Since the financial meltdown, Canadian investors have increasingly been eyeing U.S. real estate as a potentially lucrative opportunity. In response, a Canadian accounting and advisory firm has now issued a paper offering insights for investors looking to access that market.
Investing in commercial real estate in the United States, a new publication by Grant Thornton, warns that there is no one-size-fits-all approach. Instead, investors should try to fully understand their options and try to minimize unnecessary taxes and penalties, the paper says.
Taxes can significantly affect returns, so before closing a deal, investors need to understand its ownership structure options and tax implications. The document warns that there is no perfect ownership structure for U.S. commercial real estate. It examines the pros and cons of different ownership structures such as direct personal ownership and Canadian corporate ownership, among others.
Capitalization is another area the publication focuses on. The issue of capitalization (debt/equity) arises when Canadian investors choose an ownership structure that includes an American corporation. The publication argues that the best solution is to model the projected taxable income in order to determine what level of debt can be supported.
“While opportunity may exist, investors often focus too much on potential high returns without considering other factors that come into play,” the paper says. “Improperly structured, a good investment can quickly turn sour when the full tax picture becomes clear.”
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