Canadian looking for info on setting up US corporation for REI

22 Replies

Hey Everyone,

I am a Calgary resident, Canadian citizen looking for primary resources on the limitations of US real estate investing as a Canadian. My plan is to set up a C Corporation in the state I'm most interested in investing in (looks like Montana at this point). I am looking for credible sources on the following topics:

1) The cost of setting up a C Corp in Montana

2) US rules about foreign nationals owning a US C Corp to do business (my research can only go so far when looking at what C Corporations can do, but I'm sure there are limitations because the owner and president would be a Canadian citizen)

3) How C Corporations can get a mortgage, rules around Private Money investing (in Canada they are pretty strict), rules around Hard Money Investing.

4) Double taxation with Corporations.

5) Anything else you think I should know about this particular situation, or even if you live in Montana, give me a shout!

I'm looking to a lot of research upfront and make sure I have a relatively solid plan of attack before I hire a Cross-Border specialist for $100 an hour. I am starting to analyze deals, but getting financing as a Corp will be difficult. What bank will take me with no assets?

Welcome, i cant speak on the legality or tax implications that come with out of country REI. Why the choice for a C Corporation structure anyway?

Hopefully someone with more cross border investing knowledge can shed some light on your questions. 

@Anthony Wienke because LLC's aren't recognized by the CRA and we have even more that we would be liable for as a Canadian, vs using a corporation. There's big rules about estate taxes that are important to avoid.

@Karina Regier , lending is more limited to foreign national but doable.  Typically on SFRs, the LTVs are cut back to 65%.  I usually see our Canadian clients buy cash for simplicity, then refinance quickly there after so that they have time to jump through the hoops.  On syndicated deals, we usually see foreign nationals with 20% or less ownership as this makes the process MUCH smoother and financing terms better, generally speaking.

@Greg Downey

What would you recommend for someone that can’t pull together that 20% down? 

I’ve been mulling over using hard money lenders for a portion, and potentially write the seller a lease option/note/as-is with option to purchase layer... 

I would need close to 100% financing to get started, and I’m not sure what the rules are around private investors, do you know where I could look to find more information on the US rules?

General rule, this won't be happening.  Sr. lenders will be doing a background check and looking at where the money came from.  With literally almost 0% skin in the game, and a border to cross legally to pursue recourse (if it were needed), it just isn't feasible. This is an unrealistic scenario.

You could work with a partner in the states, but you would need to be bringing something to the table.  Usually, people bring to the table: cash, credit, experience or the deal.  In this scenario, you would need to bring the deal to the table to get a partner interested.  That would be doable.

@Greg Downey

I have great personal credit, would that help even though I wouldn’t be able to put a lot of money up? 

I don’t have problems going with a partner, curious how that would work using a Corp?

I would definitely find the deals and put them under contract subject to financing, it’s just finding the financing that I’m trying to figure out. 

What has been your experience as a lender for similar scenarios that are approved?

@Karina Regier , my experience is that U.S. lenders do not consider Canadian credit. If you have well established U.S. credit, then this is a different story. I guess that would have been helpful to say in my last post. I can not speak to "how" to best structure as that is outside of my lane. Generally speaking, anyone with 20% or greater ownership in an LLC will be looked at by the lender.

Originally posted by @Karina Regier :

@Greg Downey

I have great personal credit, would that help even though I wouldn’t be able to put a lot of money up? 

I don’t have problems going with a partner, curious how that would work using a Corp?

I would definitely find the deals and put them under contract subject to financing, it’s just finding the financing that I’m trying to figure out. 

What has been your experience as a lender for similar scenarios that are approved?

As a fellow Canadian, I can attest that what you are trying to achieve is next to impossible.  You need to bring a min of 35% down as a foreign investor, and must be able to demonstrate experience investing in some shape or fashion in the US.  However, TD Bank will do one (1) loan with 20% down, but must be in your own name and demonstrate you are occupying it.  And you may want to discuss setting up the proper entity with a cross-border specialist prior to investing.  Not sure why you would go with a C-corp?   

@Chad Urbshott

So the only possible way to get started is to have a minimum 35% down... 

Just to clarify, you’re saying to get a hard money loan I would need to prove to them that I have US investing experience. 

How long do I have to be in the house to ‘occupy’ it? I’m not moving to the US, and if I pass on while having the property in my name that could leave me in some big trouble later with Estate taxes. 

I would get legal advice before I did anything. I just know that LLC's aren't recognized by the CRA, so that's useless, and I don't want the risk of putting it in my personal name

Originally posted by @Karina Regier :

@Chad Urbshott

So the only possible way to get started is to have a minimum 35% down... 

Just to clarify, you’re saying to get a hard money loan I would need to prove to them that I have US investing experience. 

How long do I have to be in the house to ‘occupy’ it? I’m not moving to the US, and if I pass on while having the property in my name that could leave me in some big trouble later with Estate taxes. 

I would get legal advice before I did anything. I just know that LLC's aren't recognized by the CRA, so that's useless, and I don't want the risk of putting it in my personal name

Sorry I didnt mean to burst your bubble. Some HML's (such as LendingHome I believe) will offer loans with no experience, but require higher rates and down payments. And given you're Canadian makes it more difficult. It's taken me a few years to get established and rapport, and still have a tough time getting financing but you'll still need min 35% down.

As for occupancy, you just need to sign an affidavit stating you'll be the primary resident. 

As for estate taxes, these only apply to your worldwide net worth if it is >$5.25M.   

I am not a lawyer or accountant, so please consult with an expert before taking any of this advice.  

@Chad Urbshott

I do genuinely appreciate your advice. Did you move from Canada to Florida and then start REI?

Let’s say I get 35% down, hard money loans for the 65%, what has your experience been with refi’s with an asset you own, then going to the banks with the financials? Hard money isn’t for forever, and I would want to make sure I could get a refi once I needed it. 

Originally posted by @Karina Regier :

@Chad Urbshott

I do genuinely appreciate your advice. Did you move from Canada to Florida and then start REI?

Let’s say I get 35% down, hard money loans for the 65%, what has your experience been with refi’s with an asset you own, then going to the banks with the financials? Hard money isn’t for forever, and I would want to make sure I could get a refi once I needed it. 

No, I started from Canada but then built a place in Florida. I've never done a refi, as it's always been cash from my fund or paid the HML out upon the property sale.

Hello from Edmonton @Karina Regier ! I’m trying to do the same thing as you and also having difficulty on the financing side. If either of us have any luck let the other know?

I just started working a coop in the Crossborder division at PwC in Edmonton and my understanding of an LLC is not necessarily that the CRA doesn't recognize it but that they recognize it as a Corp. So it doesn't have the same benefits of avoiding double taxation for Canadians as for US nationals.

Originally posted by @Karina Regier :

@Chad Urbshott would these be for flips that you cash out for to pay the HML loan back?

Yes this is one scenario. You can also get an HML to fix up a rental property then refi out with lower rates once its rented and the value increased. Check out BRRR strategy on here, lots of info how to do this.

Originally posted by @Nathan Wiebe :

Hello from Edmonton @Karina Regier ! I’m trying to do the same thing as you and also having difficulty on the financing side. If either of us have any luck let the other know?

I just started working a coop in the Crossborder division at PwC in Edmonton and my understanding of an LLC is not necessarily that the CRA doesn't recognize it but that they recognize it as a Corp. So it doesn't have the same benefits of avoiding double taxation for Canadians as for US nationals.

 True, as you don't get the foreign tax credits like you would on a personal level.  Or the earnings needs to be repatriated in the same year they are earned to get the FTC. 

@Nathan Wiebe

What has been your progress so far? I’ve come to terms with the fact that I’ll be double taxed. I see the US-Canada currency exchange as a way to counteract that. Plus dividend taxes are 15% (right?). I just have the view of yes, I’ll be taxed, but wouldn’t it be better to have the net income than no income at all? Besides, I would not withdraw anything for a long time. 

I guess it’s just a matter of figuring out what structure makes the most sense. Based on what the guys above said we would need at least a down payment to get the first one started, then build credibility to make it bigger. 

I was looking at a 15 unit section that was listed for $500, and I thought you could only get one house for that price up here...

Oh question, what do people generally think of Section 8? That 15 unit is section 8 and I was researching it. 

@Chad Urbshott

Could you explain the repatriation rule? 

I need to learn what requirements the bank would have to refi something like that. Technically the property would be under my title, but it's mostly financed by another lender. How does the bank take HML's into consideration when looking at a refi? Do they even look at it if I own it?

@Karina Regier  


@Chad Urbshott provided massive value but one thing i would add is to consider shifting your focus more on getting started than nailing down the right structure with all the combinations for taxes, etc... 

You mentioned 2 things that caught my attention. 

1) You can get great deals (I'm assuming you can qualify/quantify a good deal) 

2) You have excellent credit in Canada, can you not take a line of credit from Canada to finance and then refi in the US after seasoning with solid rents?

Personally, i setup a LP with 1% General partner being a LLC for liability protection. This way i avoid double taxation on the 99% of the partnership and 1% of LLC, i just have to eat it.

Again, i think you can get started much sooner thank you think if you just focus on the 80/20. 

Hope this helps

There are local banks that finance property based on the asset and cash flow it generates. A local bank that is familiar with the neighborhood your property is in. You likely need to have at least 12 month consistent occupancy. I got approved for a multi I have in Southtowns New York but the fees and interest rate was kinda high and we did not go forward.. They did not check our credit at all. But one not is my property was free and clear so "technically" I wouldn't call it a refi. If it had an existing debt then it would be considered a refi and not sure in this case if they would consider.. Basically what I am saying is it would be easier if the property was free and clear to get financing vs an existing debt. 

My advice is if I am starting out you need to build your contacts in that area and likely they could lead you to the right person

Good Luck

@Karina Regier As @Chad Urbshott has helpfully pointed out, going down the SFR route through conventional financing is an uphill battle. Everyone of our investors (I'm an ex-pat Canadian living in Texas) starts thinking about going down the SFR route, reality hits them (in terms of financing and property management issues) and they eventually either move to commercial or invest through other structured vehicles.

You should not be getting double taxed. At the minimum, if you structure your investments correctly you can claim back the taxes as US-Canada have a tax treaty. But this requires a Canadian investor to do their homework upfront so that there are minimal surprises when repatriating income back to Canada. 

In our experience, every single lender who works with international investors either offers crazy high terms (high interest rates, lower amortization years, balloon payments). Even if a lender offers you attractive terms on the front-end, you should read the entire loan document. You will see that 9/10 the terms will change (sometimes egregiously) during the course of the loan. 

Apart from financing, your biggest hurdle is going to be property management especially on smaller properties. As soon as your PM finds out that you are from a different country (or state), they will start nickle and diming you. The $200 repair bill becomes $250, the tenant turnover increases dramatically (because every time a PM puts a new tenant in, they get paid half/month's worth of rent (usually)) or only the "preferred" (read: expensive) GCs are used on your property. 

Most times when we Canadians look at cheap properties in the US, our eye light up. As you said, 15 unit for $500K. The problem you will face with cheaper properties is the quality (or lack of) of the tenants. You might get a cheap property, but you will also attract a lower-quality resident. Which will make managing your property a major pain. 

Buying/investing SFRs or turnkey properties from a different company is a pain no matter how good your property management team or tenant base is. It is best to either stick with commercial properties or pooled funds that can offer your diversity and use their size to get operational economies of scale so that you are not hassled for every small thing. 

PM if you need specific advice. If I can't answer I can connect you with folks. 

P.S. @Greg Downey has given you good advice i.e. Canadian credit does not count for anything in the US. 

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