Pick a strategy that fits you
House hack
Live in one part of the home and rent out another, such as a basement suite. As an owner-occupier you can buy with as little as 5% down, and the rent helps pay your mortgage. Often the best first investment.
Buy and hold
Buy a home, rent it out long term, and let tenants pay down the mortgage while the property (hopefully) appreciates. Simple, proven and slow.
Add a unit
Ontario now allows up to three residential units on most lots with a detached, semi or townhouse, as of right. A legal second suite or garden suite can transform a property’s cash flow.
Pre-construction
Lock in a price now with deposits spread over time, and close years later. Lower upfront cash, but you carry market risk and must qualify for the mortgage at closing.
Financing a rental property
- 20% minimum down payment on a property you won’t live in. Mortgage insurance isn’t available for non-owner-occupied rentals.
- Rental income counts. Lenders usually add 50% to 80% of the expected rent to your income, or subtract it from the property’s costs, depending on the lender.
- Rates can be a little higher for rental properties, and the stress test still applies.
- Use your equity. If you already own, a HELOC or refinance can fund the next down payment.
- 2 to 4 units count as residential, so you can still get standard mortgage financing. 5+ units are commercial.
The numbers that matter
| Net operating income (NOI) Rent minus vacancy and operating costs, before the mortgage | |
| Cap rate NOI ÷ price. Compares properties regardless of financing | |
| Cash flow What’s left each month after every cost, including the mortgage | |
| Cash-on-cash return Yearly cash flow ÷ the cash you put in | |
| Debt service coverage (DSCR) NOI ÷ mortgage payments. Above 1.0 means rent covers the mortgage |
Cash flow isn’t the only return: each payment also pays down your mortgage, which builds equity. The calculator below shows both.
Rental property calculator
Monthly breakdown
Cash needed includes the down payment, Ontario land transfer tax (no first-time refund) and about $3,500 in legal and other closing costs. Estimates only, before income tax.
Ontario rental rules to know
- The Residential Tenancies Act governs most rentals. Use Ontario’s Standard Lease for most residential tenancies.
- Rent increases: units first occupied for residential use after November 15, 2018 are exempt from the yearly rent increase guideline. Older units are capped at the provincial guideline. Either way, you can only raise rent once every 12 months, with 90 days’ written notice.
- Disputes go to the Landlord and Tenant Board, which can take months. Careful tenant screening is your best protection.
- Legal units matter: a legal, permitted second unit is easier to insure, finance and sell, and protects you if something goes wrong.
- Taxes: rental income is taxable, but mortgage interest, property tax, insurance and repairs are generally deductible. Talk to an accountant.
Where to look around the GTA
Durham Region (Pickering, Ajax, Whitby and Oshawa) is popular with investors and first-time buyers for its lower prices than Toronto, GO train and Highway 401 access, and room for basement and garden suites. The right area depends on your goals: cash flow, long-term growth, or a home you’ll live in first.
Tell me your budget and goal and I’ll send you properties with the numbers already run.
Let’s find your next property.
Book a free investor strategy call. Bring a listing, I’ll bring the analysis.