Planning to buy a rental property

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

  1. How will you finance it?
  2. How much income can it generate?
  3. 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

  1. 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.
  2. The local rental market – Rents and vacancy rates vary.
  3. The costs – Factor in start-up and ongoing costs.
  4. A landlord’s rights and responsibilities – Ask your real estate agent or read Help for Landlords.
  5. 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.

Take action

Do your research on:

  1. The local real estate market
  2. The local rental market
  3. The potential costs
  4. The rights and responsibilities of landlords

Fast facts

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

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