Buying an Income Property: What You Need to Know | Kate Watson


Leasing property can generate some impressive monthly income, but it pays to understand the process before you get started…

Are you thinking of buying your first income property? The right piece of Toronto real estate can provide a stable long-term investment and fantastic ongoing returns. While the benefits are often significant, you should know what to expect from investing before you dive in. There are some key differences between purchasing a home for your own personal use versus buying one as a rental property, and understanding them can help ensure your success in the market. If you’re thinking about acquiring your first investment property, here’s what you should know…

Your investing goals

It goes without saying that when you buy an income property, you’re hoping to receive a healthy return. But narrowing down this goal will allow you to make a more strategic investment—and increase your chances of success. Consider your risk tolerance, the level of return you’ll be satisfied with, and what kind of timeline could work for you. For example, many investors are only interested in cash-flow positive condos or houses. That said, if your goal is to flip a property—or upgrade it and rent it out for significantly more money down the line—the right cash-flow negative property could suit your needs perfectly.

Your property options

Should you invest in a house, a condo, or a semi-detached home? Would it make more sense to opt for a building that contains several units? Once you know what your investment goals are, you can decide what type of property will best help you achieve them. For many first-timers, a single-family property—and in particular, a condo—is a great choice. Buying one unit is typically more affordable than purchasing other property types, and it also tends to be lower maintenance. Of course, what constitutes the perfect investment will depend on your circumstances. The most important thing is to seek out the right professional guidance and be aware of your options.

Your responsibilities as a landlord

One of the most helpful steps you can take toward buying your income property is ensuring that you understand your responsibilities as a future landlord. Whether you’re purchasing a tenanted property or one that’s vacant, Ontario’s Residential Tenancy Act will serve as your guide. From rents, privacy, and maintenance to the circumstances under which you can terminate a lease, everything you need to know to keep things legal is contained in the act. I suggest reviewing this crucial document as early as possible to help prevent potential conflicts later on.

Financing considerations

There are some key differences between financing an income property and a home for your own personal use. In most cases, you’ll be looking at a significantly larger down payment (typically around 20 per cent) and a higher interest rate. That said, it really depends on the lender you work with. According to mortgage broker Joanna Lang, many banks think of loans for investment properties as risky—and they may be less likely to make exceptions for buyers as a result. “The underwriting process can also be very different from one bank to the next,” says Lang. “Don’t go to one and take what they say as gospel.” A qualified broker can present you with many different financing options—and help you comparison shop the rates and incentives offered by various lenders.

How you’ll be taxed

When you’re searching for the right investment property, you should be aware of the tax implications of your purchase. Do your homework to determine how much of your rental income will be taxable—and which expenses you can deduct. Armed with this information, you’ll have a far better idea of what your financial situation will be like after you buy. It’s also wise to look ahead to the day when you’ll sell your property. If its value appreciates, you’ll have to pay a capital gains tax—which will apply to half of the profit you make (at your marginal tax rate).

Buying your first income property can be an exciting and lucrative endeavour. By familiarizing yourself with the landscape and seeking out the right real estate and financial expertise, you can help ensure that you get the most from your investment.

Thinking of buying your first income property? I can help ensure that the process is smooth. Get in touch, and we can set up a time to discuss your needs.