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Buying a Second Home as a Rental Investment

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With interest rates at a historical low and the real estate market favouring buyers, it makes sense to consider investing in rental properties. Providing you do your due diligence and pick a safe investment in a good location, you could reap the benefits of passive income and tax advantages as your home appreciates in value and builds up your equity. Real estate investing is not for everyone, but those who succeed at it will find that it brings security and hefty financial returns in the long run. Here are a few things to think about if you’re toying with the idea of buying a second home as a rental investment.

Consider the tax advantages

While revenue properties are subject to capital gains taxation, there are several tax benefits of rental properties. Interest, taxes, insurance and other expenses are deductible against the property’s passive income, while losses can usually be deducted against your other income. Here are a list of expenses that can be deducted from your income, according to Revenue Canada:

  • Your insurance on the property.
  • Advertising that tries to attract people to your rental property.
  • Several different fees from lawyers and mortgage brokers.
  • Bookkeeping/accounting/tax preparation fees.
  • The salary/wages of your property manager and any other people you employ to take care or provide services to the property (and labour/time you put in to the equation is not tax deductible however).
  • Repairs to the property.
  • Property taxes.
  • The cost of providing utilities if you choose to pay for them on your rental agreement (making this an interesting perk to provide for clients).

Look into different types of properties

There are many different types of properties you can buy as rental investments, and each one comes with different benefits and risks.

  • Condos are popular with tenants in the inner city core, but may come with higher monthly carrying costs due to the condo fees. If investing in a condo, be sure to look into the condo association minutes to determine whether the building’s funds have been properly managed.
  • Single family homes tend to attract stable, long term tenants, but they require more maintenance and would be better suited to a landlord with the time and knowledge for DIY.
  • Duplexes and Triplexes are a popular choice for investors in Montreal. While using part of the building as your primary residence, you can draw passive income from the other unit(s).
  • Multiplexes bring high returns on your investment, but a multiplex investment should be treated as a business rather than a casual hobby. They require more of a structured team, and are far more capital intensive.

Evaluate your ability to be a landlord

While some people assume the role of a landlord with comfort, other shy away from the risks and responsibilities involved. Managing a property, and tenants, requires some time and energy, and may cause unexpected stress when things don’t go according to plan. To minimize your risks, make sure you request credit checks and references from all tenants, and stipulate as many details as possible in your rental lease in order to protect yourself legally. When it comes to nightmare tenant scenarios, you’re better off being safe than sorry.

Some landlords hire property managers to take on the day to day responsibilities of the rental, especially investors with more than one unit in their portfolios. Keep in mind that while this will minimize your stress, it may also erode your profit margins.

Know your market

Researching a rental property should be at least as rigorous as if you were buying a place to live in. Before making an offer to purchase, familiarize yourself with the market trends, urban plans, average rental values and occupancy rates for the area in consideration. Make sure the neighbourhood offers the resources (such as schools, transportation, recreational options, shopping, etc.,) desired by the type of demographic you would want as tenants.

If you’re not fully informed about Montreal’s real estate market or if this is your first investment, it’s recommended to have a real estate broker or a financial councillor by your side as you look for the perfect property. A professional will be equipped to steer you away risky investments, while coaching you on how to identify the interesting ones.


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Want the whole scoop on investing? Download our free e-book here.

Run a full financial analysis

Use a mortgage calculator or app to balance your carrying costs costs; down payment principal, taxes, insurance, maintenance and interest rate, against the average rental prices for comparable properties. Ideally, you would look for an opportunity that allows you to generate positive cash flow- or as close to it as you can get.

Other financial considerations are: closing costs, interest rates, appreciation rates, ROI and net profitability. (You can calculate ROI on any rental investment using our free ROI Calculator.)

All in all, of you have a long investment horizon, a tolerance for the inherent risks and have a competent real estate broker by your side, the benefits of buying an investment property can be truly substantial.


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