How to Structure Your Real Estate Investment Properties

Picking the right structure for your investment property isn’t just about saving on taxes. It affects everything from how much financing you can get to whether investors will actually give you money.

Most investors think this is just an accountant’s job. Wrong. Your lawyer, accountant, and mortgage broker all need to work together, or you’ll end up with a structure that looks great on paper but makes getting a mortgage impossible.

Why Your Corporate Structure Actually Matters

Here’s what most people don’t realize: the way you set up your investment property affects six different things, not just one.

Your accountant wants to minimize taxes. Your lawyer wants to protect you from liability. Your mortgage broker wants you to actually qualify for financing. And all three might give you completely different advice.

They’re all right. They’re just looking at different pieces of the puzzle.

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The Simple Corporation (And When It Works)

One corporation can be enough to run a project. All your investors own shares. Simple.

This works great when:

• You’re buying land with cash
• You don’t need traditional bank financing
• You have a small group of investors
• You’re using private lending instead of banks

The big advantage? It’s cheap and easy to explain to potential investors. A shareholder agreement spells out who gets what and who’s responsible for what.

Where Simple Structures Fall Apart

Let’s say you want to buy a 20-unit building. You need to raise money from 15 different people. And you want CMHC financing.

Your simple corporation just became a problem.

Here’s why: CMHC and many lenders want all major shareholders to qualify for the mortgage. That means your passive investor who put in $100,000 now has to personally guarantee a $7 million mortgage.

Nobody wants that. Your investors will run away.

This is where you need something more complex, like a GP/LP structure that protects passive investors from having to qualify for financing.

The Six Things You Need to Balance

A good real estate lawyer looks at six different factors before recommending a structure. Miss even one, and you’ll regret it later.

1. Tax Minimization

This is what your accountant cares about most. And yes, it matters. But here’s the problem: focusing only on taxes can wreck your ability to get financing.

Family trusts are the perfect example. They’re amazing for taxes. You can split income between family members and transfer assets tax-free.

But if you’re just starting out and need bank financing? A family trust will make your life miserable. Most lenders don’t want to deal with them. You’re better off waiting until you have an established portfolio and don’t need traditional mortgages anymore.

2. Liability Protection

This is your lawyer’s main concern. The goal is to separate your personal assets from your investment properties.

Corporations provide this protection. If something goes wrong with the property, they can’t come after your personal house.

But here’s something to watch out for: bare trust agreements don’t protect you at all. The property stays in your personal name, so you’re still on the hook if something happens.

3. Financeability

This is where things get tricky. Your structure directly affects what lenders you can use and how much you’ll pay.

Different lenders have wildly different requirements. Some want only the person with 20% ownership to apply. Others want every single director on the mortgage. Some want all shareholders above a certain threshold to qualify.

Commercial financing (usually 5+ units) is way more flexible about complex structures. Commercial lenders see complicated corporate setups all the time. They’ll just ask for a diagram showing who owns what.

Residential financing is a different story. Residential lenders often refuse to work with operating companies. They want holding companies. They have strict rules about who needs to qualify.

Pick the wrong structure, and you might lock yourself out of the best mortgage rates available.

4. Investor Attractiveness

If you’re raising money from other people, you need to make them feel safe.

You want to tell investors: “Your only risk is losing the money you put in. You won’t have to qualify for mortgages. You won’t personally guarantee loans. You won’t have any extra liability.”

But there’s a balance. Make the structure too complex, and investors get scared. They don’t understand it. They have to hire their own lawyers to review everything. Sometimes deals die because the paperwork is too complicated.

5. Life and Legacy Goals

What do you actually want long-term? Are you trying to replace your job income? Build generational wealth? Provide for a child with special needs?

These goals change everything about how you should structure things.

Here’s something most people miss: properties in your personal name go through probate when you die. That takes time. Meanwhile, your property might lose value while the estate gets settled.

Properties in corporations with proper planning? They can transfer to your heirs quickly, with no probate delay.

6. Cost

No matter how perfect a structure looks, it needs to make financial sense.

Every corporation costs money to set up and maintain. You need annual tax returns. You need legal fees for agreements. This adds up fast.

A five-unit property probably won’t generate enough cash flow to justify its own corporation. You might need to group two properties together.

A 20-unit building? That can usually support its own corporate structure without eating up all your profits.

Common Structural Tools and When to Use Them

Joint Ventures

Joint ventures work when you have a few partners who are all actively involved. Each person or corporation stays legally separate, but you collaborate on the project.

This works well when partners bring different skills or resources. Maybe one person finds deals, another manages renovations, and a third handles financing.

Bare Trust Agreements

Bare trusts are powerful but tricky. Here’s how they work:

You buy the property in your personal name. This lets you get fast residential mortgage approval (sometimes in 7 days). You can make competitive offers because you can close quickly.

But you set up a bare trust so a corporation is the beneficial owner. You’re just holding legal title.

The smart play? Buy the property personally, then set up the bare trust a year later. Now you have four years to build income in that corporation before your five-year mortgage comes due. When it’s time to refinance, you can show the lender four years of solid corporate income.

But remember: bare trusts provide zero liability protection. The property is still in your personal name. And refinancing can get complicated.

GP/LP Structures

This is the go-to structure for larger projects with multiple passive investors.

The General Partner manages everything and takes on liability. Limited Partners are passive investors with limited liability. The LPs typically don’t need to qualify for financing.

Use this when you’re raising money from many investors, using CMHC or institutional financing, or working on larger projects (20+ units).

The downside? It’s more complex and expensive. Some investors struggle to understand it. They might need their own lawyers to review everything.

Your Structure Can Evolve

Here’s something most investors don’t realize: you don’t have to pick one structure and stick with it forever.

You might start with a simple corporation when you buy the property with cash. Then convert to a joint venture when your first investors come in. Then switch to a GP/LP structure when you’re ready for construction financing.

This keeps costs low at the start while still setting you up for better financing and investor protection later.

One Corporation Per Property or Multiple Properties Together?

This is a big decision that affects your refinancing options down the road.

Multiple Properties in One Corporation

Advantages: Lower setup costs, simplified structure, easier bookkeeping.

Disadvantages: When you refinance one property, you need to provide information on all of them. If your portfolio shows a loss overall, it hurts your strong property. Some lenders want details on everything you own.

One Property Per Corporation

This gives you more flexibility. Each property stands alone. You can show its performance separately. And if you’re using CMHC financing, keeping properties separate makes them easier to sell later.

For smaller properties with conventional financing, grouping 2-3 together often makes sense to balance costs and flexibility.

Protecting Investor Money During Due Diligence

Passive investors worry about sending money before deals close. What if the deal falls through? What if their money gets used for something else?

Here’s how to protect them: have investors send funds to your lawyer’s trust account with clear directions that money won’t be released until due diligence is complete, the corporation is set up, agreements are signed, and everything is ready to go.

This gives investors complete control while letting you move quickly when conditions are met.

One important note: lawyers need to verify the source of funds and complete anti-money laundering checks. This takes time. Don’t wait until closing day to send money, or you’ll cause delays.

Why Your Experts Disagree (And What to Do About It)

Your accountant says one thing. Your lawyer says another. Your mortgage broker suggests something completely different.

This drives investors crazy. But here’s the truth: they’re usually all correct. They’re just looking at different aspects of the same problem.

Instead of bouncing between advisors collecting conflicting opinions, bring them together. Have one conversation where your accountant, lawyer, and mortgage broker all contribute their perspective.

This often reveals solutions you never considered. Maybe you don’t need to choose between a joint venture and a GP/LP structure. Maybe you should open a Mortgage Investment Corporation instead.

Common Mistakes That Cost You Money

Setting Up a Family Trust Too Early

Family trusts are great for sophisticated investors with established portfolios. But if you’re just starting and need bank financing, they’ll make your life much harder. Wait until you’re less dependent on traditional mortgages.

Using Operating Companies to Hold Properties

Many residential lenders won’t work with operating companies. They want holding companies. Get this wrong, and you’ll pay higher rates or miss out on better financing.

Starting to Raise Capital Before Consulting Experts

Talk to your lawyer and mortgage broker before you start looking for investors. Otherwise, you might lock yourself into a structure that limits your financing options or doesn’t properly protect investors.

Ignoring Your Refinance Strategy

Don’t just think about today’s mortgage. Think about what happens in five years when you need to refinance. A structure that works now might cause expensive problems later.

Getting Started

Before you buy your next investment property, have a conversation with your accountant, lawyer, and mortgage broker. Not three separate conversations. One conversation where they all talk to each other.

Tell them your goals. How many properties do you want to own? Are you raising money from other people? What’s your long-term plan?

The right structure depends on your specific situation. There’s no one-size-fits-all answer. But getting it right from the start will save you thousands of dollars and countless headaches down the road.

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Frequently Asked Questions