corporation vs personal holdings

[mike6160]

Looking for some advice from the collective experience within this forum. I will give a brief overview of our situation with the hope some of you will be able to weigh in.



My wife and I are currently joint venture partners with another couple in Fredericton. We are located near Ottawa however have four doors in NB. Our target market has been student renters near a university and to date has yielded great returns, that being said we are looking at diversifying into multifamily units in Hamilton.



Next, a coworker of 10yrs has 6 doors and has the same goals, ambitions and frame of mind as our current JV partners.



Question 1. Does it make sense at this point to start a corporation which will acquire all of our (10 doors) rental properties?



Question 2. Once the corporation (potentially) owns the properties it will have the financials to proceed with multi family units. Assuming our collective incomes (400k ann) will be leveraged by the lender will it be easier to secure financing for commercial properties under a corporation vice personally trying to acquire?



Question 3. Is there any references for a creative and well versed Real Estate Lawyer and an Accountant in the Ottawa/Renfrew area. I have attempted to engage the professionals within my town (Petawawa) and was disappointed with the results. I (we) need to ensure we have the correct information as we lean into larger investments.



Any advice with respect to commercial lending in Ontario please feel free to comment/advise/suggest.



Long winded I know however am looking forward to hearing from the members within this forum. On that note having read the REIN books and several other authors is there sufficient justification for the $4000+ membership fee? I see within this site their are non members as well..... any thoughts?



Thanks for your time,



Mike

 

[Thomas Beyer]

A good start is the multi-family binder offered by REIN for $500 or so ..



Multi-family is INdependent of the income of the shareholders. What is required is

a) cash to close, say for a 20 suiter @ $75,000/unit for $1.5M .. roughly $400,000 as an example

b) knowledge: where to buy, where not to buy, how to manage, how to finance, how to budget, what numbers are realistic

c) networth to co-guarantee the mortgage, usually about 25% or more of the loan amount

d) decent credit score showing a lender you paid your bills on time



I am unsure why you need to merge the 4 + 6 doors ? Why not work independently ? There is no real benefit in partnering with someone unless that partner has UNEQUAL skills, say she/he has money and you do not, or this other party can raise $s and you cannot, or one person has the time to work the deals but the other not, or one person has knowledge and the other not.



Partnerships are fraught with risk and unequal expectations or work input. What happens, for example, if

• 
  you wish to exit in 5 years and the other party does not,
• 
  you wish strong cash-flow and the other prefers equity growth and high leverage and re-investment into the asset for continued rental and value growth (see link below for examples),
• 
  one person prefers old and ugly buildings and the other pretty ones,
• 
  if one party wants to take 12 months off and the other party wants to re-lever and buy 2 more assets,
  
  you just can't get along 3 years into 3 deals but the mortgage is not due for another 2 years,
  
  one party gets divorced and his ex now gets 50% of her/his half or wants to exit ASAP, or
  
  two assets need $80,000 in cash for property upgrades and one party does not have the required 50% of it, i.e. $40,000 handy at the moment ?

50/50 of a pie twice or 2.2x the size is not better than having a pie yourself. You should partner (in a 50/50 relationship) only if you wish a pie at least 4x or more compared to one you could do yourself .. to allow for all the overhead, complications and inefficiencies in a 50/50 partnership.



Unclear is also how to structure a partnership: 50/50 ? 60/40 ? Who does what ? Who decides where to buy, at what terms, when to sell, how to manage, who gets paid for what, what work is expected for free as part of being an owner, .. or how to solve any of the issues i touched on above ?



Re lawyer: the lawyer has to be licensed in the province you buy, but could be afar, sat GTA or Ottawa ..



re commercial lending: TD, First National and Peoplestrust are the biggest multi-family lenders in Canada. Sometimes credit unions in small towns can be good partners if these big boys balk. Approach all three, or go to a broker. Expect to pay about 1 to 1.5% for their services upfront, less % if mortgage is $5M or bigger. Forget the other banks unless you are $100M in size or bigger.



Here's a link to achievable numbers & to decide what leverage you wish to apply: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-26733-What_is_better_cash-flow_like_a_REIT__or_less_cash_invested_with_little_or_no_cash-flow_plus_more_equity_upside_.html



May you proceed wisely and successfully .. but proceed as it is a proven wealth creation strategy !

 

[mike6160]

Thomas, thank you for the reply. It goes without saying there is still a lot of research that will need to be applied prior to making a shift in our operating concept. I do appreciate the input and completely acknowledge (for the first time) the relationship between partners and what they can bring to the table vise ensuring equality amongst all parties.

Thanks again, and look forward to reading some of the other posts on this site.

Mike

 

[mike6160]

Thomas, thank you for the reply. It goes without saying there is still a lot of research that will need to be applied prior to making a shift in our operating concept. I do appreciate the input and completely acknowledge (for the first time) the relationship between partners and what they can bring to the table vise ensuring equality amongst all parties.

Thanks again, and look forward to reading some of the other posts on this site.

Mike

 

[therenoguy]

Depending on who you believe, 70-80% of all partnerships dissolve at some point, and rarely is it pretty. In fact, it's usually a bloodbath. As Thomas says, you need to find someone with opposing attributes. The most obvious one in your particular situation is that you find an investor who is interested in investing money into your existing system, since you have a few successes under your belt.



Look at it this way: You don't want a marriage, *especially* with someone just like you. You want 'friends with benefits' for 5 years, on one specific project, with someone who has cash but no expertise or interest in gaining expertise. AND an agreement that you can 'see' other people. No sense limiting yourself to one investor.



We could follow this metaphor all day, but you get the picture.





My two bits, worth exactly that.

Keith