How Personal Ownership Works
Owning a rental property personally means the property and its income are reported directly on your personal tax return, and your personal credit and income are used to qualify for financing. This is the simpler and more common approach, especially for a first or second rental property.
How Corporate Ownership Works
Holding a property through a corporation separates the asset and its liabilities from your personal name, which can offer some legal protection and potential tax planning advantages, particularly for investors with multiple properties or higher income.
Financing Differences
Mortgage financing for a corporately held property is often more limited, with fewer lenders offering these products, generally higher down payment requirements, and sometimes higher rates compared to personal ownership. Personal guarantees from the shareholders are usually still required.
- Fewer lenders offer corporate financing
- Higher down payment often required
- Personal guarantees typically still needed
Tax Considerations
Rental income inside a corporation is taxed differently than personal rental income, and the rules around passive investment income in a corporation have become more complex in recent years. This is an area where advice from an accountant is essential before making a decision.
Making the Right Choice for Your Situation
There is no single answer that fits every investor. Factors like the number of properties you own, your personal income level, liability concerns, and long term estate planning goals all play into whether personal or corporate ownership makes more sense, and it is worth discussing with both an accountant and a mortgage broker.
Frequently asked questions
- Do I need a bigger down payment for this type of property?
- In most cases yes, since lenders view these properties as carrying more risk than a standard owner-occupied home. The exact amount depends on the property type, the lender, and your overall financial picture, so it is worth getting a clear answer before you start shopping.
- Can I use projected rental income before I have a tenant?
- Some lenders will accept a market rent appraisal or lease commitment for this, while others want to see an existing lease in place. Rules vary quite a bit between lenders, which is one reason it helps to work with a broker who can compare options.
- How long does approval usually take?
- Timelines vary based on the complexity of the file and whether extra documentation like appraisals or building permits are needed. Starting the conversation early, before you are under a tight closing deadline, generally leads to a smoother process.