Are you looking to buy an investment or rental property? And, you’re wondering whether you should purchase the property through a corporation?
While most people just simply rent out their property without incorporating, they’re missing out on some worthwhile benefits to incorporating.
In this article, we’ll show you whether or not you should incorporate before purchasing your rental property and why it’s important to do so.
Let’s dive in.
Benefits of Incorporating a Company for a Rental Property
The truth is most people don’t start a corporation when they rent out their home. However, this isn’t the most profitable, or safest option.
If you want to get the most out of your rental property, you need to think about it as a business. That way, you’ll make the most profit and safeguard your assets.
Here are the main benefits of incorporating a company for a rental property
Liability Benefits
The most important reason why you should incorporate isn’t to maximize profit. We’ll get to that. The main reason why you should incorporate when renting out your property is to protect your assets.
When you start a corporation for your rental property, you won’t technically own the rental property. Your corporation will be the owner of the property.
While this may sound strange, it’s actually an important safeguard to protect your money.
In this scenario, you would incorporate first. Then, rather than purchasing the home in your personal name, your corporation would buy the rental property.
If you don’t incorporate and something unfortunate happens in your property or to your tenant, you could be at risk of being held personally liable.
For instance, if your tenant slips and falls on an icy pathway, or they fall down stairs that are faulty, or a pipe bursts that damages their personal property, you could be sued for thousands or even millions of dollars.
When you incorporate, your corporation acts as a shield to your personal assets. If something happens to your tenant or your property, only your corporation can take the fall–not you.
Without a corporation, you could find yourself surprised with a mountain of debt, bankruptcy, or even jail time depending on the situation.
However, when you have a corporation, your business assets are separated from your personal assets. Think of it like insurance. By setting up a corporation, you ensure that your savings, your personal home, and other assets can’t be taken away in the chance that something happens regarding your rental property.
Tax Benefits
Now that we’ve touched on the defensive side of owning a corporation for your rental property, let’s talk about the offense.
Incorporating a business for a rental property isn’t about protecting your money. It’s also about growing it.
There are a variety of tax advantages to incorporating. For example, when you collect rent on your property, you have to add it to your personal income. This unfortunately can raise you into a higher tax bracket causing you to pay much higher taxes.
But, when your business collects rent payments, you can set it up so your taxes are much lower overall. Plus, it also means you can write off a ton of your home expenses as your home is actually a business.
This means your profit on the rental property will be higher, so you can get the most out of your rental income.
How You Can Incorporate Your Rental Property
If you’re ready to incorporate your rental property, then your next step is to get a lawyer to help you file for incorporation.
Incorporating a business in Canada is a much more difficult process than simply starting a sole proprietorship. There is a lot of complicated legal paperwork involved and it can be challenging to navigate the process.
If you want help starting a corporation for your rental properties, you should work with a trusted corporate lawyer. Here at Falcon Law, our team of corporate attorneys will guide you through the entire incorporation process. Reach out to Falcon Law today.
