Choosing the right business structure in Canada for your real estate rentals is a big part of setting yourself up for success. While your initial business structure may depend on your current resources, future resources may allow you to grow and create a more satisfying business plan. Here are some of the basics to consider.
LLC is the best business structure for real estate rentals:
Setting up an LLC may be the best option if you’re considering investing in real estate to make extra money. Not only does it provide a flexible tax shelter, but LLCs also protect individual assets. You can keep more money from your investments with the right operating agreement! However, hiring a legal and tax advisor is still important before making any decisions.
Another advantage of an LLC is that it allows pass-through taxation. In contrast, an S corporation is taxed on its income, while the owner of an LLC claims the company’s income on its tax return. In this way, the taxation of rental income is only once, making it easier to manage. In addition, an LLC can help landlords avoid lawsuits and protect their assets and liability.
Hire a manager to run the show:
When renting real estate, you have many options for managing your properties, including hiring a third-party manager. This can help you avoid some of the hassles of managing your properties. The cost of hiring a manager can vary greatly depending on the service level you need and market conditions. You should expect to pay the manager between 8% and 12% of the monthly rent. Some managers will also charge a setup fee or a percentage of the first month’s rent.
A third-party property manager can help you handle tenants’ stress. They will enforce your rent policies and handle the tough conversations with tenants. These professionals also make sure that your tenants pay their rent on time. However, it would help if you remembered that hiring a third-party property manager does not guarantee hassle-free property ownership.
Find financing for real estate rentals:
If you plan on investing in real estate rentals, you will need to find financing to purchase your properties. The first step is to shop around for the best loan terms. You should also ensure a large enough down payment to keep your DTI and LTV ratio low. Once you know what financing you need, you should find a rental property that fits your needs and goals.