Canadians making it happen in the US

14 Replies

To my Canadian friends, 

I have only ever invested in the US. I have done two turn key deals and recently bought 3 properties at a tax sale. I really want to grow my business in the US, however my new cross-border accountant has basically told me that the accounting fees, tax return filings, bookkeeping etc. required to make my operation work the way I want it will eat up most of my returns and thus make these seemingly sweeter deals in the US not so sweet. I have made mistakes in the past using a C-Corp to hold property and realized how much that cost me.  My question is, are there any Canadians really making it work down south or are you finding that the cost to do business south of the border is not worth the efforts? 

First of all, you should check with a cross border specialist, one who knows both the tax and legal ramifications of investing in US real estate from Canada. Having said that, the advice I often hear is to use an LLP to hold your property - you can likely convert your C-corp into an LLP depending on the state it's registered.

Secondly, to cover the higher admin costs to use these structures, you may want to consider doing a flip or two during the year.  Even if you only make $5K from the flip, will be more than enough to cover these costs.  

Yeah @Chad Urbshott my cross-border specialist has told me to go with the LLP structure (Texas doesn't have LLLP's). My accountant told me that because of these fees and costs it might not make any difference investing in the US vs Canada because all of the additional costs could turn a sweet US deal into something equivalent to what I could get in Canada and thus not worth all the hassle.

Chad you are Canadian right? Are you still filing a US and Canadian return as well as some kind of return for entities that are holding your real estate? 

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Yes, I have to file returns on both sides, though I have holdings in Canada as well.  It is burdensome, but I'd rather pick up a great deal on US side that still has plenty of potential upside and cashflows nicely, than buy a Cdn property that is grossly overvalued with little or no cashflow.    

@Cal Ewing

If you are trying to grow the U.S.A. side of your business, you will most probably want to retain earnings in-country and not be forced to repatriate them back to Canada - the currency exchange back and forth would only line the pockets of the FX folks and the additional taxable events will only make the IRS and CRA happy.

To do this requires some form of entity in the U.S.A. and will necessitate filing taxes there.  Unfortunately, this produces more operating overhead.

The good thing is you are consulting with a cross-boarder tax specialist to get a structure which works for your business.   What fits for you likely will differ from what we have done, or what works for @Chad Urbshott .  Since we were operating under a CCPC in Canada before venturing into the U.S.A., we created a child company in the U.S.A. ... it was a trade off between paying corporate income tax in-country and getting a break on the withholding when we do repatriate funds.  If we were not operating corporately here in Canada, other organisational structures could have worked for us.

Hi @Cal Ewing

It's most definitely worth doing business in the US.  There are a number of reasons (but the currency exchange sure isn't one of them right now!) including much better access to information, way lower prices (depending on where in Canada you're comparing), properties that aren't so overinflated and more ways to acquire properties.  There is some overhead but it's mostly some accounting and registration/filing fees once your US entities are set up.  A single flip would way more than cover any accounting fees you'll have.

IMO it'll be much easier to set up and operate US entities.  Note that you don't necessarily need to form your entity in the state that you want to do business in - you just need to register your entity in that state.  Don't forget to register your business in the state!

I've been flipping in the Chicago area since 2012 (but live in Toronto) and am picking up rentals now in addition to the flips.

As @Chad Urbshott and @Roy N. mention, it's absolutely essential that you have cross-border specialists to help you set up your entities and get your accounting straight.

Good luck and let us know how it goes.

@Larry Smet @Roy N. & @Chad Urbshott

Thanks for you feedback guys. I am inspired by your comments and what you are building for yourselves in the States. I  hope someday conditions become more favorable here because I'd really like to be able to see and touch and be more involved in my properties but until then, I think I will just set a goal to own all of Texas as a starting point. I'll avoid Florida and Illinois. 

Originally posted by @Cal Ewing :

@Larry Smet @Roy N. & @Chad Urbshott

Thanks for you feedback guys. I am inspired by your comments and what you are building for yourselves in the States. I  hope someday conditions become more favorable here because I'd really like to be able to see and touch and be more involved in my properties but until then, I think I will just set a goal to own all of Texas as a starting point. I'll avoid Florida and Illinois. 

 Texas? You're not related to JR Ewing by any chance?? LOL

@Maggie Tasseron

 I'm JR's bastard child who was too ugly to get a spot on the show or in his will. So I'm determined to take back what is mine ;) 

Originally posted by @Cal Ewing :

@Maggie Tasseron

 I'm JR's bastard child who was too ugly to get a spot on the show or in his will. So I'm determined to take back what is mine ;) 

 I'll be rootin' for ya... :-))

Originally posted by @Cal Ewing :

To my Canadian friends, 

I have only ever invested in the US. I have done two turn key deals and recently bought 3 properties at a tax sale. I really want to grow my business in the US, however my new cross-border accountant has basically told me that the accounting fees, tax return filings, bookkeeping etc. required to make my operation work the way I want it will eat up most of my returns and thus make these seemingly sweeter deals in the US not so sweet. I have made mistakes in the past using a C-Corp to hold property and realized how much that cost me.  My question is, are there any Canadians really making it work down south or are you finding that the cost to do business south of the border is not worth the efforts? 

 Not sure why he would give you that kind of advice.  Sure there are initial costs to setting up your us business entities and yearly accounting fees. If your plan was only to buy a few properties, than I can see the point.  It sounds like you are treating it as business you want to scale, so many of those costs will become minimal as you grow.  

Compared to Canada the US real estate market is more diverse in size and also the type of deals you can find.  It's hard to decide where you want to start to look and invest.  You don't need to be a rocket scientist to know that Canada's hot real estate market can't continue its space mountain trajectory indefinitely.  

Let me put this in another perspective.  Doing business in the US is like having access to a 315 million people real estate market vs 35 million in Canada.  

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