Jermaine Hinds, a mortgage broker at Matrix Mortgage Global, who unpacked the secrets about pre-construction financing, is now unpacking another frequently asked topic about investing. In this news, Jermaine reveals the details about when real estate investors should buy a rental property in their personal name or a corporation name. These points are applicable to investors Canada-wide, not just in Ontario.
Purchasing a rental property in a corporation or personal name is one of the most controversial topics in real estate investing. Some will claim to always purchase a property in a corporation while others will insist on purchasing in a personal name.
In fact, there is a right or wrong answer to this question. Do not make the investment rookie mistakes by incorporating too early and lose money along the way. Read on as Jermaine unpacks the pros and cons of each scenario and gives some tips on making the right decision.
What to do when buying the first rental property?
Buying rental property in the personal name is the simplest way to go for the first rental property.
This makes the entire process simpler when obtaining loans, setting up utilities, and confirming identity as the owner of the property. However, investors will still have to go through the due diligence required from the lender to qualify for a mortgage loan. A mortgage broker is best to assist investors through the hoops and loops so the entire buying and qualification process is stress-free.
Pro tip: Add co-signer(s) to qualify for a bigger mortgage loan amount.
How to best add co-signer(s)?
When buying a rental property, it is not uncommon to include co-signer(s) to make up for lack of income or to qualify for a bigger mortgage loan amount.
Each borrower will need to provide multiple months of income, pay stubs, and bank statements to prove that the person is going to be able to pay the monthly mortgage payments. If the verifiable income is too low, this is where getting co-signer(s) to support the debt burden comes in handy to qualify.
Being a co-signer in a real estate transaction means agreeing to be responsible for any late payments and to pay back the remainder of the loan should the primary borrower not be able to do so.
When looking for co-signer(s), one could ask family and friends to help you out. But as a mortgage professional and real estate investor, Jermaine recommends looking for someone who has more experience than the rental properties investment. This person can teach a thing or two about real estate investment that can only from experience.
What to do when buying the fifth and more property?
Real estate investors who have owned at least four properties in their personal name, may still continue to buy in the personal name. However, just be aware that there will be fewer lenders available in the residential category available at their disposal.
Their options open up when entering the commercial mortgage category lenders, which have whole different qualification criteria than residential mortgages lenders.
As a licensed mortgage broker, Jermaine Hinds and his team at Matrix Mortgage Global can do rental property mortgages in both residential and commercial categories. They also do mortgages Canada-wide.
Alternatively, in this situation, real estate investors can consider buying the next property in a Holding company.
Be sure to check with a real estate accountant to identify the tax benefits and implementation.
From the mortgage qualification standpoint, lenders will still require proof that each borrower or the holding company will be able to carry the mortgage to term as per the contract. The last thing that mortgage lenders want to happen is to have borrowers going to default.
Are there benefits to buying rental property in a corporation name?
When holding income-generating rental properties, real estate investors can decide when the earning dividends from the company can be distributed as a personal income. Check a real estate accountant for the best use of this leverage while remaining in compliance with the tax laws.
One other benefit is real estate investors gain a layer of anonymity when renting out the properties to tenants if this is something that is important.
Are there disadvantages of buying in a Holding company?
There are a few disadvantages of buying in a Holding company.
Firstly, investors will now have the annual reporting burden as a corporation. This is required to keep the corporation in good standing without going to dissolution.
As a corporation, investors now have more complex tax benefits and implications, which is not a problem when they have a real estate accountant in their team.
About Jermaine Hinds, Mortgage Broker:
Jermaine Hinds is a mortgage broker in Toronto with years of experience in the industry. His insight comes from his many years as an agent and lender, which gives him a broad network that offers clients more than 100 different lending partners who are ready to offer various mortgage solutions, including home equity loans, bridge loans, and other specialized mortgages products. Mr. Hinds has two children and one loving wife with who he spends most of his time when not working or spending time at the gym! His mortgage license is powered by Matrix Mortgage Global (Brokerage Lic. #11108). Those who would like more information about this topic, please call Jermaine Hinds at (647) 998-2767 or Jermaine@mmgb.ca
About Matrix Mortgage Global:
Matrix Mortgage Global is a Toronto mortgage brokerage that has been awarded 4X Broker Of The Year in 2018, 2019, 2020, and 2021. The company is led by the Chief Executive Officer, Mr. Shawn Allen who smashed the $380M mark in mortgage origination amount during the Great Financial Crisis. Mr. Allen is an international speaker and masterclass host for mortgage brokers in Canada and Australia.
