Okay, Melina. I think we're live.
Milena Cardinal:Yay. That's Alright.
Scott Dillingham:So how are you doing?
Milena Cardinal:I'm good.
Scott Dillingham:I'm really excited to to chat about our topic today, maximizing shareholder value in real estate. So yes, I want you to let us know a little bit about what that entails.
Milena Cardinal:Well, really what sparked the idea of having this particular topic and talking about using or leveraging shareholder relationships and corporations for investors was the conversation about was a conversation about different types of structures that can be used for to hold real estate investments. Most structures, especially in the multifamily world or in the development world, will involve, like, multiple corporations and different different tools sort of, like, linking them together. But, really, at its core, one corporation could be enough to run a project, and it's got big advantages. It's got the advantage of simplicity, but then it also has some drawbacks. But the idea being that if, if it's possible for a particular project, then to have the project owned by a corporation and then have all of the investors simply invest as shareholders, meaning they all own a piece of the pie, that's really the simplest, maybe besides a joint venture on its own, this court the corporate structure of having investors with shares and then a shareholder agreement to determine sort of the rights and obligations of all the parties is one of the simplest structures that we can have.
Milena Cardinal:So so if it's at all possible for a project to do that, there are so many advantages, mostly cost and the level of complexity when presenting a project to an investor.
Scott Dillingham:No. Absolutely. That's that's super cool. Because you're right, there's so many different things and we're seeing like different entities require different types of financing from the lender standpoint. So we can go over all of those as well.
Scott Dillingham:So where do you want to start? Like, where do you find What's the biggest bang for the buck? Like, what's your best advice that you can give on this?
Milena Cardinal:Well, to me, everything is, it's a a a an an exercise in determining the pros and the cons of each type of structure when deciding what's the best option for a particular project. So for example, if I had a client who said, well, I want to buy a 20 unit building, and I wanna raise capital from 15 different people, and I'm going with CMHC mortgage, right away in my mind, I'm thinking GPLP is probably the best structure because if we only do a corporation to hold the 20 unit and all of the investors only have shares in the corporation, then it's very likely that CMHC will require them to qualify. So from what I understand that different lenders have different requirements, if I understand that correctly, Scott. That's
Scott Dillingham:right. Yeah. That's right. So, like, depending on how it's set up or the ownership percentage, and I don't want to go over specifics here, because like you said, it's completely custom to the deal. It's it's different.
Scott Dillingham:Every lender is different. But ultimately, yeah, if if you're a majority shareholder or owner of an entity, you're forced to apply with lender A and sometimes lender B, they're okay with it as is right. As long as like, I'll give you an example, one of our lenders. So we do obviously US and Canada, but one of the lenders says as long as you own 20% of the entity, you could be the only one that applies. We don't need anybody else as long as you own just 20%.
Scott Dillingham:Right? And so, you know, I said I wasn't going to give numbers, but that one, it was a very firm number, so they don't care. But again, every lender is different. Some lenders, they want every single director on the mortgage. Right.
Scott Dillingham:So you can bypass that through shareholders. But then again, on the flip side, if there's one director who is then a 50% shareholder and then there's someone else who's on there as a 50% shareholder, a different lender may want them both on. Right? Because they can see, you know, even though they do on the record, it's still fifty fifty. Right?
Scott Dillingham:So they
Milena Cardinal:Yeah. It's And oftentimes when we're talking about this at the onset of a matter, I'm like, you have to understand that if you make that choice, you may be borrowing yourself from some lenders. Right? You may be borrowing yourself from the best mortgage mortgage out there for you because the lender will want every investor or every shareholder to qualify for the mortgage. And it's not only painful in in in the process of of the investor having to apply and having to be approved, but then it's also the fact that that investor is personally guaranteeing the mortgage a lot of the time.
Milena Cardinal:And I know personally if I'm investing a $100,000 in a deal where, you know, I don't know, like a $10,000,000 purchase, when we're raising $3,000,000, I really don't want to qualify for that 7,000,000, or I don't wanna personally guarantee that $7,000,000 mortgage. Right? Because because the end result is that each personal guarantor guarantees the entire mortgage. So it's a lot of liability to put on your investors when when really, like, they're kind enough to invest their money in your project. It's probably not a good idea to also ask more of them in this in the sense of qualifying.
Milena Cardinal:But I I have seen that happen, though. I have seen certain projects where the investors, especially when the investors have a bit more, of a vested interest, maybe maybe they're a little bit more involved in in the management of the project, and then they're all happy to to qualify. So in that case, it would be a waste of money and a waste of time to do a GPLP structure, and that may be satisfactory.
Scott Dillingham:Yep. No. And you're right. And just to touch on the fact again that it's, like, completely random. Right?
Scott Dillingham:Some of the lenders. Right? Because you said, I don't wanna be responsible for that loan. But depending on the lender, depending on the loan, depending if it's right, if we're using an MLI select program, depending on the points that you have on the loan. Yeah.
Scott Dillingham:Some are full recourse, some are limited recourse, and some of the big, big stuff can even be no recourse depending on the deal. Again, property, location, amount, all of these things. So you do want to be careful because, you know, maybe it is one of those where you do have to apply on the loan, but maybe there is limited or no recourse. So you know, it may not matter. So you really have to look at everything holistically.
Scott Dillingham:But I do agree, you know, the proper structure and how you set it up absolutely determines the lenders because if you're setting up on a weak foundation, yeah, there might be lenders that will help secure this deal for you. But if you have a lot less lenders, you're meeting their terms. Right? You don't get to try to negotiate. Right?
Scott Dillingham:You're meeting their terms, higher rates, potentially higher fees. So by setting it up the best way and having that consultation with an expert like you allows the investor to maximize the financing options.
Milena Cardinal:It's even more than that. I would say that that we as the experts together have to collaborate
Scott Dillingham:For sure.
Milena Cardinal:Figure out the best way. And it doesn't it doesn't mean that we can't also pivot. Right? I've had cases where, you know, when when the deal is put under contract, we use a corporation for the purpose of putting it under contract. And then when in consultation with the mortgage broker, we come to terms with the fact that the ideal scenario is a GPLP structure, then we put together the structure to make it happen.
Milena Cardinal:Absolutely. What did you mean by recourse? What was what's the meaning of that word in in that context?
Scott Dillingham:Recourse is like liability. You're you're fully liable for the loan. You're partially liable for the loan. Or depending on the deal, there can be no recourse, which means no liability. Right?
Scott Dillingham:Okay. Yeah. Yeah. Letters call it recourse. Like, I want recourse.
Scott Dillingham:So if you don't meet the terms, I can come after you. So I have full recourse.
Milena Cardinal:Got okay. So it's, like, from the lender's perspective.
Scott Dillingham:Yeah.
Milena Cardinal:Alright. I love that.
Scott Dillingham:But from an investor, right, if you are, say, you're only partially on the hook for a loan.
Milena Cardinal:Yeah. Yeah. Yeah.
Scott Dillingham:Right? That's better. Right? It reduces your risk a little bit. Mhmm.
Scott Dillingham:That's interesting. So, yeah, how do we get started? So I have a property. I want to make sure I have the best structure. What's the next step?
Milena Cardinal:A consultation typically is the first step. What I usually recommend to my clients is let's have a chat right off the bat so you know what to do next. It doesn't necessarily mean that we'll have enough data at that point about your financing, about the deal itself, about how it's gonna happen, but at least it'll be enough. We should have enough from the onset to discuss the core points and make sure that if there's something to clean up for example, if, I have clients who have a clean co or or or a holding co at the top of their structure, and then they say, okay. Well, I'm gonna wanna buy I'm gonna wanna create a new corporation for this project.
Milena Cardinal:I might say, well, if you're selling due diligence, don't create the corporation just yet. Don't waste the money just yet on on on creating the corporation, but clean up your your your your holding because no matter what you do, you're gonna need to have that minute book in place. You're gonna need to have those pieces well put together so that we can act a lot faster, when the lender starts asking for these documents. Right? Mhmm.
Milena Cardinal:So it's it's it's a lot easier on a brand new corporation, but sometimes a corporation that's got a little bit of of of age, it's ideal to then clean that up. So so, really, my advice will vary drastically from client to client. So I usually say, let's have a first chat, and then, you know, towards the end of due due diligence, I'll usually meet meet my clients again, at least for this type of project. I'll meet with my clients again, if not multiple times in between. As we go, figure out the best way to to to structure the deal.
Scott Dillingham:Yes. Now another question for you. Yeah. Because I know investors will find a property, they get excited, and they wanna raise capital right away and do all these different things. Would you suggest that they sit down with you first before raising capital?
Scott Dillingham:That way, the capital raise doesn't necessarily affect the structure. Do you know what I mean?
Milena Cardinal:Yes. 100%. So things that we've done in the past, investors are really leery. I I find, like, passive investors are really leery to put their money in a project when the corporation is not in place, due diligence is not complete. Right?
Milena Cardinal:They're afraid that their funds will be used for the due diligence. They're afraid their funds will be and then the the deal will will die, and they they will have zero security. So what we often do is, we get our clients, so the the the the buyer, to sign a direction directing us not to release that money to them until the their passive investor has signed the contract. And so then the passive investor has all of the all of the control of the transaction, but can still deliver the funds ahead of time in our trust account, which then allows for the transaction to happen a lot faster when the time comes.
Scott Dillingham:Awesome.
Milena Cardinal:So that's one way that we've done it before. There's all kinds of rules now in terms of collecting funds, and and, our clients don't necessarily know what those rules are, so they will fumble sometimes on not following those rules, and that could put them in hot water. So and and, unfortunately, these things take time. It takes time to ascertain, to ascertain all of the all of the data that we need to gather. So so typically for an if if if a passive investor is sending us funds for one of our clients' deals, we need to verify source of funds.
Milena Cardinal:We need to verify for anti money laundering purposes. So there's certain declarations that the investor needs to do. We need to verify ID. There's all of these steps that need to happen. And so if we receive funds on the day of closing, that can get really dicey and can really delay the transaction.
Milena Cardinal:So it so oftentimes, we say, well, it would be ideal if we got the funds early, but that's when we we find ways of of reassuring the passive investor that we're not that the money won't be used until everything's in place, the corporation's complete, shareholder agreement signed, everything is done.
Scott Dillingham:Nice. Nice. Yeah. Now I know so far we've been talking about GPLP, which is mainly what I hear about too, and and this is more of a question for you because, obviously, this is more of what you do for knowledge level. But are there any other type of structures that investors wanna get set up, or is it mainly the GPLP structure?
Milena Cardinal:Yeah. Absolutely. So and sometimes it's a combination of things. For me, the the it's kind of like tools and tool belt. Right?
Milena Cardinal:Sometimes I need a hammer and sometimes I need a saw and sometimes I need both in combination with one another at different levels, different times during the project. So, you know, when people say, do I need a hammer or a saw? I said, well, sometimes you need both, right? It really depends. So and we can bring those tools together, but a very simple project, it's usually one or the other.
Milena Cardinal:It's either a JV, which is a joint venture
Scott Dillingham:Wow.
Milena Cardinal:Where then either corporations or individuals will collaborate on a project, but still remain separate by law. And then there's the simple corporation, and I've used simple corporations for projects like oh, we have a land banking deal. So all of our investors own shares in the corporation. Corporation owns the land. Right?
Milena Cardinal:With the land banking deal where we didn't get financing, that was the easiest way to do it because we were buying a cash. All of the investors just got shares in the project, and then we have a shareholder agreement sort of tying it together and and determining who's responsible to do what and who has what voting rights, what happens if one of us dies, all of that stuff.
Scott Dillingham:Mhmm.
Milena Cardinal:So and I've also used simple corporations like this in development projects when the purchase of the property was cash purchase or with private lending. Then we don't need a GPLP structure oftentimes at that point, and then sometimes that gets converted. So I've actually seen cases where it's bought with a with a corporate with a corporation, then it's converted to a joint venture when when the first investors invest the seed money for preconstruction costs, and then it's converted to a GPLP structure when we're ready to do construction. So I've actually seen matters where we transition from one structure to another at different stages of a project. Awesome.
Milena Cardinal:Yeah. And I've also seen cases where we've created, almost sort of like a GPLP, but without the actual it actually being a a limited partnership through a joint venture. So what we do is we create one corporation that's gonna own and manage the project, one corporation where all the investors invest their money, and then we tie the two corporations together through a joint venture. That works really well actually with lenders because the lender typically will only see, the corporation that manages the project. So to them, it's a buy it's it's sorry.
Milena Cardinal:That only works when there's no down payment. So when the refinance happens, the lender just works with the managing corporation and no there's there's it just simplifies the process and avoids the the the use of a GPLP structure.
Scott Dillingham:Mhmm. No. I I love it. And another question for you because I actually see this a lot where, you know, a client will ask about the proper entity setup for liability and taxation purposes. Of course, our license doesn't cover that.
Scott Dillingham:So we're always like, you know, speak to the experts. And then the feedback that we get is my accountant told me this, but my lawyer told me that. And there's there's all this back and forth. And so how how would you recommend to like streamline that so the accountant and the lawyer are on the same page and we can make this happen, you know, the best for the for the customer.
Milena Cardinal:So I'm glad you bring this up because this happens all the time. Yeah. I know. Right? The reality is that both are right.
Milena Cardinal:All are right. People will talk to their accountant, their lawyer, their mortgage broker get three different answers, right, as to what structure should I use, should I be incorporated for this purchase? I see this all the time. All three are right. The accountant is looking at it from a taxation perspective, and it's like, how do I minimize your taxes?
Milena Cardinal:That's how the accountant looks at it. The average lawyer will look at it from how do I minimize your liability? Right? So the accountant might say, oh, it's you have to be incorporated. And then the lawyer might say, yes.
Milena Cardinal:You should be incorporated for this. It'll protect you from liability, and then you should have a holding co on on top. And then the mortgage broker might say, no. Do it in your personal name. It'll cost you less in terms of interest.
Milena Cardinal:Right? Yeah. We do, the expertise that we've built over the years allows us to look at the big picture. So we actually look at six different factors, diff different categories of factors. So tax minimization, of course, is important.
Milena Cardinal:We need to understand what are the gonna be the repercussions, and and so we will work closely with with the accountants of our clients to determine what are gonna be the the tax implications of the different options that I see for my clients. Then liability protection. Of course, we wanna we wanna protect that from liability. And those are the two main reasons why people incorporate, why people put together these types of structures. Right?
Milena Cardinal:At their core, those are the two main reasons. But there's four actually, other categories that I look at. Financability, that's where you come in. So I will work closely with mortgage brokers to make sure that whatever structure we decide maximizes the finance ability for clients, not just for now, but also at refinance. Right?
Milena Cardinal:And at refinance and then at refinance and then at refinance. So we wanna always have in mind, what are you gonna do in five years when that mortgage comes to term? Are you going to be able to refinance? Because you can really shoot yourself in the foot. So one example that I have for that is family trust.
Scott Dillingham:Mhmm.
Milena Cardinal:Family trusts are a fantastic tool. They really are, but it makes it so difficult to qualify for financing. So when people set up the three tier structure with a family trust on top at the very beginning of their journey as investors, it it breaks my heart. It really does because real estate investors need to be able to qualify for mortgages at least when they're starting out, or it takes a really long time to build a portfolio when you're no longer dependent on banks. Finance ability, absolutely essential.
Milena Cardinal:Even though an accountant would say, from a tax perspective, a family trust is the best way to go. Right?
Scott Dillingham:Yeah. Yeah. Just on just on the financing. Right? And then I love to hear the the other things that you look at too.
Scott Dillingham:But you're right because the thing is is when lenders look at it, especially if it's a refinance, right, purchase, they don't they can't tell. But when you're refinancing, they look at it and they'll come back and they'll say, Where's the income? We don't see It's not on the personal tax return.
Milena Cardinal:Yes. And then,
Scott Dillingham:so anyways, because I understand the structure very well, I explain it to the lender. So I find it's a very big education piece. And I'm going to say most of the time they then are okay with it. They understand. However, let me rephrase that.
Scott Dillingham:They understand where the income is at that point, but some of them won't complete the refinance if that process is going to continue because it's in the personal name, where some of them are okay with it. And then obviously we have some altogether that you can put it in the corp in the trust doesn't doesn't matter. But that is so for anybody who's listening, that's what you want to have your lender be shown, right, is where the income is because they don't get it right. They're looking at the personal tax return for income. They're not seeing it.
Milena Cardinal:I see it all the time. Clients will call me and say and say, I want to bear a trust agreement for this property. And I said, okay. But you realize that when when it comes time for refinance, your lender will need to put this you'll need to put it in the corp. You will need to refinance in the corp.
Milena Cardinal:So so if you wanna purchase it so one one thing that we the the way that we've used Bear Trust a lot in our journey is when we want to be competitive on a purchase because we know especially when we were buying small multis, we knew that we were all gonna be a lot more competitive in our offer if we could give a seven day close. And a seven day close can only happen, in my world anyway, can only happen with a a a, basically, a residential mortgage. So as long as at the beginning, we still were able to get residential mortgages, we knew we could get an up an approval very, very fast. So we would use their trust to buy in their personal name and then and then have the ownership in the corp, knowing full well, though, that five years later, when the when the bank asks for assuming a five year term, of course, when it's time to refinance, the bank is going to ask for our income, and they're gonna see that the income is not in our personal name. It's in the court.
Milena Cardinal:So we knew that then we would have to gear up to refinance this property inside the court. Yep. Yeah. So there's there's so this happens all the time with clients with bear trust, and we have to navigate that very carefully because you're totally right. But that could be used as a positive on the flip side because if a client buys a property a year later on a five year mortgage, a year later comes to see me and says, I wanna put this in a brand new corporation that has zero activity.
Milena Cardinal:Fantastic. We put it in the court with a bear trust agreement. Now you have four years to build income in that court. So four years later, when they go to the lender and say, I want a new mortgage in my corporation, and, yes, by closing, the property will be in the name of the corp, but it's been operating for four years in the corporation. Look at all this beautiful income that's gonna really help with the refinance rather than going to a bank five years later and saying, have this empty corp.
Milena Cardinal:I'd like to qualify for a mortgage on on the property that I own personally. It's a little bit more difficult.
Scott Dillingham:Yep. And like you said, so that's why I like your little buckets, and I want you to to finish them. But just to wrap up this thought, like, but again, right? So from financing standpoint, this strategy makes sense from an income tax perspective. Right?
Scott Dillingham:It's it's deemed that the income is in the entity like you mentioned.
Milena Cardinal:Yeah.
Scott Dillingham:But from liability, you're exposed because it's still in your personal name. Right? So if you want personal liability protection, this is not necessarily the vehicle. So Absolutely. It's interesting.
Scott Dillingham:There are so many angles.
Milena Cardinal:If you give me just a minute, I can share my screen. I actually have a visual of this.
Scott Dillingham:Sure. Yeah.
Milena Cardinal:Wheel. Can I do this full screen? So okay. Give me a second here. K.
Milena Cardinal:I've never shared my screen on this. Oh, easy enough. Okay.
Scott Dillingham:Yeah. Yeah. It's not too hard.
Milena Cardinal:Okay. So
Scott Dillingham:I see it.
Milena Cardinal:Yeah. So let me just go through the slides here. How do we get oh, right there. Okay. Yeah.
Milena Cardinal:So, of course, liability protection, we talked about. Tax minimization. Finance ability is the next one. The next one is investor attractiveness. So this is where it comes in that we need to protect our investors.
Milena Cardinal:Right? When I raise capital, I will absolutely protect my investors, and I will have that in mind when I set up my structure so that when client asks, I have the answer. I already know when a client asks me, am I gonna have to qualify for that mortgage? Am I going to personally guarantee this mortgage? Am I gonna be on the hook for any of these steps of the of the project?
Milena Cardinal:And what the answer I wanna give to to my investors, unless, like I said, they're very closely linked to the project, is like, no. Your only risk is losing the money you put in, really. And, of course, I will guard it with my life, but the only risk is the money you put in. We're not gonna put any liability or any responsibility for the project on your shoulders. Your money is all that we that we are, grateful for your investing in the project.
Milena Cardinal:So to me, that's really important. And when I have clients who maybe are starting out and they're hearing about, you know, buying properties with other people's money, and they're like, this is really great, but I don't I don't wanna pay an extra 1% on my mortgage, so I'm gonna put it in my personal name. I'm like, your investors may not like that. It may look like you're a newbie, which you are, but, you know, it's and your investors should know that, but let's not, you know, hint at at at lack of knowledge. Right?
Milena Cardinal:So really depends on each project. It is so it is so on a case by case basis. But for me, investor attractiveness is super important when I raise capital. And so, of course, I wanna have the structure that's gonna best protect my investors. The flip side of that, though, is that the more complex the structure, even though it protect provides more protection for investors, it is also more difficult to understand for some investors.
Milena Cardinal:So the flip side is sometimes it will kill the deal because of the complexity of documents, for example, in a GPLP structure. And then if investors are left to go and to go to their own lawyer, who maybe hasn't really dealt with GPLP structures before and say, can you review these documents? It may really be prohibitive, the cost may be prohibitive for the investors. We have we have ways around that that I suggest to my to my clients, but just the flip side of the complexity, which brings projection, is also complexity. Right?
Milena Cardinal:Yeah. K. The next one is life and legacy goals. So for so as a lawyer, one I one thing that I always look at with my clients is what do they want out of this? It is gonna be very different if a client tells me I wanna replace my income so I can quit my job, and someone who says, I've got a child with learning disabilities, and I want to ensure their their future.
Milena Cardinal:Very, very different goals and very different way of looking at it because anything in personal name is going to be subject to probate, take a long time to transfer, and and which can cause a depreciation, not in the in the taxation sense, but in the sense of the value will go down if it takes a long time to deal with someone's estate while it sits there and still needs and and the debt still need to be paid. Right? Whereas if it's in a corporation with a secondary will, we can not only bypass probate, but also it allows for the transfer of the shares very quickly, and then the the heirs or or the trustees or whoever is named by the by the the testator can take over the portfolio very quickly, and it protects the the estate significantly on top of actually saving time. So it is something I'm gonna look at always depending on their life and legacy goals. What do they want for their retirement?
Milena Cardinal:What do they want after they they're passing? Do they have children? Are they married? All of that fact factors inform me.
Scott Dillingham:That's
Milena Cardinal:awesome. The last one is cost. Right? Because the ideal structure is always gonna be too expensive no matter what. So we gotta find ways that make sense financially for the project and for the business of my clients.
Milena Cardinal:So these are the six pillars that I look at ultimately of the different factors to Awesome. Decide the best structure.
Scott Dillingham:I love that. So what you're saying is you don't need to argue between your lawyer and your accountant. They just need to call you, and you're gonna kinda look at all angles holistically
Milena Cardinal:Correct.
Scott Dillingham:And come up with the best solution.
Milena Cardinal:Correct. And oftentimes, I will do that in collaboration with the lawyer and the accountant. Right? Because with the sorry. The accountant and the mortgage broker, sometimes they have a financial adviser.
Milena Cardinal:Right? So the idea is to bring the experts together and have them working together because, yes, if if if clients will go to their account, then they'll come to me and they'll be like, I'm so confused. I'm not sure what's what's the best way to go. My broker said one thing. My accountant said another.
Milena Cardinal:My financial adviser thinks another. Like, how how do I clear out the noise? Which which one's right? And like I said, usually, they're all right. The question is is is bringing it all together.
Milena Cardinal:Because if if the accountant says, well, no. It has to be in a family trust because, you know, income income tax split between family members, and it allows for passing, income tax free. Like, yes. But if you fail to see the financeability part, there will be nothing to transfer. It will be an empty shell that will transfer because these are real estate investors, and they need to qualify for mortgages.
Milena Cardinal:Right? So it's it's it's it's the most the the the most obvious example I can come up with, but there are all kinds of nuances like that. So when I have conversations with accountants and and brokers and other experts, really, it's it's it's a dynamic conversation of, like, what's how do we balance out all of these different elements to come up with the very best solution for our clients? Mhmm. So it's it's such a they're difficult questions to answer, and sometimes the answer is something that clients never thought of.
Milena Cardinal:Right? Sometimes they'll say, is it a JV or a GPLP? And I'm like, actually, you're ready to open an MFD. Yeah. Right?
Milena Cardinal:So it's like, really depends on each client, and they don't always have all of the tools that I've seen in in in my in my in in the firm or in in my experience, and I may be able to come up with a brand new solution that we hadn't thought of that would haven't thought of that will balance these out better.
Scott Dillingham:Absolutely. And and just just about financing because that that's what I do, but I will say on the residential side, right, this is where the way that you set up your entity can be detrimental to your financing. Right? On commercial, it doesn't so much matter. They're used to it, but they'll ask us for like a tree, right?
Scott Dillingham:They want to see the flow, what company owns what company and in what order. Right. They want to see all of that. So we make them a corporate structured tree. But beyond that, yeah.
Scott Dillingham:So, like, I just wanna clarify that. Yes. If you're buying apartment buildings, retail, like, that stuff, this is generally no problem. However, you decide to set this up for the financing. But on residential, it matters.
Scott Dillingham:Residential, they they often want holding companies. Right? It cannot be an operating company that owns the property. So you gotta be careful of that. Now, of course, there are lenders that will be okay with operating companies, but it's just they're drastically less.
Scott Dillingham:Of course. You don't you don't wanna pay this cost, right, get it all set up and find out you can't get the financing you want. So it's yeah. I agree. It's a team.
Milena Cardinal:Let me ask you something else too, because one thing that I've noticed, some of my clients, they will only put one property, especially if it's a five plus unit, if it's commercial. They will only put one property in one corporation. Like, they won't stack them. And so what I've heard from clients is and and, frankly, what I've experienced as well is if there are multiple properties in one corporation, when we wanna refinance one of them, then we have to provide a bunch of information for all the properties we currently have in the property in the company.
Scott Dillingham:Yeah. Now, you know, couple things with that. So, I mean, for for full disclosure, you are supposed to ask your lender if they want everything that you own or just the entity or subject property in question. Okay, every lender is different. 100%.
Scott Dillingham:We even have some lenders that even if you own properties in The States, they want you to claim it over here on your application. Right? Where other lenders don't care. So it really is subjective to the lender. Yeah.
Scott Dillingham:But I will tell you this. I mean, it's definitely more expensive to have one corp per property.
Milena Cardinal:Yeah. But
Scott Dillingham:when it comes to looking at the numbers, right, and just analyzing, we're only looking at that one set of of financials. Right? So we can tell. But if you have multiple properties in there and everything's grouped together and there's a loss, let's just say there's a loss, that looks really bad to the lender, but this property might be really strong. Right?
Scott Dillingham:And that's the property you wanna refinance. So there really is pros and cons both ways. Yep. But as far as, like, ease of reviewing the file, I think the the one entity per property is easy. Is it financial like, financially sound?
Scott Dillingham:Like, should you do that? Is that gonna have crazy accounting fees annually? Yeah. Probably. Right?
Scott Dillingham:Because you mentioned in there as well, right, it's gotta be financially feasible. It has to make sense.
Milena Cardinal:Exactly.
Scott Dillingham:That your savings does not get eaten up by the cost to set up these entities. Right? And if you're filing 20 tax returns Yeah. It's
Milena Cardinal:I mean, it depends on the size of the business. Right? Like, I do certainly have clients who do at least 20 of them, but the the size of their business justifies it. Right? And so when I have clients who buy, you know, twenty, thirty unit buildings, typically, we're doing one corporation per building, if not one GPLB structure per building.
Milena Cardinal:Yeah. But five units is tricky. Right? When you're around the five unit mark, it's really tricky because oftentimes, the project won't carry how high the cost will be to have one corporation own the five unit. But some of my clients, they still make that choice.
Milena Cardinal:And so I know, personally, what I would probably do is I might put two five units together, probably no more than that, but I might put two five unit buildings in one corporation as long as they're the same use and they're at the same stage and that that they're not with JVs or anything like that. Right?
Scott Dillingham:Yeah. So
Milena Cardinal:So if I have one that's that I'm like flipping, I have to know that until that one stabilized, I can't refinance the other because otherwise I'm going to be at a loss until they're both stabilized, for example.
Scott Dillingham:Yeah. And I'm suggestion as well, not from a tax perspective or anything like that. Just what I would do with my investment portfolio because I do think it's smart to look at the exit strategy. I think that's something an investor should consider. And so I'm gonna say, right, let's we'll keep to your five unit property.
Scott Dillingham:I'm gonna say, if I can insure this deal with CMHC or even get MLI Select, which is even better, I would rather have one entity per property if it's with CMHC, because that CMHC note is worth something as well. So I think, you know, like I know investors that deliberately build properties, get it all rented, qualify for CMHC financing, and then they sell it right on purpose because a lot of people don't go through that themselves or don't have the capacity. But if it's just a regular five plex and we're just going with a conventional lender, I don't think there's anything special about that. And so I would agree with what you said there, and I I would probably put in a couple. I wouldn't just do the do the one.
Scott Dillingham:That'd be my what I would do if it was me.
Milena Cardinal:The other benefit of having only one project in one corporation is that you could sell the shares of the corporation rather than sell the building. Absolutely. A little bit more due diligence for the buyer to do because there's more risk involved in the shares, but but then there's no land transfer tax. So so there's, like, good and bad in both for sure. But oftentimes, it means assuming all of the existing liens so so that the buyer can assume your existing mortgage if buying the shares of the corporation.
Milena Cardinal:So if there's, like, there's so many layers in here. Right? That's why there's no such thing as a clear cut answer. Oh, if I'm you know, I have clients sometimes who say, like, if I buy a ten ten unit building, should I do a GPLP? I need a lot more data to answer that question.
Milena Cardinal:Who are you financing? Who are you get like, who are you raising capital from? Are you raising capital from one or two people or from 20? Right? Are you are are are you raising capital from accredited investors or not?
Milena Cardinal:Right? So there's so many different layers.
Scott Dillingham:It's funny to see that you get similar questions, your field than we do ours. Like, we'll get clients to say, you know, our household income is 120. What can we get? And, you know, it's so much more than that. Right?
Scott Dillingham:Yeah. But I get it right. They're looking for the answers and stuff. But yeah, I agree. You have to be much more thorough so you can get that accurate information, which I like.
Scott Dillingham:So no, that's awesome. So we'll wrap up for today. But let's say, you know, somebody's listening to this and they want to touch base with you and set up that consultation where you'll do the holistic approach and look at things and see what the best structure is. How do they reach you? Like, what's next?
Milena Cardinal:Well, we offer free consultations to all NCD members. And so they can reach out either by going to our website, cardinallaw.ca, two l's, and and there's a they just fill out the contact us, and usually within a day we get back to them. Okay. Also, they can email info@CardinalLaw.ca, again, with two l's, and and that'll reach my assistant, June, and she will make sure that that we book you something. And, also, you can just reach up reach us by phone as well.
Scott Dillingham:Yeah. Okay. That's awesome. Well, thanks so much, Melina. It was it was great.
Scott Dillingham:I I love the value that you you add to every every time we meet, so that's awesome. Thank you. And looking forward to the next one.
Milena Cardinal:Me too. Alright. Have a great day. Bye, everyone.