Do your research if you’re thinking of buying a rental property as an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition and to create income. Before you start looking, know how you plan to finance your purchase. You must have a down paymentDown payment The money you put into buying a large item like a car or home.+ read full definition of at least 20% of the purchase price when buying a property that is not your main home.
3 questions to ask yourself
- How will you finance it?
- How much income can it generate?
- How much will it cost to maintain it?
You must have a down payment of at least 20% of the purchase price when buying a property that is not your main home. As of May 30, 2014, the Canada Mortgage and Housing Corporation (CMHC)Canada Mortgage and Housing Corporation (CMHC) A Canadian government agency that oversees the housing industry in Canada. Its main job is to help Canadians get affordable housing. They also provide mortgage loan insurance if a buyer of a home has less than 20% down payment.+ read full definition is discontinuing its Second Home mortgage insuranceMortgage insurance Insurance you get to cover your mortgage payments in case you get sick, hurt, or die.+ read full definition product – this means mortgages on second homes will no longer be insurable under CMHC.
5 things to know
- The local real estateEstate The total sum of money and property you leave behind when you die.+ read full definition market – Prices and growth rates vary.
- The local rental market – Rents and vacancy rates vary.
- The costs – Factor in start-up and ongoing costs.
- A landlord’s rights and responsibilities – Ask your real estate agent or read Help for Landlords.
- Your future tenants – Screen applicants and run credit checks.
Ask your real estate agent or builder about the Rental Housing Rebate if you’re buying a new residential property to rent out. If the property is more than $400,000, HST applies in Ontario.
Factor in vacancy rates
As a general rule, allow for a 5% vacancy rate in your financial planFinancial plan Your financial plan should cover every aspect of your finances: saving and investing, paying down debt, insurance, taxes, retirement planning and estate planning.+ read full definition. According to CMHC, vacancy rates vary across Ontario, and across Canada. Look at rates for early 2011:
- For Canada’s top 35 major centres, the average vacancy rate was 2.5%.
- In Ontario, rates averaged about 2.5%.
- Rates varied across Ontario – they were highest in Windsor and London.
To get an idea of how rents can vary depending on location, check out average rents in Ontario.
Do your research on:
- The local real estate market
- The local rental market
- The potential costs
- The rights and responsibilities of landlords
In early 2011, vacancy rates in Ontario averaged about 2.5%.
Source: Canada MortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition and Housing Corporation