Buy an Income Property in Ontario

You need more space, but can’t afford a bigger mortgage. 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. Bedrooms in houses rent for $700 each in the GTA and basement suites for $1,395. Now you just need a home big enough for you, your family and a couple of students. 

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.

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.

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.

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.

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.

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.

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 get along well with others, can lay down the rules when needed and are fair, 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 or converting an income property for their own use. 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.

Buyer’s Principal Residence Loophole

A homebuyer or homeowner who decides to live in a former income property or take in a relative to care for Nana can displace tenants. If renting part of your home is getting to be too much, you have options. But before you issue an eviction or make promises to a new buyer, get your facts straight by checking with an Ontario real estate lawyer. 

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 e-signing appointments for real estate transactions can be arranged anywhere in Ontario. Licensed real estate lawyers are available 7 days a week to meet in person at our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland 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. 
Click here to learn more about Axess Law’s real estate law services.

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