Benefits of a three-tier structure for real estate investors

Are you wondering what are the benefits of the three tier structure for real estate investors? Read this article to find out more

The three tier structure is designed for and used by real estate investors. It consists of three corporations.

1. A management corporation
2. A Real Estate company
3. Holding corporation

The management company provides property management services to the real estate company in turn for a fee. The real estate company owns land and buildings. The holding company behaves like a piggy bank and owns 100% of the shares of the real estate company. I use the term “piggy bank” because the real estate company distributes cash dividends from its rental profits to the holding company on a periodic basis.

There are three major benefits to having the three tier structure.

1. The management company pays a very low rate of tax of only 15.5% on business profits.
2. The real estate company has reduced risks for lawsuits because it’s not performing any property management services.
3. The holding company protects cash retained earnings from creditors.

Here is the tip! If you are a serious real estate investor, use the three tier structure to reduce legal risk, protect cash, and lower your tax bill.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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