Incorporate or invest personally?

4 Replies

@Edward Rueca It depends on the size of your portfolio. You can always acquire in your own name and then buy umbrella insurance (very cheap) to cover for any liability-related costs. 

Once you pass a certain threshold, you can look into incorporating.

Adequate insurance will serve your purpose. Incorporation will be more costly and more difficult to get financing.  If you are risk adverse incorporation will provide you the phyological security you crave but little more.

I agree with @Omar Khan    I have my properties in both personal and in a numbered company.  Here is some pros and cons.

Personal:  PRO - 1) . easier to get a mortgage - especially if taking over someone else's mortgage - they may require you do that personally.  2) . No separate tax return needed - saves that extra fees & paperwork.  3) You can do a 5% downpayment on a personally owned property if you move to it and make your current home the rental.  4) Insurance may be less expensive in personal name than in company held properties.  

CON - 1) . Higher tax rate than corporate owned.  2) Upon death if there is no joint owners then it becomes part of the estate and the probate tax must be paid on the home.  3) . If you want to transfer the property to anyone else - that person must change the title to their name and pay Land transfer taxes.  If it is in the corporation then you can just sell the corporation. (So the corporation is better for passing on property to your heirs).

I have found that I have to personally guarantee the mortgages on the ones that I buy in the corporation anyway.

And I ensure that I have insurance on all of my properties to cover them all - specifically listed as rentals.

So starting out, I used my personal name for the downpayment advantage & ease, yet once I got to 3 properties then I started to use a company for the ownership.  

And best to check with your accountant to understand the tax advantages and when best to use a company.