Being a landlord in Ontario isn’t an easy endeavor. But there are several reasons why becoming one is a more accessible option now.
The real estate market has become inflated in recent years. At the same time, rent costs have risen sharply as well. So, if you have some extra money to invest, it’s been a good time to get into investment real estate.
While investing in real estate sounds exciting, you’ll need to consider what it takes to be a landlord in Ontario. There are complex and strict laws surrounding landlord-tenant relations in Ontario. There are also a lot of ups and downs that can cause constant stress.
By going through the many challenges that Ontario landlords must face, we hope to provide you with the information that it takes to decide on whether to purchase an investment property. We also hope to make clear the requirements and challenges that make being an Ontario landlord difficult but rewarding.
What You Need To Keep In Mind
Before you decide to purchase an investment property, you’ll want to consider quite a few variables.
You can’t treat an investment property the same way you’d treat the one you live in. Owning an investment property is more complex and comes with even more responsibilities.
What an investment property can get you in Ontario is fast and long-term income. But the initial steps can be hard. So, let’s go over what you need to consider.
The Down Payment
If you’re not very wealthy, you’ll need to take a loan to purchase your investment property. And a loan for an investment property will require a large down payment.
Your down payment is the first and largest financial hurdle to jump. So, you’ll need to consider both your down payment’s cost and the implications it will have on your future earnings.
- Do I have enough money to make this down payment?
- Is now the right time to make a large down payment?
- Will I qualify for a loan this big?
- Will I be able to follow my down payment with regular monthly loan repayments?
Once you have a plan to cover your down payment, it’s time to consider your other financial responsibilities.
Getting The Best Interest Rates For An Investment Property
You can expect to pay more in interest for an investment property than a residential one. So, you’ll want to take the time to find the best rates you can get.
The interest rates available to you will depend on your credit score and personal finances. But it’s up to you to find the best loan that you qualify for.
Compare rates offered by multiple lenders. The ultimate goal is to achieve a repayment process that is manageable and has you on the way to making a nice profit.
Crunch The Numbers: Will Your Margins Be Good?
It’s important to do your research ahead of time. You may come up short and come up with a loss otherwise.
The key here is making sure you account for every expense. That includes potential surprises like flooding and pest control. Then, there are other potential expenses you may face, depending on the location of your investment property. Snow removal and landscaping services are costly in Ontario, but often necessary.
Take your time to figure out a realistic profit target.
Location is critical. You want to make sure the property’s location makes it worthwhile for the rent you plan on charging.
It’s very important to provide an accurate description of your property’s location. Access to public transport, groceries, and public schools are key. So, when you’re considering which investment property to buy, consider:
- Children’s safety
- Access to public transport
- Nearby public institutions
- Anything else of interest in the area
The amenities available inside your investment property (or the condo itself) are important as well. Make sure you provide a complete list of everything available for tenants. They will certainly be interested in in-building attractions like a gym or pool. The number of showers and baths in their unit is also critical.
So, your investment property should be thoroughly described, INSIDE AND OUT.
Pro Tip: Don’t Flip Properties
If you’re new to real estate investing, it’s better to stick with a long-term plan. Flipping real estate is risky and is best undertaken when you have more experience.
Commercial vs Residential: Which Is Better In Ontario?
Most investment property owners in Ontario choose a single-family home. But the factors we’ve gone over so far are important for any type of property.
The precise challenges of commercial and residential real estate management will be dramatically different in Ontario. The biggest differences will be in sheer financial scale. But there are plenty of other intricacies to keep in mind.
Commercial Property Management In Ontario
There’s no avoiding the simple fact that managing a commercial property will be more challenging. Their leases are more complex, as is all the necessary paperwork. A lot of this hardship is because the lease will be subject to contract law. That fact has many small implications. But the main thing you need to know is that contract law makes the terms of the lease legally binding and enforceable.
Like a residential lease, a commercial lease will include every aspect of your relationship with the tenant. But because the legal contract is binding, you will need legal counseling. A commercial lease can offer you, the landlord, more protection than a residential lease. But it can also make you more vulnerable. So, spare no expense in making sure your lease contract is thorough and fair to all parties.
A commercial property’s lease will include stipulations on future rent hikes. Leases can be re-negotiated, however. But rent increases will be based on the original lease. This is just another reason to make sure the first write-up is thorough.
On the positive side, there are so many opportunities in Ontario. From entertainment businesses to retail and anything else, the need for business space is significant.
Financing a commercial investment property comes with a higher bar of entry. Down payment requirements will be higher, often exceeding 35%. Furthermore, lenders will scrutinize your credit history far more harshly. If you don’t have an impeccable credit history, you will have a hard time finding financing.
Your loan agreement for a commercial property purchase will often require a personal guarantee. That means that you will be held personally responsible should you fail to make your mortgage repayments.
Residential Property Management
Managing a residential investment property is in many ways easier than managing a commercial one. But Ontario’s real estate law is strict when it comes to investors.
The biggest issues you will face as a residential Ontario landlord are disputes with tenants. The Ontario Landlord and Tenant Board tends to side with tenants in most cases. Even if the tenant is unreasonable, disputes often take months to resolve and tenants are more protected than landlords. Also, dispute processes are of course stressful, and you stand to lose a lot should they drag on. So, screening potential tenants is highly recommended (more on that later).
Financing a residential property is easier than financing a commercial one in Ontario.
When getting a mortgage for a residential property, you can expect to pay up to 20% for your down payment. As is the case with any loan, you can expect better rates and an easier search with a good credit history.
Any kind of investment property can face the risk of vacancies. This problem is more serious for commercial properties, however.
Most residential properties in urban areas are in higher demand. Vacancy rates will be lower, pushing rent prices higher. Unless your residential investment property is highly undesirable due to location or price, you should receive many applications.
Commercial investment properties are a different story. Commercial lease agreements are more complicated. On top of that, a business owner’s needs can be quite complicated. The commercial property they lease will need to satisfy their specific business needs. The appearance of the property, its location, and the potential for the property to fit specific needs will all be taken into account. For example, consider the unique needs of restaurants. Does your property offer what it takes to have a highly functional kitchen and dining space?
So, the risk of long-term vacancies will be worse with commercial properties. That just means that choosing the right location is more important. But it can also mean that once you get the right commercial tenant, you can build a strong, long-term landlord-tenant relationship.
Damage can be a tricky issue to handle. According to the Ontario Residential Tenancies Act, damage caused by a tenant is grounds to have them evicted. But proving that a tenant willfully damaged your property can be a lengthy and stressful process.
In the case of any damage, as frustrating as it can be, it’s critical to stay cool-headed as a landlord. Undue damage caused by a tenant must be repaired at the tenant’s expense. If it isn’t, the tenant can be sued for damages. Of course, any damage caused by natural “wear and tear” is the responsibility of you, the landlord.
Unfortunately, most reports of tenants causing damage come after the tenant has vacated. By this time, personal discussions and negotiations have failed. At this point, the only potentially successful method for covering your damages is a proceeding with the Small Claims Court. You, the landlord, must prove that damage was done by the tenant.
Take thorough pictures and write up a thorough description of your property before signing a lease agreement. This will make any potential future disputes easier to handle.
Damages are just one of the factors leading to landlord-tenant disputes. Failure to pay rent on time and noise complaints can also lead to disputes.
Disputes between landlords and tenants are resolved by the Ontario Landlord and Tenant Board. Tenants and landlords can apply to the board when either feels the other party is not abiding by their responsibilities.
Ontario Residential Tenancies Act (RTA)
In Ontario, these disputes are handled according to the RTA. The RTA contains all the rights and responsibilities of landlords and tenants in the province. This includes the maintenance of properties and the process of evicting tenants.
Know The Laws
By now, you hopefully understand the importance of acting according to the rules laid out in the Ontario RTA. If you are unsure of any of your rights and responsibilities as an Ontario landlord, we recommend that you read over the act on the Ontario Government’s website.
The RTA goes over everything from your entry with or without notice to canvassers. It also outlines the processes you must follow to terminate a lease.
Among the more important preparations mandated by law, Ontario landlords must follow maintenance standards. Ontario tenants are entitled to:
- Hot and cold running water in all sinks, showers, and bathtubs
- Watertight roofs
- Watertight structures that protect against weather, fungus, dry rot, rodents, vermin, and insects
- Hazard-free external areas protected by necessary walls, guards, and fences
- Adequate plumbing and drainage systems
- Properly-placed toilets and urinals
- Access to electricity in every room
- Kitchen spaces with outlets adequate for refrigerators and cooking appliances
- Room temperatures not below 20 degrees Celsius
- Protection from smoke, gasses and toxic fumes
For a complete list of maintenance standards, refer to the RTA, regulation 517/06.
Ontario landlords can ask for a security deposit before the move-in date. The deposit is for the last month’s rent and is held by the landlord for the duration of the lease. It can be used to cover the tenant’s final month when they provide notice that they will be vacating.
There are also other smaller deposits a landlord may request. Landlords may request deposits for keys or access cards. However, you may not request deposits for anything apart from keys, access cards, and the final month’s rent.
Your tenants have a right to privacy which must not be infringed. Ontario tenant’s personal information should not be shared by their landlord. The Ontario government prohibits the “over-collection and inappropriate use of personal information.”
- Surveillance cameras can lead to infringements of a tenant’s right to privacy when:
- The use of any surveillance camera isn’t fully disclosed to tenants
- Cameras reveal the inside of a tenant’s apartment
- The footage that is captured goes beyond specific purposes laid out in the lease agreement
So, surveillance camera use is fine, so long as the tenant clearly understands exactly where and why surveillance is being performed and their living space is not included.
You may attempt to terminate a tenancy in Ontario. But you must follow the correct procedures and have a legally recognized cause for doing so.
The regulations for tenants terminating a tenancy are laid out by the Landlord and Tenant Board. The rules they observe are in accordance with the RTA. You can read about tenants’ rights to terminate a fixed- or non-fixed-term tenancy in detail in the board’s brochure. Keep in mind that tenants may move out with a notice.
It’s a bit more challenging if you’re the only one who wants the tenancy terminated. You must provide adequate notice when you terminate a tenancy. Minimum notice times vary. There are also two classifications for reasons to terminate.
The “for cause” reasons a landlord may terminate a tenancy without the tenant’s agreement are:
- Failure to pay rent in full
- Causing damage to the property
- Disturbing other tenants or the landlord
- Illegal activity conducted inside the rental unit or wider residential complex
If a landlord’s reason to end a tenancy isn’t covered above, there is still the possibility of a termination. These cases are known as “no fault” reasons. The no fault reasons to terminate a tenancy are:
- Major repairs or renovations that require a building permit. The repairs and renovations must be impossible unless the property is empty.
- The landlord requires the unit so a member of their immediate family or their caregiver can move in.
- The landlord agreed to sell the property AND the purchaser requires part or all of the property because they, their immediate family, or their caregiver wish to move in. This reason is only applicable in rental units with three or fewer units and condominiums.
The landlord must always provide advance notice to the tenant before the planned termination day. You can find a complete list of minimum notice times here.
Rent Increases: How Do They Work?
It’s harder to give a concrete answer to this issue than to any other issue we’ve gone over so far. That’s because the rules often change.
Rent increases in Ontario are regulated by the RTA and limited to small increments. You may increase your tenants’ rent only one year after they’ve moved in. The limitations change every year. The current guideline in Ontario is 2.2% for increases taking place during 2020. Previous rent increase guidelines in Ontario have ranged from 0.6% to 6% between 1991 and 2019.
Landlords are allowed to screen tenants in Ontario, so long as they don’t violate their privacy. Possible screening methods may legally include:
- Criminal background checks
- Credit checks (including a full credit report)
- Non-invasive checks of public social media profiles
It is in fact recommended that you conduct some basic background checks to protect your investment from unnecessary risk.
Taxes & Rebates
Residential rental property owners may qualify for the New Residential Rental Property (NRRP) Rebate. If you own a home or condo that’s been leased out for at least a year, you can claim it. This CRA rebate can be significant.
At the time of closing on any new residential rental property, you will need to pay the equivalent of the HST Rebate. Builders, or developers are not able to apply of the NRRP Rebate on your behalf.
Once your property has closed and you have a tenant, we would recommend that you file the NRRP application shortly thereafter. Make sure that the rebate paperwork is complete and that you file it with the correct processing centre.
Trying to understand the NRRP Rebate and stay up to-date with various CRA rules and regulations can be a significant undertaking for even the most experienced real estate investors. This is where a knowledgeable rebate expert can provide investors with advice and support.