[ssimps]

Does anyone have a link to a good overview of the pro's and con's of purchasing a rental property using personal funds / loans, vs. setting up a company that owns and manages the property(s)?

Thanks.

 

[FrugalTrader]

This article may help,

Rental Properties - To incorporate or not.

 

[ssimps]

Thanks FT. Based on the replies to the article and the link to the other article, it doesn't seem like there are any advantages to owing a single property or two via a corp vs. personally. If anything owning them personally would be better because you do not have the initial corp setup costs or annual corp admin fees.

Am I understanding this right?

 

[Smac20]

Owner ship thru a company

The main benefit of owning thru a corporation is the limited liability that it provides. If you are sued the most you can lose is the assets of the company whereas if you own personally you may be found personally liable and as a result any law suite could be found liable and lose your personal assets.

Anyone that wants to become a real player in the property market will do so under a corporation. If you are only buying a second property and don't plan on expanding from there then forget the company.

 

[Berubeland]

The benefit of using a corporation to own property has nothing to do with liability. That risk is covered by insurance and is not a choice to insure your property.

Corporations are taxed at a lower tax rate than individuals in the higher income brackets. There are additional expenses associated with owning a corporation so you have to be making a decent amount of income before it makes sense to incorporate.

Basically your accountant should be telling when it makes sense to incorporate or not.

 

[ssimps]

thanks for all the input. Sounds like i should fine a good accountant first.

 

[AdamW]

Legal Aid Clinic

thanks for all the input. Sounds like i should fine a good accountant first.

Most major cities have some form of free legal aid clinic through the law school in town. It can be very helpful, and it's free. Go ask one of the students to do some research into the tax act and you'll get a free legal opinion that you can then bounce off your new accountant!

 

[Rickson9]

Without going into each line item that exists on the income statement of a real estate investment, the general rule is:

For me, if annual gross rents x 5 >= purchase price then you potentially have a solid rental property and should look further into the deal. If not, move on.

 

[uluwatu]

For me, if annual gross rents x 5 >= purchase price then you potentially have a solid rental property and should look further into the deal. If not, move on.

So if you can rent for 2k/mth = 24k/yr the most you should pay is 24*5=120k

Are there any 120k properties for sale in any decent size city?

Or is my math wrong? Or my rent amount assumption?

 

[Rickson9]

So if you can rent for 2k/mth = 24k/yr the most you should pay is 24*5=120k

Are there any 120k properties for sale in any decent size city?

Or is my math wrong? Or my rent amount assumption?

That is correct. The U.S. is flooded with these types of property and I have bought them.

 

[Berubeland]

Rickson,
I absolutely don't mean to be rude but several months ago the only real estate you had was your own condo and now you are giving courses in how to buy cheap US properties at a cost of $500.

I'm not spending $500 to check out the substance of your course so I can't really speak to it but REALLY???

Now you are giving out valuations on income property? The US is not flooded with those types of properties. There is a much greater chance of a Canadian shopper being ripped off because they don't know the market they are buying into then finding a real steal.

I'm sorry but now I'm just irritated why don't you wait several months to see how things turn out before giving courses.

 

[Rickson9]

Rickson,
I absolutely don't mean to be rude but several months ago the only real estate you had was your own condo and now you are giving courses in how to buy cheap US properties at a cost of $500.

You would be wrong. You are also lying about not meaning to be rude (unless you are writing this while sleeping).

I'm not spending $500 to check out the substance of your course so I can't really speak to it but REALLY???

Why do you care?

Now you are giving out valuations on income property?

Yes.

The US is not flooded with those types of properties.

Please cite a source. And yes they are. I'm curious however, which U.S. markets have you looked into?

There is a much greater chance of a Canadian shopper being ripped off because they don't know the market they are buying into then finding a real steal.

Same question: which U.S. markets have you looked into to draw this conclusion? Or cite a source.

I'm sorry but now I'm just irritated why don't you wait several months to see how things turn out before giving courses.

Why are you irritated? The short answer is 'because I don't want to wait several months'.

I politely read your advice on these forums even though you don't have any money. And some of the investing ideas you spout are worthless and dangerous which probably speaks to the first point.

Tit for tat should be appropriate non? I won't lie to you and say that I didn't mean to be rude there.

 

[Berubeland]

You would be wrong. You are also lying about not meaning to be rude (unless you are writing this while sleeping).


If I am wrong about this I apologize however.... I am almost 100% certain that you yourself have in a previous post mentioned that you only had your condo as RE investment.

Why do you care?

Because I don't like to see people being taken advantage of.

Yes.

Well then try to give proper information. What people need to know is the NOI (net operation income)

Please cite a source. And yes they are. I'm curious however, which U.S. markets have you looked into?

I have looked into Texas markets myself for myself, looked in Galveston for a client of mine, I have an owner who just looked in Vegas but for commercial. I have also looked into Pittsburg area.

Same question: which U.S. markets have you looked into to draw this conclusion? Or cite a source.

In the last year I have looked at about 10 properties so far for clients and nixed all of them. One client who got sick of me saying no, no, and no to the awesome deals being marketed to Canadians bought for 50% above value on a power of sale in Florida, I just spoke to her last week when she told me the good news.

Why are you irritated? The short answer is 'because I don't want to wait several months'.



I politely read your advice on these forums even though you don't have any money.

YET

And some of the investing ideas you spout are worthless and dangerous which probably speaks to the first point.

Name one. This year from August to December my portfolio gained more than 100% but you don't find me charging $500 to people to explain how I did it.

Tit for tat should be appropriate non? I won't lie to you and say that I didn't mean to be rude there.

This is not the first time I have heard these claims. I would love to be wrong because then the people who do come to me for advice would get better advice. I am more shocked than anything to see you selling this snake oil.

Ad Hominem arguments don't really suit you.

If you have found these amazing properties I would love to hear about the exciting searching and finding and how amazing they are and what you found since I joined this forum in September when you had the one condo on Yonge Street.

 

[Rickson9]

This is not the first time I have heard these claims. I would love to be wrong because then the people who do come to me for advice would get better advice. I am more shocked than anything to see you selling this snake oil.

Ad Hominem arguments don't really suit you.

You started passing judgements first. Don't like it? Don't start it.

If you have found these amazing properties I would love to hear about the exciting searching and finding and how amazing they are and what you found since I joined this forum in September when you had the one condo on Yonge Street.

Send me $500. If you can afford it. I'll be waiting with baited breath.

 

[ssimps]

Thanks everyone for the feedback, it is too bad it has turned into a fight to an extent though.

So if you can rent for 2k/mth = 24k/yr the most you should pay is 24*5=120k

I have to agree that based on this equation nothing would meet the criteria that I have seen. I have not looked anywhere but where I live though, as this is one of my criteria, easy / fast access to the rental property. Even in the towns around Ottawa $120K property does not equal 2K/month rent for sure.

So maybe buying to rent is just not possible in the Ottawa area; assuming the suggested equation.

That is correct. The U.S. is flooded with these types of property and I have bought them.

I have no interest in owning / renting a property in the US.

I politely read your advice on these forums even though you don't have any money..... I won't lie to you and say that I didn't mean to be rude there.

I'm wondering, and maybe this is for a different thread, what the absolute amount of money a person does or does not have, has to do with their knowledge on investing or renting. I have no knowledge of anyone's true net worth on this forum (except maybe FrugalTrader), so I'm just asking an honest question here.

BTW Rickson9, looking at the posts you make on this site, I would have to say that polite does not match your forum personality very well; while being rude, especially to those you seem to feel are inferior to you (i.e. have less money than you??) is a much better match. For all I know you are the nicest guy on earth in person; I'm commenting on your forum personality here. I'm not asking for you to respond to this comment, it is my personal observation / feeling.

Send me $500. If you can afford it. I'll be waiting with baited breath.

[Signed]
Make money buying U.S. distressed real estate now! http://www.ticonline.com

I thought that people trying to sell something was not allowed on this forum, but every post Rickson9 makes seems to have a link to his site that is selling something (a service). Moderators, can you comment on this please?

Again, I have no interest is continuing a fight. I know no one that has posted here personally, and am only interested in LEARNING in an environment that is as bully and commercial free as possible..

Thanks again, and happy holidays.

 

[Sampson]

I have to agree that based on this equation nothing would meet the criteria that I have seen. I have not looked anywhere but where I live though, as this is one of my criteria, easy / fast access to the rental property. Even in the towns around Ottawa $120K property does not equal 2K/month rent for sure.

I've got a condo here in Calgary and it certainly does not meet that criteria. But that doesn't mean I haven't been making a tonne of money from it

Rickson's criteria is his personal criteria. Similar to his method of selecting stocks, he likes to build in a lot of safety and checkpoints. Using that criteria, its very unlikely he'll lose money, but at the same time, as many and yourself have pointed out, those opportunites are few and far between in Canada. Where does that leave the rest of us? With more relaxed criteria. The key to his post and criteria is that you need to assess is purely a numbers exercise.

You have to weigh the potential for revenue (rent) generation, have both low and high range expectations - then assess whether you'll make any money based on your expenses (mortgage interest, vacant months, cleaning and repairs, advertising, management fees etc. etc.).

If the equation works in your favor despite building in your own tolerance levels, then it makes sense to go ahead. If you'll skirt the line of profitability if the thing remains vacant for 6 months, or if interest rates double etc, then you'll have to personally assess if the effort is worthwhile.

 

[Berubeland]

My personal criteria for recommending people purchase a property.

The four ways people make money in real estate are

1- Cash flow

Improved due to rental increases

2- Capital Appreciation

Either improvements to the property or mortgage pay down

3- Area appreciation

Area worth goes up more than surrounding area

4- Inflation

As money is worth less through the effluxion of time your property increases in $$$ amount.


For me any property I recommend has to have all the above criteria. I have to be able to add value by increasing rents and improving the property. The property has to be located in an area that I believe will increase in value.

Basically if a deal seems too good to be true it probably is. I am no stranger to all the people trying to rip you off in real estate.

 

[firsttimehomebuyertips]

That is a great answer Berubeland. I agree with all of your criteria.

ssimps... As far as purchase price many people use the 10% rule. Meaning that gross annual rental income is at least 10% of the purchase price of the property.
(24K annual income = $240K max purchase price)

Now of course this rule does not work very well if you are looking for single family homes in most large cities in Canada these days, but it works for multi-family properties. The rule is just a basic guideline that helps weed out a lot of properties that you wouldn't want to invest in.

 

[HaroldCrump]

Berubeland and firsttimehomebuyertips, you are both correct with your general rules.
OTOH, Rickson9 is advocating an opportunistic strategy to take advantage of a temporary situation in the US RE market.
For those willing and able to take such a risk, it may be a great opportunity.
The RE situation down south is not going to last forever and the ship is sailing away soon for those opportunities.
Your guidelines around acquiring investment properties are valid and good principles in general but the situation down south is a rare and goes beyond those guidelines.
BTW, Rickson9 is not the only one advocating this type of strategy - there are several others promoting this on the radio, flyers, email-mail, etc.

 

[ssimps]

Thanks all very much for the further useful information; based on even the lower gross rent/year : purchase cost ideas, it does seem that buying a single house to rent is not a good idea right now (at least in Ottawa area and surrounding towns). House prices are way too high and rent way too low.

The idea of a multiple unit building is something I have not looked into, but will, to see if the math works out better.

Do people generally agree that a rental property has to be 'cash possitive' from day one, or are there other ideas / thoughts that are common and still have realistic potential for mid to long term gains?