US entity structure when investing from Canada suggestions

7 Replies

Hello BP Forums.

I am a new investor and WILL get started investing in US real estate from Canada in February. I have almost everything lined up, a couple agents, a property management company, lender (just one so far, hard money), have chatted with a few contractors, etc. But I am stuck in setting up an LLC and a good cross-border tax planner (I've spoken with a few, but I think I can find something better) I have some more consult calls lined up as I keen networking, and I'm itching to get started.

The main thing I need right now is a proper LLC structure. These are the options I've been advised:

- Form LLC, create LP's for small groups of properties (2-4). Have LLC be a 1% general partner of each LP.

- Form LP's with me owning 99% and a C-Corp owning .5%-1%.

- C-Corp with 1% ownership LLC's for each property.

Only guidance I've received on the Canadian side is to open an LLC here, which is considered a corporation. US C-Corp or LLC would be a pass through entity. Now, US C-Corp would pay dividend to Canadian corp, and Canadian corp pays me as employee. Not sure how it would work if I open a US LLC and not a US C corp... anyone know?

Last is, are any of these structures protect me enough? I've seen and read about the Delaware and Wyoming llc's but I think that is more beneficial later as my portfolio grows.

Any thoughts are greatly appreciated, and! as a thank you and if we meet a bag of nice Colombian coffee :) where I'm from, I do source the real stuff, I know people... lol

Thank you!

Andres

Hey Andres, 

I am not an accountant, and do not invest cross border at the moment, so I am not the right person to answer that question. However, I do know the right guy to talk to! My accountant specializes in helping real estate investors grow their businesses and their firm works with many cross border investors such as yourself. If your would like to P.M me, I would be happy to refer you to them. 

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

Can't speak for the Canadian side, but the US structure seems wildly over-complicated and should be reserved for a sprawling real estate empire, not your first deal. As a general rule, an LLC is the preferred structure for real estate holdings. C-Corporations come with a lot of complications. Limited partnerships come with liabilities. Also, real estate holding LLCs should be created in the same state as the property. While some states have better protections for LLCs than others, when it comes to real estate courts prefer to recognize local protections.

Foreign investors can own an LLC here, but not sure how the taxes work as the funds pass back to Canada. A US LLC will be taxed as a pass-through entity unless you elect to be taxed as a corporation.

@Sean Morrison Thanks! I will start by buying 2-3 properties, with the goal of 5-7 this year. From what I have gathered so far I will have to do a C-Corporation. This is because I have to set up an LLC in Canada to get paid, here an LLC is considered a corporation, so my C-corp in the US would pay in dividends to my Canada LLC, and my Canada LLC would pay me as an employee.

Overly complicated as you say, but unless I receive other advise this might be a way to make it work as a beginner.

The attorney I consulted agrees on not adding too many layers of LLC's and opening one in the state I am in, but he does claim that opening different LP's helps protect my assets on other LP's, in case one of those LP's gets sued.

Originally posted by @Andrés Uribe :

@Sean Morrison Thanks! I will start by buying 2-3 properties, with the goal of 5-7 this year. From what I have gathered so far I will have to do a C-Corporation. This is because I have to set up an LLC in Canada to get paid, here an LLC is considered a corporation, so my C-corp in the US would pay in dividends to my Canada LLC, and my Canada LLC would pay me as an employee.

Overly complicated as you say, but unless I receive other advise this might be a way to make it work as a beginner.

The attorney I consulted agrees on not adding too many layers of LLC's and opening one in the state I am in, but he does claim that opening different LP's helps protect my assets on other LP's, in case one of those LP's gets sued.

LLCs don't exist in Canada, only Corps or LPs.  Don't get advice on a forums to get the proper structure, use an experienced cross border accountant to advise you on the best setup.  

 

Originally posted by @Andrés Uribe :

@Sean Morrison Thanks! I will start by buying 2-3 properties, with the goal of 5-7 this year. From what I have gathered so far I will have to do a C-Corporation. This is because I have to set up an LLC in Canada to get paid, here an LLC is considered a corporation, so my C-corp in the US would pay in dividends to my Canada LLC, and my Canada LLC would pay me as an employee.

Overly complicated as you say, but unless I receive other advise this might be a way to make it work as a beginner.

The attorney I consulted agrees on not adding too many layers of LLC's and opening one in the state I am in, but he does claim that opening different LP's helps protect my assets on other LP's, in case one of those LP's gets sued.

 You got it all wrong.. PM me and I can forward you to the right person to speak to

@Chad U. Thanks Chad, yes I’m definitely using an attorney and a cross border tax planner, both with more than 20 yrs of experience, I managed to get a hold of both yesterday after my post. They are meeting next week to discuss my situation and come up with a structure.

Reason I posted here is to learn what has worked for others.

Originally posted by @Andrés Uribe :

@Chad U. Thanks Chad, yes I’m definitely using an attorney and a cross border tax planner, both with more than 20 yrs of experience, I managed to get a hold of both yesterday after my post. They are meeting next week to discuss my situation and come up with a structure.

Reason I posted here is to learn what has worked for others.

Good to hear you're getting the proper advice. Generally the most effective way, from a tax, liability, and cost perspective is to setup an LP in the US with either an LLC or a Can Corp as a 1% GP and you personally as the LP. However, this may not work for everyone as many people's circumstances are different.

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