, Author and Speaker

Don R. Campbell Blog – Incorporate or Not