Scaling Your Ontario Rental Portfolio: From Single-Family to Multifamily

Welcome & Structuring Your Portfolio the Right Way

[00:00:28] Kevin Breitner: Welcome back everybody for another episode of CRESI’s Ontario Landlord Series. Today we’re joined again by a returning guest, a friend of mine and one of our core educators with our investors, Mr. Shawn Quigg — currently of Cardinal Law, and we’ll talk about that later. You’ve heard me say it before: start small, build for tomorrow. Today we’re adding into that — we’re going to talk with Shawn about structuring your portfolio properly and growing it strategically along the way. Thanks for joining us this morning, Shawn, how are you doing?

[00:00:49] Shawn Quigg: Thanks so much for having me back. I love coming on and talking about real estate investing and how to do it right — there’s a lot of noise out there, but I love coming on with you because you value getting it right in advance of finding bigger, more expensive problems later on.

[00:01:08] Kevin Breitner: Right — being ahead of the game, understanding what you might encounter. I’ve used this analogy before: it’s a bit like a choose-your-own-adventure book, where “turn to page 11 if you want to fight the dragon, turn to page 22 if you don’t.” We have to plan for either direction we might go as investors — everybody wants something a little different, but it’s about what makes the most sense for them. And I love that you said it’s about getting correct, proper information out there, because with the internet today you can find ten different opinions about the same thing. So let’s stick with structuring small. Let’s take a new investor along the journey — from the moment they start thinking about buying their first investment, all the way to when they’re ready to retire and live off their investment income. Here I am, my name’s Frank, and I just bought my first pre-construction townhouse, and now, four years later, it’s ready for me to turn into my rental.

The Investor’s Journey: Building a Team of Three Professionals

[00:02:37] Shawn Quigg: Wouldn’t it be nice to be able to retire on your cash flow — I think that’s most people’s goal, but it’s tough to get there for a few reasons. We’ve all got capital challenges — we run out of money at some point, unless we’re born into extreme wealth, which is rare — and you’ll run into problems along the way. Everyone will tell you real estate is a passive investment, and to some extent it is, but there’s nothing truly, completely passive about it. The people who reach the retirement phase, living off the cash flow they built, are the ones who’ve solved problems successfully and profitably — probably the number-one challenge in our industry. Let’s talk about Frank, our first-time investor who bought a pre-con four years ago, at the height of the market in 2022 — sorry about that, Frank. Let’s talk about structuring. You’ve had Mike on, who’s a CPA — I don’t remember if you’ve had a mortgage broker on — but what I want to talk about first is that there’s no single right answer for Frank or anybody listening. What we need is the input of at least three professionals. I’m a lawyer, and I help investors every day, whether it’s dispute resolution, acquiring their next apartment building, or figuring out their corporate structure and strategy. When it comes to starting out, you need at least three professionals: first, your lawyer; second, your accountant — it’s important to find one willing and able to grow with you from the start; and third, your mortgage broker, since how you finance and scale your portfolio can look very different depending on how you’re structured. It’s important to get input from all three at roughly the same time. What you want, Frank, is someone who doesn’t wear blinders — someone who can see the forest and the trees and appreciate other perspectives, because I’ll have a different opinion than your accountant or your mortgage broker, very likely. Our role as professionals isn’t to tell you what to do — it’s to put you in a position to make the best choice based on the information you have and what you’re most concerned about. So right off the bat, the biggest question I get is: should I incorporate? And for Frank, buying his first pre-con—

[00:05:50] Kevin Breitner: Love that.

Should You Incorporate Your First Property?

[00:06:00] Shawn Quigg: —probably shouldn’t, for about three reasons. Let’s talk about the big one. A corporation is a great idea, and if I were wearing blinders I’d tell you absolutely, yes. Except we’re in this to make money, and it costs money to incorporate. You need a bookkeeper anyway, incorporated or not, but a corporation has to file two returns every year. Most people know about the tax return, where you declare income and expenses and pay corporate income tax — that’ll run you $2,500 to $3,000, maybe more, every year. Then you need to file a legal return, and to do that you have to update your minute book — your lawyer coordinates that, including things like the dividend declaration, and re-appointing directors and re-electing officers every year to stay compliant with the Business Corporations Act of Ontario (or your provincial equivalent elsewhere). The legal return itself, filed with the province, confirms you’ve filed your tax return and updated your minute book — that’ll run you $600 to $1,100. Add it up, not even including the cost of incorporating, and you’re at roughly $4,000. On a single-family home, that’s about $350 a month gone to professionals — it makes no sense; the cost outweighs the benefit.

Corporations are also separate legal entities, meaning they can sue and be sued, which brings in the concept of privity of contract — only parties to a contract can sue on that contract. When you incorporate and sign a lease or another contract through the corporation, only the corporation can be sued, not you personally — that’s how we separate personal liability from business liability. So while it makes sense from a strictly legal standpoint to incorporate right away, it often doesn’t make practical sense. I’m happy to incorporate someone in Frank’s position eventually, but I’d rather see Frank succeed as a strategic partner on his way to retiring off cash flow — incorporating right away would just put him behind the eight ball the whole time.

[00:09:24] Kevin Breitner: Just to jump in here — we’re talking about generic situations, being very general. This is a disclaimer, more to protect Shawn than anything: this isn’t legal advice, just a general conversation. And I get it, so does Shawn — most people aren’t going to retire off their real estate income. Some do want to get that far, but most people just want a nice cushion for retirement, some extra income, savings, or a legacy for their kids. So even though we’re taking this to the extreme, it’s still valuable for everyone further along their path. Shawn’s going to keep helping you protect and grow your portfolio, whether that’s two properties, twelve, or twenty. So now we have our one property, and we’re going to go acquire something else.

Scaling Up: Escaping the “Murky Middle” With Commercial Financing

[00:10:30] Shawn Quigg: As you start to acquire more properties — one a year, one every couple of years, or even one a month, which would be pretty wild — you’ll start to run into challenges, especially on financing, which is why it’s important to build a good relationship with a good mortgage broker. If you’ve acquired a couple of single families or small multis — I define that as four units or fewer — you’ll find yourself stuck in a “murky middle.” When you buy a fourplex, triplex, or duplex, you get residential financing, which sounds great in theory but is difficult in terms of scalability. Here’s why: with residential financing, it’s not the property that qualifies for the loan, it’s you. As you own more properties personally, your ability to debt-service your portfolio decreases, even with cash flow — you have to hit that 1.2 debt-coverage ratio every time, and your income counts for less and less. That’s part of why you want to start “playing Monopoly” — trading your single families and small multis for bigger buildings, not actual hotels, but multifamily properties big enough to qualify for commercial financing, typically five or six units, depending on the bank. There’s one bank that treats five units as residential.

[00:12:26] Kevin Breitner: RBC is the only one I know that will do six units at residential cost.

[00:12:32] Shawn Quigg: Right — once you’re in commercial financing, good corporate structuring is actually rewarded, unlike residential financing, where it’s frowned upon. Think of lenders like factories: mortgage applications on an assembly line, and if anything doesn’t quite fit their buy-box, they discard it — including scenarios where a corporation owning or borrowing against real estate is itself owned by another corporation, which is how you properly structure real estate investing. Mike’s episode touched on corporate structuring, so I won’t go too deep, but good corporate structuring will actually get in the way of buying small at scale. On the flip side, commercial underwriters are looking for a corporation owned by a corporation across a portfolio, limited partnerships once you’ve reached that scale, mutual fund trusts for the most advanced investors, and properly drafted shareholder agreements. As you trade small multis for larger multifamily — ten, fifteen, twenty, fifty units — you’ll need to raise capital properly, through a limited partnership or a private issuance of shares, and make sure your corporate structure grows with your portfolio: just the right number of corporations, not too many, since each one needs its own tax and legal return every year. As you gain scale, it actually makes financial sense to pay your accountant and lawyer to make sure those things are run properly. So it’s important to get out of the small-multi space relatively quickly, once it makes fiscal sense, since that’s where you get stuck in the mud on financing and scale.

[00:16:02] Kevin Breitner: You can only get so big there. I like the mortgage-factory analogy — that’s bang on. Underwriters are looking for specific things, and if they don’t see them, the deal gets passed on. But an investment-minded mortgage broker who understands the game knows how to tell your story and package the deal so a lender wants to get on board — that’s what it’s all about on the finance side, and why we keep circling back to having professionals on your side who understand your goals and how to help you succeed.

Estate Planning: The Secondary (Corporate) Will

[00:16:51] Shawn Quigg: Let’s touch on the last piece — you’ve got a portfolio that’s right for you, but there’s one piece a lot of people are remiss to talk about, and that’s what happens when we eventually leave this planet. One out of every one person dies, we just don’t know when, and while we don’t like contemplating our own demise, smart business people plan for it. There are a lot of estate-planning tools — share freezes, estate freezes, things in the Income Tax Act built to help transfer wealth — but in my view, the single best, most useful tool for real estate investors is a secondary or corporate will. Everybody knows they need a will, and two powers of attorney — one for personal care, one for property — but not everyone knows they need a secondary will. Here’s why it matters: in Ontario, when you pass away, if you own even one asset that goes through the probate process — your primary residence, for example — then all of your assets go through probate, and you owe estate administration tax on the fair market value of everything at the time of death. That can include shares in a corporation, valued at the fair market value of the real estate the corporation owns — not the equity, the full value. So if you own $10 million in real estate with $8 million leveraged, you’re paying tax on the full $10 million, not the $2 million in equity. A secondary will takes the assets that don’t need to go through probate — like those shares — and carves them out of the process. That’s why the secondary corporate will is the most important tool for real estate investors to get in place: it’s a relatively inexpensive investment for a huge return, especially since we don’t know when our time is up — it could be forty years from now, or tomorrow.

Cardinal Law Rebrands to Rook and Knight

[00:20:03] Kevin Breitner: I was going to say your time is up, and we’re going to pretend this is a TV show with a commercial break — we’ll bring you back to really dive into that secondary will, because I think everyone needs to understand it, so that’s our next conversation for sure. To recap here: as you grow from single families and small multis into larger apartment buildings, they’re now being funded off the asset, not your personal income — and there’s also small retail plazas and other commercial opportunities once you get out of that initial stage. Now, you’re probably seeing this episode and the one before it where Shawn was branded with Cardinal Law — they’re rebranding, and I’m going to let him talk a bit about that, plus plug a bit more of what we’re doing with the CRESI Investor Network. Shawn’s one of our core educators on the legal side, and he’s always around to make sure our investors, landlords, and realtors have the correct tools to succeed. Shawn, tell us about your branding and why you’re doing it.

[00:22:01] Shawn Quigg: Thanks, Kevin — I’m proud and pleased to announce that Cardinal Law has rebranded to Rook and Knight Commercial and Investor Law. We wanted to take what we built and transform it into something that communicates what we do — commercial real estate, investor real estate, entrepreneur-type law, corporate structuring for businesses, acquiring businesses, and so on; we’re here to help people make money and look good doing it. For me, Rook and Knight is a transition to a measured strategy — chess is generally a calm, measured game, and that’s exactly how we approach our work. Buying real estate can be very stressful, especially as the numbers and consequences get bigger, so we wanted to bring that measured, stoic approach to commercial real estate. Commercial real estate isn’t just plazas and malls — it refers to multifamily and really anytime you’re buying real estate to make money. We’re soft-launching right now — we haven’t launched our website yet — but we’re spreading the word that we’re narrowing into commercial, investor real estate law, and commercial law.

[00:23:53] Kevin Breitner: Amazing, congratulations — I like the strategy, niching down to level up. This is why we have our group of core educators who specialize in the investment world — we do this every single day helping investors and landlords, not just helping a cousin buy a duplex in Kitchener once. I’ll also share what’s coming up: we’re going to have a big event educating realtors, investors, landlords, and aspiring landlords on how to get started and build properly, with education and information at the forefront, not just how to acquire properties. Buying your rental property isn’t the big win — it’s just when the game actually starts, when you become a landlord and a housing provider. With CRESI Property Management, it’s about helping you support after that; now this group is coming together on the management side, the legal side, and the financial side, with advocacy as another big part of it, so landlords come together as a community. We haven’t had much go our way in about two decades, except Bill 60, which just passed — and there’s still back and forth against us. That’s a topic for another day, but this was a great conversation — let’s leave everybody with a few final words, and we’ll be back to talk about the secondary will in another episode.

Final Advice & Wrap-Up

[00:26:07] Shawn Quigg: Kevin, thank you so much for having me — it’s always great to sit down and chat about real estate investing and how to make it work in everyday life. If you’re a real estate investor listening to this, stay curious — there’s so much to learn and digest. Trust the people you feel best connected to, to help guide you along the way, and then take that shot.

[00:26:34] Kevin Breitner: Love it — get a professional to guide, advise, and consult so you can make the best decision for you. As always, thanks so much for listening. Tell another landlord, tell a friend — this is where they need to get their information from. We’re here to help, and we’ll catch you on the next episode. Bye for now.

Please remember, while we are professionals, this podcast is for informational and entertainment purposes only. The advice shared may not apply to your unique situation. Always seek personalized advice from a qualified professional before making any investment decisions.