Two Properties, one profits one losses, how to cancel them out?

[ATC25]

Hi,

From Ontario.

I'm acquiring one property which should cash flow fairly well, the second property which I plan to bid on will be rented out on short term (1-3months) and would probably be a loss (we would use it for ourselves when not rented) so I was wondering if I could put them together to offset the profits on the first.

As these are my first two properties (and should be my only ones) and I have not yet acquired either one, I would like to know how I can set them up together. If that is not possible what's the best way to own them, in my name? In both my wife and my name, in children's names? Under a business?

Thanks!

 

[Matt Crowley]

Why buy a property that does not cash flow? When will you see the upside?

Own them personally. It will automatically become a sole proprietorship and you do not need to register any sort of business. That will just trigger useless expenses for corporate minutes and business licenses. Your annual accounting charges will be at least $1000 higher if you want to run it through a corporation which provides absolutely zero benefit. It doesn't cover you up from any personal liability. For small investors, corporations are sometimes promoted by MLM organizations (multi-level marketing) where they have a little network of lawyers and accountants who can work together to set one up for you. Throwing money away. Much better use of time and money is to buy quality property insurance.

When you own a sole proprietorship, the business' income is added to your income. So after you take all revenues minus all expenses you have the amount to add to your income.

You don't need to rush to buy two properties at once though! You are not really not missing out, especially if one is a dud!

 

[Thomas Beyer]

Any capital gains or losses can be commingled in a corporation or personally. Any operating income or losses, too, can be commingled personally or in a corporation. You cannot offset losses using depreciation with income (from employment or another asset) in either case.

A corporation makes no sense if you have less than 4 or 5 units due to accounting overhead, but if you envision buy 5 or more in fairly short order you should consider setting up a corporation. Financing in a corporation is often somewhat tricker, i.e. lower LTV or higher rates, and annual accounting fees are $1000+ higher. However, it allows you to dividend money to multiple shareholders, say spouse, parents or kids if that is the goal.

There is usually no taxable income in rental properties (due to CCA / depreciation that brings most taxable income to 0) unless they have very low LTVs. Usually only on exit will you pay (capital gains) taxes. As such, evaluate each asset on its own merits.

 

[RE123RE]

Hi,
I find the question and responses funny. Thanks
ATC, you "would use it for ourselves when not rented". You and your family will be carrying tons of items in and out every few months.
Matt, if he plans to live in a place of course many SFH do not "carry themselves", like 99% of the properties in Toronto for example. You really think it's a bad thing to buy in Toronto? The analysis on your primary residence is different Matt.
Thomas, "Financing in a corporation is often somewhat tricker"? - this has not been my experience. at least up to 4 unit most banks still approve 80% LTV. Since the corp director, is still the mortgage guarantor, it is usually just as difficult as buying under a personal name, not more.
Thanks

 

[Matt Crowley]

Hi,
Matt, if he plans to live in a place of course many SFH do not "carry themselves", like 99% of the properties in Toronto for example. You really think it's a bad thing to buy in Toronto? The analysis on your primary residence is different Matt.

Yes, sorry I missed the part were ATC said it was a personal residence. The analysis is different for your own personal residence.