Getting Set up in Canada...Investing with a Small Group of people
Hi Team,
I have a conundrum. I am trying to figure out how to get started in terms of "What entity will buy this property I am interested in?". I will briefly go over my scope and goals and will propose some options. If you have any feedback please feel free to go ahead.
Intro
My partner, her brother and his fiance are all in a fairly good position employment and debt wise. We want to pool our resources/finances and invest together in real estate. We all get along really well and have all stated we want to do this for the right reasons and do it properly without affecting our family relationship.
What We Have
My Partner's parents own a 35 acre lot in Quebec and they are trying to figure out how to get that in our names so we can try start working on that as one of our first investments.
What We Want on Top
We are looking to invest in a Rental Property (Some rehab would be OK) with short term returns. We are looking at properties in booming towns within the oil/gas/pipeline industry. We are also looking at the possibility of having one or two other properties elsewhere in similar situations. Cashflow is one of our biggest motivations until we sell obviously within 2-4years. After starting this first project we would be looking at doing maybe up to 2-3 at a time but nothing super crazy. We aren't going to quit our day jobs lets just say.
What We Need to figure out
We are trying to figure out how to set ourselves up for
A. being able to acquire the land gifted to us from my parent in laws with minimal tax/cost to them or us
B Being best set up for tax and cashflow on our rental income and the eventual sale of the property.
We want some protection but we also are not into going all out and creating a three tiered company setup if we don't need to. We are in Canada so there are no LLC's. Incorporation is an option but is expensive to setup and maintain if we aren't getting much cashflow.
Shooting from the Hip - Possible Solutions?
After doing some research it appears that there are a few options:
QUEBEC PROPERTY
- We could incorporate a company with the 4 of us. Have the Quebec Land transferred into the company name, subdivide the lot and pay for a road to be put in, then sell the lots individually.
- We could create a Family Trust to help transfer the Lot across into our ownership. Not sure of how we or the InLaws could reduce or avoid paying a big old Capital Gains tax payment due to the difference in FMV from initial purchase to transfer. It was inherited by my inLaws over 30 yrs ago so the difference is going to be high.
OIL GAS PIPELINE PROPERTY
- We could incorporate a company with the 4 of us. Building/Rehab expenses could be deducted against the rental income.
- Income earned could be distributed evenly or even reinvested to get another property.
I guess the main questions I was hoping for help on are:
1. Should we Start a Corporation, a Family Trust, both or neither? Advice on multi-person set-ups and their strengths/weaknesses? Advice on Corporations and ways to mitigate risks with liability?
2. Any suggestions for the Quebec subdivision in transferring the property to our name with minimal capital gains?
Sorry for the big long spongey email. I have done a LOT of reading on all these topics but sometimes it just takes one of the clever experienced peeps to bring it all together. I look forward to any and all advice people may have from personal experience or even hearsay. US advice welcome also?
Thanks for the opportunity to spitball here folks, wishing you all a happy Tuesday.
Matt McLean