Investment (Personal vs. LLC)

[Liquid1010]

I apologize if this has been discussed, I could not find anything. When considering the purchase of a rental property - what are the benefits of starting an LLC or a personal purchase? I`ve looked through a lot of this, but wanted to make sure I`ve thought it through - so thoughts would be great.

I understand the risk mitigation inherent in an LLC, but if you have minimal capital at start-up you will have to undersign personally anyways - so that becomes a minimal issue.

What about cashflow and tax issues? Assuming the property creates positive cash-flow, the lower tax rate in LLC is a benefit for retaining capital. I presume if I was looking to take out capital constantly personal would be better as no double taxation exists. If capital is retained in the LLC and only paid out in dividends - the LLC would be a better option.

Anyone have any first-hand experience with this?

 

[christineruptash]

Hi,

The general consensus on to incorporate or not is `it depends on your situation`......Not sure if you are a REIN member or not, but Navaz Murji just did an excellent presentation on this topic in October and it was to be continued in November. Make sure you listen to the CD`s if you missed the meeting, there are some great insights! He also `ran the numbers` on a basic property owned individually versus being incorporated. There are misconceptions that an investment property held by a limited company has a lower tax rate than being held individually.

Of course you will need to consult with your own accountant, but if you are just getting started and this will be your first rental property, that isn`t probably going to be the road they send you down.

On a personal note, I do not have my portfolio incorporated, and my accountant -also my husband and a CGA - is looking out for my best tax interests!

 

[chrisR]

The discussion for incorporation or not seems to fall into two camps - accountant/CGA will want to save costs and therefore will advise not to incorporate - and the other side is a litigation lawyer who will advise to protect with an entity that may include incorporation.

REIN have great accountants an real estate legal advisors, but maybe missing the litigation side of the discussion as Russell found out at the quickturn event in Edmonton. A successful litigation can wipe out your whole portfolio and all personal assets no matter how big.

I know here in Canada we do not litigate like our friends south of the border, however that does not mean we should not protect.

Insurance is a good step towards protection but still, it would not protect against all potential losses.

I incorporated from day one, as to incorporate at a later date incurs property transfer tax here in BC

Chris

 

[markbrad]

I also questioned this and still do. I spoke with Navaz recently and he advised me that in a long term hold, it is ok personal because of the capital gains tax advantage, but if you are planning any flips to do that under a corp. Especially to keep the two separate, as you don`t want three buy and holds, and then do a flip and have CRA decide you are in the Business of Flipping and remove any capital gains on your buy and holds.

Mark

 

[Thomas Beyer]

QUOTE (Liquid1010 @ Nov 14 2009, 11:27 PM)
I apologize if this has been discussed, I could not find anything. When considering the purchase of a rental property - what are the benefits of starting an LLC or a personal purchase? ..


see a whole thread here on Pro`s and Con`s of creating a company for real estate holding:

http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10292-54272-To_create_a_company_or_not.html#54272