Scott Dillingham: 00:22

Okay, Melena. I think we're live.

Milena Cardinal: 00:24

Yay. That's Alright.

Scott Dillingham: 00:26

So how are you doing?

Milena Cardinal: 00:27

I'm good.

Scott Dillingham: 00:28

I'm really excited to to chat about our topic today, maximizing shareholder value in real estate. So

Milena Cardinal: 00:35

Yes.

Scott Dillingham: 00:36

Why don't you let us know a little bit about what that entails?

Milena Cardinal: 00:40

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 or is the 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 to all the parties is one of the simplest structures that we can have.

Milena Cardinal: 01:58

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: 02:11

No. Absolutely. That's that's super cool. Because you're right. There there's so many different things, and we're seeing, like, different entities require different types of financing from the lender standpoint.

Scott Dillingham: 02:22

So we can go over all of those as well. So where do you wanna 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: 02:34

Well, to me, everything is, it's 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.

Scott Dillingham: 03:22

That's right. Yeah. That's right. So, like, depending on how it's set up or the ownership percentage, and I don't wanna go over specifics here because like you said, it's completely custom to the deal. It's it's different.

Scott Dillingham: 03:35

Every lender's different. But ultimately, yeah, if if you're a majority shareholder or owner of an entity, sometimes 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. 1 of our lenders So we do, obviously, US and and Canada.

Scott Dillingham: 03:57

But one of the lenders says as long as you own 20% of the entity, you can be the only one that applies. We don't need anybody else as long as you own just 20%. Right? And so, you know, I said I wasn't gonna give numbers, but I I that one, it was a a very firm number, so they they don't care. But, again, every lender's different.

Scott Dillingham: 04:15

Some lenders, they want every single director on the mortgage. Right? 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?

Scott Dillingham: 04:36

Because they can see, you know, even though you want the record, it's still 5050. Right? So they

Milena Cardinal: 04:41

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: 05:16

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. Probably not a good idea to also ask more of them in this in the sense of qualifying.

Milena Cardinal: 05:52

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 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: 06:16

Yep. No. And you're right. And just to touch on the fact again that it's, like, completely random. Right?

Scott Dillingham: 06:21

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. Some are full recourse, some are limited recourse, and some of the big, big stuff can even be no recourse depending on the the deal again, property, location, amount, all of these things.

Scott Dillingham: 06:48

So you do wanna 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. But I do agree, you know, the the proper structure and 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 you're meeting their terms.

Scott Dillingham: 07:20

Right? You don't get to try to negotiate. Right? 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 financing options.

Milena Cardinal: 07:34

It's even more than that. I would say that that we as the experts together have to collaborate

Scott Dillingham: 07:40

For sure.

Milena Cardinal: 07:40

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. 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.

Scott Dillingham: 08:03

Absolutely.

Milena Cardinal: 08:04

What did you mean by recourse? What was what's the meaning of that word in in that context?

Scott Dillingham: 08:09

Recourse is like liability. Like, 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? Okay.

Milena Cardinal: 08:24

Yeah. Yeah.

Scott Dillingham: 08:25

Let me call it recourse. Like, I want recourse. So if you don't meet the terms, I can come after you. So I have full recourse.

Milena Cardinal: 08:32

Got okay. So it's, like, from the lender's perspective.

Scott Dillingham: 08:35

Yeah.

Milena Cardinal: 08:36

Alright. I love that.

Scott Dillingham: 08:37

But from an investor, right, if you are, say, you're only partially on the hook for a loan

Milena Cardinal: 08:43

Yeah. Yeah. Yeah.

Scott Dillingham: 08:43

Right, that's better. Right? It reduces your risk a little bit. Mhmm. So it's interesting.

Scott Dillingham: 08:49

So Yeah. How do we get started? So I have a property. I wanna make sure I have the best structure. What what's the next step?

Milena Cardinal: 08:58

A consultation typically is the first step. I and 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 a I'm gonna wanna create a new corporation for this project. I might say, well, if you're selling due diligence, don't create the corporation just yet.

Milena Cardinal: 09:41

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?

Scott Dillingham: 10:02

Mhmm.

Milena Cardinal: 10:02

So 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.

Milena Cardinal: 10:28

As we go figure out the best way to to to structure the deal.

Scott Dillingham: 10:33

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: 10:49

That way the capital raise doesn't necessarily affect the structure. Do you know what I mean?

Milena Cardinal: 10:54

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 a project when the corporation is not in place, due diligence is not complete. Right?

Milena Cardinal: 11:07

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: 11:46

Awesome. So that's

Milena Cardinal: 11:47

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.

Milena Cardinal: 12:12

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. 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.

Milena Cardinal: 12:30

And so if we receive funds on the day of closing, that can get really dicey and can really delay the transaction. 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's signed. Everything is done.

Scott Dillingham: 12:55

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.

Scott Dillingham: 13:07

But are there any other type of structures that investors wanna get set up, or is it mainly the GPLP structure?

Milena Cardinal: 13:14

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: 13:23

Sometimes I need a hammer, and sometimes I need a saw, and sometimes I need both in combination with one another at different 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.

Milena Cardinal: 13:39

So and we can bring those tools together. But a very simple project, it's usually 1 or the other. It's either a JV, which is a joint venture, 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, we have a land banking deal. So all of our investors own shares in the corporation.

Milena Cardinal: 14:05

Corporation owns the land. Right? With the land banking deal where we didn't get financing, that was the easiest way to do it because we were buying it 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: 14:25

Mhmm.

Milena Cardinal: 14:26

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. Yeah.

Milena Cardinal: 15:12

And I've also seen cases where we've created, almost sort of like a GPLP, but without the actual it actually being, a limited partnership through a joint venture. So what we do is we create 1 corporation that's gonna own and manage the project, 1 corporation where all the investors invest their money, and then we tie the 2 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. That only works when there's no down payment.

Milena Cardinal: 15:48

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: 16:00

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: 16:15

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 and we can make this happen, you know, the best for the for the customer.

Milena Cardinal: 16:36

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: 16:41

All are right. People will talk to their accountant, their lawyer, and the mortgage broker get 3 to financers. Right? As to what structure should I use? Should I be incorporated for this purchase?

Milena Cardinal: 16:50

I see this all the time. All 3 are right. The accountant is looking at it from a taxation perspective, and it's like, how do I minimize your taxes? That's how the accountant looks at it. The average lawyer will look at it from how do I minimize your liability.

Milena Cardinal: 17:05

Right? So the accountant might say, oh, it's you have to be incorporated, and then the lawyer might say, yes. You should be incorporated for this. It'll protect you from liability, and then you should have a holding code on on top. And then the mortgage broker might say, no.

Milena Cardinal: 17:21

Do it in your personal name. It'll cost you less in terms of interest. Right? Yeah. What we do, the expertise that we've built over the years allows us to look at the big picture.

Milena Cardinal: 17:30

So we actually look at 6 different factors, different different categories of factors. So tax minimization, of course, is important. We need to understand what are the going to 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: 18:03

At their core, those are the two main reasons. But there's 4 actually 4 other categories that I look at. Financeability, 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: 18:22

And at refinance and then at refinance and then a refinance. So we wanna always have in mind, what are you gonna do in 5 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: 18:37

Mhmm.

Milena Cardinal: 18:38

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 3 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. Financeability, absolutely essential.

Milena Cardinal: 19:05

Even though an accountant would say from a tax perspective, a family trust is the best way to go. Right?

Scott Dillingham: 19:11

Yeah. Yeah. Yep. And just on just on the financing. Right?

Scott Dillingham: 19:13

And then I love to hear the the other things that you look at too. 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?

Scott Dillingham: 19:28

We don't see it. It's not on the personal tax return. Yes. And then 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.

Scott Dillingham: 19:40

And I'm gonna say most of the time, they then are okay with it. They understand. However, let me rephrase that. 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.

Scott Dillingham: 20:08

But that is so for anybody who's listening, that's what you wanna 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.

Scott Dillingham: 20:20

They're not seeing it.

Milena Cardinal: 20:21

I I see it all the time. Clients will call me and say and say, I wanna 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: 20:36

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 gonna be a lot more competitive in our offer if we could give a 7 day close, And a 7 day close can only happen, in my world anyway, can only happen with a a a basically a residential mortgage. So as long as but at the beginning, when 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 5 years later when the when the bank asks for, assuming a 5 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 her personal name. It's in the court. So we knew that then we would have to gear up to refinance this property inside the court.

Milena Cardinal: 21:38

Yep. Yeah. So there's there's so this happens all the time with clients with bare 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 5 year mortgage, a year later comes to see me and says, I wanna put this in a brand new corporation that has zero activity. Fantastic.

Milena Cardinal: 22:01

We put it in the corp with a bare trust agreement. Now you have 4 years to build income in that corp. So 4 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 4 years in the corporation. Look at all this beautiful income. That's gonna really help with the refinance rather than going to a bank 5 years later and saying, I have this empty corp.

Milena Cardinal: 22:27

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: 22:32

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, it's it's deemed that the income is in the entity like you mentioned.

Milena Cardinal: 22:50

Yeah.

Scott Dillingham: 22:51

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: 23:02

There are so many angles.

Milena Cardinal: 23:04

If you give me just a minute, I can share my screen. I actually have a visual of this

Scott Dillingham: 23:09

Sure. Yeah.

Milena Cardinal: 23:10

Wheel. Can I do this full screen? So okay. Give me a second here. K.

Milena Cardinal: 23:19

I've never shared my screen on this. Oh, easy enough. Okay.

Scott Dillingham: 23:22

Yeah. Yeah. It's not too hard.

Milena Cardinal: 23:25

Okay. So

Scott Dillingham: 23:29

I see it.

Milena Cardinal: 23:30

Yeah. So let me just go through the slides here. How do I oh, right there. Okay. Yeah.

Milena Cardinal: 23:36

So, of course, liability projection, we talked about tax minimization, financeability is the next one. The next one is investor attractiveness. So this is where it comes in that we need to protect our investors. 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.

Milena Cardinal: 23:57

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 debts of the pro of the project? And at 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.

Milena Cardinal: 24:18

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. 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.

Milena Cardinal: 24:46

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? So really depends on each project.

Milena Cardinal: 25:03

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 provides more protection for investors, it is also more difficult to understand for some investors. So the flip side is sometimes it will kill the deal because of the complexity of documents, for example, in the 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?

Milena Cardinal: 25:45

It may really be prohibitive. The cost may be prohibitive for the investors. We have a 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? Yeah.

Milena Cardinal: 25:59

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 wanna ensure their their future. Very, very different goals and very different way of looking at it because anything in personal name is gonna 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.

Milena Cardinal: 26:48

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 ton. So it is something I'm gonna look at always depending on their life and legacy goals. What do they want for their retirement? What do they want after they they're passing?

Milena Cardinal: 27:22

Do they have children? Are they married? All of that fact factors inform me.

Scott Dillingham: 27:26

That's

Milena Cardinal: 27:26

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: 27:40

So these are the 6 pillars that I look at ultimately of the different factors to No problem. Decide the best structure.

Scott Dillingham: 27:47

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: 27:59

Correct.

Scott Dillingham: 27:59

And come up with the best solution.

Milena Cardinal: 28:01

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: 28:11

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: 28:25

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: 28:36

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: 28:59

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 new 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: 29:28

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: 29:35

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 that would haven't thought of that will balance these out better.

Scott Dillingham: 29:55

Absolutely. And and just just about financing because that that's what I do. But I will stay on the residential side. Right? This is where the way that you set up your entity can be detrimental to your financing.

Scott Dillingham: 30:07

Right? On commercial, it doesn't so much matter. They're used to it, but they'll ask us for, like, a tree. Right? They wanna see the flow, what company owns what company, and in what order.

Scott Dillingham: 30:20

Right? They would they wanna see all of that. So we make them a corporate structured tree. But beyond that, yes. So, like, I just wanna clarify that, yes.

Scott Dillingham: 30:28

If you're buying apartment buildings, retail, like, all that stuff, this is generally no problem. However, you decide to set this up for the financing. But on residential, it matters. Residential, they they often want holding companies. Right?

Scott Dillingham: 30:41

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.

Milena Cardinal: 30:51

Of course.

Scott Dillingham: 30:52

You don't you don't wanna pay this cost, right, get it all set up and find out you can't with the financing you want. So it's yeah. I agree. It's a team.

Milena Cardinal: 31:00

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 5 plus unit. If it's commercial, they will only put one property in 1 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 1 corporation when we wanna refinance 1 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: 31:32

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.

Scott Dillingham: 31:54

A 100%. 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.

Scott Dillingham: 32:07

Yeah. But I will tell you this. I mean, it's definitely more expensive to have 1 corp per property.

Milena Cardinal: 32:13

Yeah.

Scott Dillingham: 32:14

But 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, what you say there's a loss, that looks really bad to the lender, but this property might be really strong. Right?

Scott Dillingham: 32:35

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: 32:52

Like, should you do that? Is that gonna have crazy accounting fees annually? Yeah. Probably. Right?

Scott Dillingham: 32:57

Because you mentioned in there as well. Right? It's gotta be financially feasible. It has to make sense

Milena Cardinal: 33:01

Exactly.

Scott Dillingham: 33:02

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: 33:11

I mean, it depends on the size of the business. Right? Like, I do have certainly have clients who do at least 20 of them, but their the size of their business justifies it. Right? And so and when I have clients who buy, you know, 20, 30 unit buildings, typically, we're doing 1 corporation per building, if not 1 GPLP structure per building.

Scott Dillingham: 33:29

Yeah.

Milena Cardinal: 33:30

But 5 units is tricky. Why when you're around the 5 unit mark, it's really tricky because oftentimes, the project won't carry how high the cost will be to have 1 corporation own the 5 unit. But some of my clients, they still make that choice. And so I know personally what I would probably do is I might put 2 5 units together, probably no more than that. But if I put 2 5 unit buildings in 1 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.

Milena Cardinal: 34:06

Right?

Scott Dillingham: 34:06

Yep. So

Milena Cardinal: 34:08

so if I have one that's that I'm, like, flipping, I have to know that until that one's stabilized, I can't refinance the other because, otherwise, I'm gonna be at a loss until they're both stabilized, for example.

Scott Dillingham: 34:20

Yeah. And I'm gonna make my own 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 5 unit property.

Scott Dillingham: 34:40

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 is worth something as well. So I think, you know, like, I 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 5plex 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 them in a couple. I wouldn't just do the do the one.

Scott Dillingham: 35:27

That'd be my what I would do if it was me.

Milena Cardinal: 35:30

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. 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. Yep.

Milena Cardinal: 35:50

But oftentimes, that means assuming all of the existing liens so so that the buyer can assume your existing mortgage if buying the shares of the corporation. So 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 10 10 unit building, should I do a GPLP?

Milena Cardinal: 36:14

The the I need a lot more data to answer that question.

Scott Dillingham: 36:17

Yeah. Who

Milena Cardinal: 36:18

are you financing? Who are you get like, who are you raising capital from? Are you raising capital from 1 or 2 people or from 20? Right? Are you are are are you raising capital from accredited investors or not?

Milena Cardinal: 36:28

Right? So there's so many different layers.

Scott Dillingham: 36:31

It's funny to see that you get similar questions, obviously, about your field than we do ours. Like, we'll get clients to say, oh, you know, our household income's 120. What can we get? And so, you know, it's so much more than that.

Milena Cardinal: 36:43

Right?

Scott Dillingham: 36:44

Yeah. But I get it. Right? They they're looking for the answers and stuff. But, yeah, I agree.

Scott Dillingham: 36:48

You have to be much more thorough so you can get that accurate information, which I like. So no. That that's awesome. So we'll wrap up for today, but let's say, you know, somebody's listening to this and they wanna touch base with you and set up that consultation where you'll you'll do the holistic approach and look at things and see what the best structure is. How do they reach you?

Scott Dillingham: 37:08

Like, what's what's next?

Milena Cardinal: 37:10

Well, we offer free consultations to all in city members, and so they can reach out either by going to our website cardinallaw.ca, 2 l's, and and there's a they just fill out the contact us, and usually within a day, we get back to them.

Scott Dillingham: 37:26

Okay.

Milena Cardinal: 37:26

Also, they can email info at cardinal law dot ca. Again, with 2 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 out reach us by phone as well.

Scott Dillingham: 37:40

Yeah. That's awesome. Well, thanks so much, Melina. It was it was great. I I love the value that you you add to every every time we meet, so that's awesome.

Scott Dillingham: 37:49

Thank you. And, looking forward to the next one.

Milena Cardinal: 37:52

Me too. Alright. Have a great day. Ones. Bye, everyone.