You need more space, but can’t afford a bigger mortgage – the time could be right to buy an income property in Ontario. Being an income property owner doesn’t look that hard on HGTV. Hey, your neighbours down the street rent out a room over the garage to Korean exchange students! Maybe it’s time you took the plunge.
Favourable Rental Market for GTA Homeowners
The Greater Toronto Area is home to colleges and universities galore. You can’t lose with all those local and international students looking for housekeeping rooms and bachelor suites. Rentals.ca was listing private bedrooms in houses in the GTA for $625 and up in July 2022. Liv.rent reported average rents of $1,959 for unfurnished one-bedroom suites. Now you just need a home big enough for you, your family and a couple of students.
Flipping homes for a living in the Greater Toronto Area.
Share a New Home with Renters
Buying a home to share with renters can be a clever way to qualify for a larger mortgage, and improve your credit score for future home purchases. Fifty per cent of any rental income you expect to collect is added to your personal income to calculate how much mortgage you can afford. If it makes the difference between homeownership and a lifetime of renting, it may be worth a try. Check your credit score’s health.
Financing a Rental Home in Ontario
While having an income property can be lucrative, you’ll still need enough income to finance the deal. Your mortgage lender will subtract property expenses like maintenance, taxes, heat, and mortgage payments from any income you make. Profits are added to your personal income, while deficits are deducted as monthly expenses. The resulting balance sheet is compared to your other assets and liabilities. Passing a “mortgage stress test” to see if you can handle rising interest rates can be a significant hurdle.
Can you pass the mortgage stress test?
Proving Your Home’s Income Potential
Calculating potential rental income also affects your mortgage eligibility score. Lenders will accept a signed lease to figure out your unit’s rental value. Or you can hire an independent appraiser to prepare a fair market rent letter. Buying a home that has been rented before can be helpful in convincing a lender your plan is profitable.
What’s your home worth?
Downpayments for Income Properties
Most mortgage lenders require at least 20% to buy an income property you don’t live in or that has more than two units. CMHC mortgages with 5% to 10% down are only available if you live in the home, it’s a single property, and it has two or less units. See the new rules for borrowing downpayments. Find out more about private mortgages.
Tax Wins for Income Property Owners
Having an income property gets you big tax wins. You could write off your renters’ share of mortgage interest, property taxes, home insurance, utilities, and upgrades. Hiring a property manager, advertising for renters, paying accountants, and even capital gains can all be deducted from your income tax return. Expenses you can deduct as an income property owner.
What to expect from Canada’s new anti-flipping tax.
Make More Take-home Pay
Nothing beats those wild stock market swings like regular rental income. Look at it this way: renting brings in monthly income. Your renters get a place to stay. You make money to pay the bills and get more home for your investment. Everybody wins. Naturally real estate purchase and legal fees affect your investment income, but then so do brokers’ fees for buying stocks and bonds. Average real estate closing costs in Ontario.
Is Being a Landlord for You?
Being a landlord or sharing your home has its headaches. Messy or noisy tenants, unpaid rent, and property eviction laws may keep you up at night. You have bills to pay, even when your renters don’t pay theirs. As long as you are fair, get along well with others, and can lay down the rules when needed, landlording could be for you.
Selling a Rental Home
Selling a home with rented rooms or a basement suite does take more time. Your realtor has to find a home buyer interested in owning an income property, or converting it for their own use (see Buyer’s Principal Residence Loophole). Showing your home or holding open houses is awkward, especially if your renter’s no Martha Stewart. Don’t forget about tenants’ rights and responsibilities. Renters are legally entitled to 24 hours notice to show their unit and secure pets. Want to renovate before you sell? Your tenants need 120 days notice to temporarily vacate while you make upgrades.
Selling a Home and Ontario Residential Tenancies Act
The good news is, provided the new buyer assumes any leases, you can sell a home with tenants in it. Your renter can stay until their lease expires, or longer if they have an option to renew. While no-lease tenants may be evicted with proper notice (60 days minimum), a complaint to the Ontario Landlord and Tenant Board can delay your home sale. Read eviction rules for landlords.
Buyer’s Principal Residence Loophole
A homebuyer or homeowner who decides to live in part of an income property may be able to displace tenants. Before you issue an eviction or make promises to a new buyer, get your facts straight by checking with an Ontario real estate lawyer. Go to page 17 for forms to use to evict a tenant when you buy property for personal use.
Is evicting tenants the buyer’s or seller’s responsibility?
Legal Services for GTA Income Property Buyers
Axess Law Ontario real estate lawyers can advise you on tenancy issues or review an agreement of purchase and sale agreement for an income property. Video calls and online signing appointments for real estate transactions can be arranged anywhere in Ontario. Hire a virtual real estate lawyer.
Licensed real estate lawyers are available 7 days a week to meet in person at any of our Greater Toronto Area or Ottawa law offices. Make an appointment by dialing toll free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form.
Affordable Real Estate Lawyers, Anywhere You Are
Access lawyers for less in Greater Toronto Area, Ottawa, or by remote video conference. Our flat fee rates are affordable, and all inclusive (excluding taxes, disbursements, and third-party charges). Your final invoice includes no surprises, or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. You can get independent legal advice, or add a family member to a property for a modest title transfer lawyer fee. Axess Law offers you only the legal services you absolutely need.
Click here to learn more about Axess Law’s real estate law services.