Using HELOC to buy real estate through corporation

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I am getting HELOCs on my primary residence and a rental property, that my husband and I own under our names. I would like purchase a multifamily property using the HELOC funds as a down payment. I would like to purchase the multifamily property through a corporation that I will form. Can I lend the HELOC funds to my corporation so that it can buy the multifamily property? Would the corporation have to be a holding company? Or can it be an operating company? Does anyone have any experience with this either in the US or in Canada (ideally, Canada)? Thank you! :)

@Nina W.  

Many real estate investors are advised to put your investment properties in a corporate name. There tends to be two primary reasons for this: 1. Income tax benefits: You can take a dividend income which is taxed at a much lower income tax rate. 2. Limited Liability on you personally: If you were sued (a tenant is injured on your property) or had a legal case against you as a landlord, it would be against the corporation and not you personally so it can assist in protecting your personal assets in this type of situation

The title of the property will be in a corporate name but you, the investor, will be required as the owners of the corporation to also provide personal guarantees. The only time personal guarantees may not be required is if:

  • the property is underwritten commercially
  • the corporation is established for at least three years
  • the corporation can provide three years full financial statements and corporate tax filings that are strong
  • the corporation has a high asset base, and
  • the corporation has positive cash flow and consistent net profit

Do you set up a holding or operating company? Most lenders require that the corporation be a “holding Company” only or “holdco” for short. A holdco, as the name implies, is a corporation which is incorporated for the sole purpose of holding something like an asset. Usually, that “something” is shares in an active corporation (typically referred to as an operating corporation or optco) or assets. When talking about real estate holdco’s, the focus is on the assets which would be the real estate itself and the shares may be in an operating corporation that “manages the property”. This holdco is set up for the sole purpose of real estate acquisition. 

A simple holdco structure with say two directors (you) with the real estate as the asset holding is known as a “single tier”. You may have just an operating company “optco” instead... also known as “single tier”.

Feel free to DM me for more info.