How to Make Real Estate Investments Profitable

Allan Madan, CA
 Oct 27, 2012

Are you a real estate investment group? This article is about why you should incorporate for real estate. I’m going to tell you the top five reasons why you should incorporate for real estate.

Limited Liability Protection:

Reason number one is a real estate corporation allows for limited liability protection. That means in the event of a lawsuit, because of your real estate assets, your personal assets like your house, your car and financial assets are not at risk. The most common type of lawsuits involving rental properties are tenant injury claims. If you are not willing to part with your personal assets it is important that you incorporate to get limited liability protection.

Easy Succession and Estate Planning:

The number two reason is that corporations allows for easy succession and estate planning. You can purchase a real estate investment for the benefit of your kids and family members. Your kids and family members will become shareholders in the corporation. Any future growth of today’s value would accrue to the children and family members. As a result your estate tax is limited to today’s market value of the property and, like I said, any increase is taxed to your children, not you.

Real Estate Corporation Allows Partnerships:

The third reason to incorporate your real estate investments is to allow for partnerships. It’s very easy to have a real estate corporation with multiple partners. In this particular case each partner would become a shareholder in the corporation and you could have as many shareholders as you require.

It’s also easy to remove existing partners or shareholders by having the corporation repurchase their shares or by buying back their shares. Also, you could add new partners by issuing new shares from the corporation or selling shares to the partner. This way you can get additional capital for your corporation.

Easier Financing:

The fourth reason why you should incorporate for real state is because financing is easier with a corporation; in fact banks require that commercial properties purchased be done so in a corporation.

Income Splitting:

The fifth reason why you should incorporate for real state is you can income split through the use of a real estate corporation. For e.g. if you and your spouse are shareholders of a real estate corporation then the profits from that corporation can be distributed evenly to each of you via dividends.

Compare this to the alternative where one spouse owns the property and all of the profits are included in that spouse’s income. That would cause the owning spouse to have his/her taxable income rise and tax bracket increase. So, you see with a corporation it’s easy to income split or income average.


The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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