Scott Dillingham: 00:21

Welcome to this episode of the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. So I have a very good client of mine, and he's asked me to do a podcast about the pros and cons of buying in a corp or if you should buy personally. So that's what we're gonna cover today. And for you listening, if you have any questions or you think a podcast episode would be important just like this one, let me know and I will absolutely make it for you, pending that I believe it's something that a lot of investors wanna know.

Scott Dillingham: 00:55

So by all means, please reach out if you have any questions or comments or potential episodes that you'd like. My email address is scott@lendcity.ca. Give me your feedback, and we can make it happen. So as per my client's request, let's go over the pros and cons of buying in the corp.

Scott Dillingham: 01:23

So first, I'll start off with the good stuff. Okay? Here's some of the major benefits and why people want to buy in a corp as opposed to their personal name. So one of the major things is the mortgages do not show up on your personal bureau. So I'm not gonna call out lenders' names here because I know there's some red tape with that.

Scott Dillingham: 01:42

We've gotta get their approval to use their names in here. But we've got some residential lenders. Now they only hold personal mortgages. This lender won't do corporate mortgages. However, they allow us to not factor in any of the corporate mortgages.

Scott Dillingham: 01:58

We're allowed to act as if they're not even there, and we can erase them from the application. So an investor could get started. They could max out the amount that they buy, put them all in the corp, they're reset, and they can keep going. Put them on the corp, they're reset, right? And you can keep going and going.

Scott Dillingham: 02:15

So you can see how that could be super important when a lender is not factoring in properties in your corp. So that is a major positive of buying in the corp. The other thing is you get extra liability protection. Now the thing is you can buy external or separate liability coverage, so you can be protected. But generally speaking, if it's in a corp and you were to be sued, only the assets in the corp are, you know, up for debates.

Scott Dillingham: 02:50

They can't come after your personal items. So you get that type of liability protection in the corp, okay? But there's some key cons here as well. And you know what? There probably is more pros and there's gonna be more cons that I'm listing here too, but I'm listing the major ones that impact the most of my investor clients.

Scott Dillingham: 03:09

Right? So when I'm on the phone with them and we're going over the pros and cons, these are the things that we're discussing. Again, there's probably millions of pros and cons, but these are the big ones that encompass most of the investors' concerns. So obviously the negative is if you're buying personally, it's gonna show up on your personal credit bureau. Okay?

Scott Dillingham: 03:28

And that's pretty standard. I'm also gonna say that the con of buying in the corp name is that you're going to get lower rates. And it's not necessarily that the lenders charge you more if it's in the corp, it's just that there's less lenders that do it. So before Covid, there was a ton of lenders that allowed you to register your property in the corp. So it's very common, but then COVID came and most of these lenders froze and stopped offering that product.

Scott Dillingham: 03:58

And then as COVID sort of got behind us, they've reopened back up and but not all of them. But a bunch of lenders have opened up, and now we can do them in in the corpse again. And the thing is the lenders are looking at it like, look, if you're buying in a corp, this is a commercial like, this is a business. So they're not gonna give you a residential mortgage on that property. They kinda wanna go commercial properties and commercial mortgages.

Scott Dillingham: 04:23

So, I mean, we have a commercial team, so we can absolutely help with that. But the downside to going with commercial is there's fees. There's many upsides, but that's not what this episode's about. So ideally though, as an investor, if you can buy in the corp on the residential side, you don't have those fees, right? So this is why it's attractive.

Scott Dillingham: 04:43

But, so let's go back to the rates, right? Why are the rates worse? Well again, there's less lenders. So let's say out of a 100 lenders, and everyone does rentals in this hypothetical example, we can really shop those lenders and get the client the best rate when it's in the personal name. But let's say out of those 100 lenders, only 10 will do properties in corp.

Scott Dillingham: 05:06

Right? You can visually see just by those numbers that you're not going to get as good of a rate because those 10 that we have, they may not have the very best deal in the market. So your interest rates can be higher if it's in a corp. There's some other caveats too. Right?

Scott Dillingham: 05:22

Like if you set up a corporation and there's 4 directors. The lenders are gonna wanna see that those 4 directors are on this new mortgage. So sometimes that's a problem because sometimes, investors and people that own corporations, they set up a corp and they add people as directors, as maybe family members or whatever, so they can get some benefit, some type of return from the corporation over time, but they don't necessarily want them to own the real estate. So it's very important to know that if you are gonna register in the corp as well, that all the borrowers that are directors are also co owners and on the mortgage for that investment property. Okay?

Scott Dillingham: 06:02

So that's really at high level. Those are the major pros and cons. There is another thing that I will throw out there to you. You have to speak to your lender. In this case, if you have questions and you're gonna work with us, give us a call.

Scott Dillingham: 06:14

My office line is 5199-6003 70. But if you're working with someone else, the the other thing is called, like, a bear trust agreement. So what this does, it allows you to close personally, but then it kind of pushes the property to the corporation after closing as far as CRA is concerned. So for income taxes, it's in the corp. Okay?

Scott Dillingham: 06:43

And that's something I really didn't discuss because I'm not a tax professional. You have to speak to your accountant on how this can affect you. But in corporations, depending on your personal income, it might actually be cheaper from a tax perspective to keep them personal. But depending on what you're doing, it might be cheaper in the corp. Okay?

Scott Dillingham: 07:00

So you need to speak to your accountant on that. I didn't touch on any of that on on purpose. But the so with the bare trust, right, it puts it in the corp for taxes, but it does not protect you from liability because it's still held on your personal name. So keep that in mind. Some lenders are fully against this and they won't allow you to do it.

Scott Dillingham: 07:22

It kind of it makes it weird down the road when you try to refinance because a lender will say, you know, show me the income. And they're not seeing it on your personal tax returns. So they're they're like, are you not claiming this rental income? And you're like, no. Like, it's in my corporation.

Scott Dillingham: 07:38

And then they're gonna be like, but the property's in your personal name. See See what I mean? So there can be some red tape with the lenders after the fact when you're refinancing a property that you use to bear trust with. But a lot of the lenders get it and they see it and they're like, okay, you know, I understand this makes sense and they move forward. So keep that in mind too.

Scott Dillingham: 07:58

I've been told from my clients, and again, you wanna speak to your lawyer and accountant on this, but I've been told that they were able to do it without triggering a land transfer tax or anything like that. And so it's potentially an option for you. And it kind of beats the system in a sense, because then you can access all lenders, But again, the downside is you don't have that liability protection, and your lender could be completely against this. So you wanna make sure that everything's good first, but just know that is an option too that some bar investors opt in for, and that's what they do. So I hope this episode helps.

Scott Dillingham: 08:32

I wanted to keep it short and sweet and give you the information that you needed. We are going to be having, webinars within our hub about this. We have professionals that we've already booked to speak about this. So if this is something that you're interested in, the link will be in the description to access our hub, our investor hub, and that's where we put our best content. So if you're not part of the investor hub, make sure you join it.

Scott Dillingham: 08:56

Everything's going to be in there. But anyways, I hope this helped and I hope it helps you to determine what's better for you, to buy in the personal name or the corp. Thank you.