Canadian buying Multifamily in Canada vs US

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Canadian buying Multifamily in Canada vs US

Anthony Quint
Member since 2024 · 2 posts · 1 vote

Hi everyone,

I'm ironing out my investment strategy of purchasing multi-family rental properties, but I'm a bit stuck on choosing the location. In particular, before deciding on a city, I first want to decide on whether I should invest in Canada or US (given that I am a Canadian). My interest in the US market is perked because of the stronger dollar, and better tax benefits (like the 1031 exchange). However, being a Canadian citizen, it seems like I would still need to pay Canadian taxes on the US properties regardless. 

In summary, I'm wondering if there are any other Canadian investors who have researched the same question. Is it just better to stay and find opportunites within the Canadian market? Are there various strategies/corporate structures that can be employed to minimize the tax obligation to Canada when investing in the states? Or am I thinking about the problem incorrectly to begin with. 

I would appreciate any sort of insight or suggestions:).

Best,

Anthony

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
2y

@Anthony Quint, the 1031 exchange is something you don't have in CA that allows you to sell appreciated real estate in the US and purchase new real estate while indefinitely deferring paying tax on profits.

The thing about this for a non US citizen is that you will be subject to a 15% withholding called the FIRPTA withholding tax.  That's 15% on the sale of your property.  1031 exchanges are extremely difficult to accomplish for a non-us tax payer.  So what most of our clients will do is set up domestic LLCS to own the real estate.  these LLCs are US taxpaying entities owned by a foreign national.  But because they are domestic they are exempt from FIRPTA and can do regular 1031 exchanges.

Just something to add to your decision tree

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  • Joseph Chiofalo
    Banker · Henderson, NV · Member since 2023 · 316 posts · 73 votes
    2y

    Hi Anthony, 

    We see a lot of inquiries from Canadians looking to purchase in the US. 

    There are programs for foreign nationals that allow for financing as high as 75%.  

    Do you have any properties in mind? 

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Anthony Quint, the 1031 exchange is something you don't have in CA that allows you to sell appreciated real estate in the US and purchase new real estate while indefinitely deferring paying tax on profits.

    The thing about this for a non US citizen is that you will be subject to a 15% withholding called the FIRPTA withholding tax.  That's 15% on the sale of your property.  1031 exchanges are extremely difficult to accomplish for a non-us tax payer.  So what most of our clients will do is set up domestic LLCS to own the real estate.  these LLCs are US taxpaying entities owned by a foreign national.  But because they are domestic they are exempt from FIRPTA and can do regular 1031 exchanges.

    Just something to add to your decision tree

    The 1031 Investor5137 Reviews
    WebsiteView Page
    2Reply
  • Anthony Quint
    OP
    Member since 2024 · 2 posts · 1 vote
    2y
    Quote from @Dave Foster:

    @Anthony Quint, the 1031 exchange is something you don't have in CA that allows you to sell appreciated real estate in the US and purchase new real estate while indefinitely deferring paying tax on profits.

    The thing about this for a non US citizen is that you will be subject to a 15% withholding called the FIRPTA withholding tax.  That's 15% on the sale of your property.  1031 exchanges are extremely difficult to accomplish for a non-us tax payer.  So what most of our clients will do is set up domestic LLCS to own the real estate.  these LLCs are US taxpaying entities owned by a foreign national.  But because they are domestic they are exempt from FIRPTA and can do regular 1031 exchanges.

    Just something to add to your decision tree

     Thanks for your reply @Dave Foster. That helps put things into context. 

    One follow-up question, would these US domestic LLCS still have Canadian tax paying obligations?

    1Reply
  • Cody NeustaedterPro Member
    Real Estate Agent · Winnipeg MB, Canada · Member since 2021 · 108 posts · 34 votes
    2y
    Quote from @Anthony Quint:

    Hi everyone,

    I'm ironing out my investment strategy of purchasing multi-family rental properties, but I'm a bit stuck on choosing the location. In particular, before deciding on a city, I first want to decide on whether I should invest in Canada or US (given that I am a Canadian). My interest in the US market is perked because of the stronger dollar, and better tax benefits (like the 1031 exchange). However, being a Canadian citizen, it seems like I would still need to pay Canadian taxes on the US properties regardless. 

    In summary, I'm wondering if there are any other Canadian investors who have researched the same question. Is it just better to stay and find opportunites within the Canadian market? Are there various strategies/corporate structures that can be employed to minimize the tax obligation to Canada when investing in the states? Or am I thinking about the problem incorrectly to begin with. 

    I would appreciate any sort of insight or suggestions:).

    Best,

    Anthony


    Hey Anthony! I would consult with a cross border tax consultant as I am pretty sure that you would get taxed twice if you ever paid yourself out of the LLC.

    What part of Canada are you based out of? There are markets that still work for REI in Canada. The prairie provinces seem to be working the best right now. I have helped numerous Canadian investors here in Winnipeg as they find Winnipeg to still be an affordable market for REI (just don't look at the North End neighbourhood).

    204-227-5081
    0Reply
  • Huong Luu
    Specialist · Vancouver, BC · Member since 2016 · 315 posts · 145 votes
    2y

    @Anthony Quint I personally decided to stay in CAN and not venture into the US. I know the $/d is a lot lower in US and the CF can be crazy good there. But I figure if many Canadians are going cross border then I will keep my eyes in CAN. Being in CAN I find it easier to self manage and hire a team. During Covid, many of my CAD counter-parts who had portfolios in the US had a very hard time due to lack of communication. Growing up in CAN I already had a head start in the rules, markets, etc, so the learning curve wasn't as long. A recent change in Canada is the increase in capital gains tax inclusion (increase from 50% to 66.67% on June 25, 2024). This may affect your decision depending on the strategy you are doing. Good luck

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