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Question about buying rental property, should I incorporate

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  • Sep 1st, 2011 9:37 pm
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[OP]
Sr. Member
Oct 3, 2005
746 posts
22 upvotes

Question about buying rental property, should I incorporate

Hi,

I have a home and a rental property...I'm considering buying another one. Should I incorporate and buy it under the corporation? What are the pros and cons? Just wondering what I need to be concerned about if in the next 10 years I feel like buying a couple of more rental properties.

Also the current rental I have, should I convert the mortgage into a HELOC? Or will that be bad for my credit? MY primary home already has a HELOC.
11 replies
Deal Addict
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Jan 27, 2007
4502 posts
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No, don't incorporate. Non active business income is better earned personally in almost all cases.

Why do you need to convert the mortgage to a HELOC - renovations?
[OP]
Sr. Member
Oct 3, 2005
746 posts
22 upvotes
dutchca wrote:
Aug 31st, 2011 5:33 pm
No, don't incorporate. Non active business income is better earned personally in almost all cases.

Why do you need to convert the mortgage to a HELOC - renovations?

I was thinking of incorporating because of liabilities (at least that is what I hear). I was considering a HELOC so I can use the money as a down payment on another house.
Deal Addict
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Jan 27, 2007
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hello99 wrote:
Aug 31st, 2011 5:53 pm
I was thinking of incorporating because of liabilities (at least that is what I hear). I was considering a HELOC so I can use the money as a down payment on another house.
If you are extremely risk averse, that is an option, but what legal problems are you expecting? Not too common to get into serious legal problems renting. Also, any bank will be looking for a personal guarantee from you before they give you a loan.

Unless a property is cash-flow positive, you really shouldn't be investing especially with a housing bubble apparently going to burst. If you are thinking about using a HELOC to finance a DP, then I doubt the venture would be cash flow positive, although I may be wrong.
Sr. Member
Jul 18, 2009
679 posts
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You may also want to talk to an accountant about the tax implications - if the property is cash flow positive (and don't buy it if it isn't!), there are some tax advantages to incorporating, but it depends on your personal situation - i.e. you can use the corporation to do income splitting, there is a slight advantage if you pay the profits out as non-elligible dividends, etc. This would be active business income, I think, as the business of the corporation would be renting properties for profit? However, there are also extra costs, such as the cost of incorporating and keeping your minute book uptodate, and the cost of doing an extra tax return.
Deal Addict
Jan 11, 2004
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Many times even if your incorporate the lenders are going to be required to sign personal guarantees anyways. There are some good reasons to incorporate, and that is mainly to do with personal situation and how many rentals you plan on accumulating. There are people that have > 20 rentals and never incorporate.
Deal Addict
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Apr 1, 2007
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hello99 wrote:
Aug 31st, 2011 5:53 pm
I was thinking of incorporating because of liabilities (at least that is what I hear). I was considering a HELOC so I can use the money as a down payment on another house.

With the market the way it is, you want to use a HELOC to buy another house? I hope you have a good credit rating, and a great backup plan.

:D :D
[OP]
Sr. Member
Oct 3, 2005
746 posts
22 upvotes
Hmmm...some things to think about I guess.

Not sure about the second rental but thinking of a student rental near mcmaster or something, vacancies are pretty low in those areas but maintenance is can be a lot there.
Deal Fanatic
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Jun 3, 2008
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Well, if the stairs break under someone's foot or a cabinet falls on a renter's head, you'd be limited to the corporation's assets if they sued.... except unless you failed to treat the corporation separately (eg. separate books, minutes of meetings, corporate filings, etc)
Sr. Member
Aug 17, 2008
833 posts
235 upvotes
I posted on many occassions in the past on pros and cons of incorporating so I won't get into a long answer here.

Short answer (as of one the earlier posters already stated) is that there is no advantage if you are only earning passive income. Passive income includes investment income and rental income.

So no, you should not incorporate.

If you have active business income, then there are advantages.
Deal Addict
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Jul 8, 2009
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Edmonton
I was a landlord for many years and never worried about liability nor did I ever have any issues. I wouldn't do it.
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