Affordable Rent to Own: Financing Properties With Your Corporations

Affordable Rent to Own:
Using Your Corporations to Finance Properties

Affordable Rent to Own: Financing Properties With Your Corporations

In August, we went through the process of growing your corporate holding structure to three corporations. This is the most common setup recommended by good accountants for your real estate investments.

But it also presents some problems with financing. There aren’t too many banks that are jumping at the chance to lend money to a new corporation that has no income or assets.

And just as there are more charges with regular business banking compared to personal. When you apply for a mortgage for your corporation, there are often many more fees to be paid as well.

  • Interest Rate - Since a business mortgage is often automatically categorized differently you don’t get the same rate discounts that you would for a residential purchase. You can often expect to pay closer to the posted bank rate which is higher.
  • Fees - When purchasing a residential home, a lot of the fees are paid by someone else or wrapped into the CMHC premium if you are putting less than 20% down. But with a mortgage for your corporation you will have more things to pay for out of pocket. For example, the broker with often charge a lender fee in this type of scenario, any appraisal that is requirement will also be billed to you, and there can also be additional legal and application fees.

If you are financing a multi-unit building, the above may not have as much of an impact because it can be spread out across many units.

But if you are investing in a single unit (even two or three), any additional expenses can really eat into the potential profit.

Banks will look at larger buildings and count the income coming in from the building. So if the income is sufficient they may approve the deal but you will still have to sign on to the mortgage to give a personal guarantee. This means that even though you have purchased this property in a corporation, if the corporation stops making payments you are personally on the hook, along with your personal assets.

Unfortunately they won’t review smaller properties the same way. With single units, the corporation can’t support the mortgage so the bank typically won’t approve the deal.

So here is the process that many members have used and we have used ourselves in the past.

The purchase and qualification for the mortgage is done in your personal name, because you can now use your income to qualify for the mortgage.

It is similar to agreeing to the personal guarantee that is required for a larger commercial mortgage.

In fact, the whole purchase process along with the paperwork proceeds as if you didn’t have your corporations setup at all.

Once the property closes you are able to transfer title of the property into the corporation.

Often this can be done without triggering land transfer tax (it will depend on the ownership setup) by signing a trust agreement explaining that this purchase was done by you in trust for your corporate entity.

This makes the corporation the beneficial owner of the property. You are the representative that is taking care of things on its behalf but it is the true owner.

Once you do this you should realize that all income and expenses should also be put through the corporation to make the process complete.

Obviously all the details of this process can’t be explained in a single page article.

That is why we strongly recommend discussing this strategy with a certified lawyer and/or accountant that specializes in real estate.

Trying to implement this alone without their help would be a big mistake. We can put you in touch with ours if you would like.

Make sure this strategy is right for you before spending the time and effort getting it done, because sometimes it makes things more complicated for nothing as we discussed in previous newsletters.

On another note, providing affordable rent to own properties can be a great addition to your portfolio. Affordable rent to own properties allow those who cannot purchase a home on their own to put their money towards owning something, rather than just straight renting.

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