Investing in real estate has become increasingly popular especially in Alberta with the affordable housing market and the high demand in the rental market. One strategy that savvy investors often employ is purchasing rental properties through a holding company. This approach offers numerous benefits, from liability protection to potential tax advantages.

1. Understanding Holding Companies:

A holding company is a company that does not carry on business. It sells no goods and provides no services. Instead, it is an entity established to own and manage assets, such as real estate properties, stocks, or other businesses. When it comes to purchasing rental properties, a holding company can provide asset protection, mitigate risk, and facilitate estate planning.

For the purpose of lending, a holding company should be owned by an individual and not a corporation or operating company. Additionally, whoever is the owner of the holding company, should be on the mortgage application.

2. Advantages of Buying Through a Holding Company:

Limited Liability: One of the most significant benefits is limited liability. Should legal issues arise related to the property, your personal assets are shielded from potential claims.

Tax Efficiency: Holding companies can offer tax advantages, including income splitting among family members, potential tax deferrals, and the ability to claim deductions related to property management expenses.

Estate Planning: Holding companies can aid in seamless estate planning, making it easier to transfer ownership and manage assets in the event of your passing.

3. Expert Advice and Due Diligence:

Legal Counsel: Consult a lawyer experienced in real estate and corporate law to ensure your holding company is set up correctly and complies with all regulations.

Accountant: Work with an accountant well-versed in corporate taxation to design a tax-efficient structure and reporting system.

Real Estate Agent: Collaborate with a knowledgeable real estate agent who understands the intricacies of rental purchases.

Mortgage Broker: Working with a mortgage broker can provide insight into the financing options of your purchase and is able to show you the options available to you.

If the holding company does not exist at the time of purchase, that is okay! The qualifying is done for the mortgage based on the strength of the applicant(s) and not the strength or viability of the company. Therefore, the holding company can be opened post purchase, but prior to possession.

Purchasing a rental property in a holding company offers up many advantages over purchasing under a personal name. To ensure you are making the best decision for you, it is important to talk to your Mortgage Broker, Realtor, Accountant and Lawyer before starting your home search.

Interested in a Rental Property in a Holding Company? Here's What you Need to Know!