Income Property in Ontario: Down Payment, Cash Flow and Rules

This article is part of our guide to buying a home in Ontario, which covers the complete purchase process. It goes deeper on buying a property to rent out: financing, cash flow, Ontario rental rules and taxes.

What Is an Income Property in Ontario?

An income property in Ontario is any residential property you buy mainly to earn rent. It comes in two forms, and lenders treat them very differently. The first is a home you live in that has a rentable unit, such as a house with a legal basement apartment. The second is a property you won’t live in at all, such as a rented condo or a small multi-unit building.

Which one you’re buying decides your down payment, how much rent a lender will count, whether mortgage insurance is available, and how you’re taxed when you sell.

How Much Down Payment Do You Need for a Rental Property in Ontario?

A rental you won’t live in needs at least 20% down, because CMHC doesn’t insure a single-unit property the owner won’t occupy. If you live in one of the units, the minimums drop sharply:

Source: CMHC homeowner purchase rules and CMHC Income Property. Lenders can require more, and every mortgage still needs their approval.

How Lenders Count the Rent

When you live in a two-unit home being financed, CMHC can add up to 100% of the second unit’s gross rent to your income when it calculates what you qualify for. For three or four units, it uses up to 50% of gross rent or a net rental income approach. For rental-only properties, each lender sets its own policy, so two lenders can give you very different limits on the same building.

Federal rules in OSFI’s Guideline B-20 also expect lenders to look harder at loans that depend on rental income.

The Stress Test Still Applies

An uninsured mortgage must qualify at the greater of your contract rate plus 2% or 5.25%. A buyer who comfortably carries their own home can find the limit drops on a rental, especially with existing debts. Our article on mortgage financing for Ontario homebuyers explains how the ratios work.

How Do You Calculate Cash Flow on a Rental Property?

Start with the rent you can count on, then take off everything the property costs you each month, reserves included. Don’t rely on the listing’s rent estimate. If the unit is occupied, use the current lawful rent you’ll inherit. If it’s vacant, estimate rent from comparable leases. Many deals don’t work on paper today.

These are example inputs, not market quotes, so swap in the figures for the property you’re looking at. The mortgage payment assumes a fixed rate compounded semi-annually, the Canadian standard, with monthly payments. To break even, this one would need about $4,480 a month in rent. Roughly $12,500 of the first year’s mortgage payments goes to principal. That builds equity, but you still cover the shortfall from your own pocket each month.

The table covers monthly costs only. Closing costs such as land transfer tax, legal fees and the home inspection are paid up front, so count them in the cash you need to buy.

Expenses Buyers Leave Out

As planning ranges, we use 1% to 2% of the property’s value a year for maintenance and 5% to 8% of rent for vacancy, and the example above includes both. It leaves out professional management, which usually costs 8% to 12% of rent, along with condo fees, utilities you pay as landlord and accounting. Each of those would make the monthly shortfall bigger.

Buying a House to Rent Out: Which Property Type Works Best?

Take the same $700,000 budget two ways: a condo you rent out, or a house with a legal basement apartment where you live upstairs. The condo needs 20% down, and its fees come out of the rent. The house can qualify with 5% down on the first $500,000 and 10% on the rest, and CMHC can count up to 100% of the basement rent toward qualifying. That’s why, for many buyers, the numbers work best on a home they live in.

A Home With a Legal Second Unit

Living in one unit and renting the other gives you the lowest down payment and the most generous rent treatment from CMHC. It only works if the unit is legal. Our guide to buying a legal basement apartment explains how to check a suite’s permit record before you offer.

Condos and Townhouses

Condos can be easier to manage day to day, but condo fees cut into cash flow, special assessments can arrive with little warning, and the corporation’s rules bind your tenant. Many buildings restrict short-term rentals, and a condo’s declaration, by-laws or rules can prohibit certain pets, even though a lease clause can’t. Read the status certificate before you firm up, since it shows the fees, the reserve fund and any special assessments.

Duplexes, Triplexes and Fourplexes

Two to four units spread the vacancy risk, and CMHC can insure them even when you don’t live there. They also need more management, more capital for repairs, and careful checking of each unit’s legal status. In Toronto, multiplexes of up to four units are permitted city-wide, and up to six in some areas.

Choosing Between the GTA and Niagara

Lower purchase prices in parts of Niagara can make the rent cover more of the cost than a similar property in the GTA. Rents are lower too, though, and tenant demand varies by town. Compare current prices on our GTA vs Niagara home prices page. Then run the cash flow on a real listing in each market.

What Is It Like to Rent Out Part of Your Own Home?

We’ve rented out the basement of our own home. The rent helped, but we hadn’t expected how much of our tenants’ daily life would reach us upstairs. You share walls and vents with another household, and their routines may be very different from yours.

Check first whether Ontario’s tenancy law applies. If your tenant shares a kitchen or bathroom with you or certain close family members who live in the house, the Residential Tenancies Act may not apply at all, so the usual Landlord and Tenant Board rules may not either. A self-contained basement apartment with its own kitchen and bathroom is covered. If your setup is in between, get legal advice before you sign a lease.

Smells and Noise Travel Between Units

Our tenants burned scented candles constantly, and the smell came up through the vents into our living space. One of us is allergic, so it quickly became a daily problem. Cooking smells, smoke and noise travel the same way. Before you buy, ask whether the units share a furnace and ductwork, because separate heating and ventilation can cut down on smells and smoke moving between units.

Budget for Wear and Turnover

Expect normal wear, plus cleaning and repairs between tenancies, and put them in the budget from day one. A move-in inspection with dated photos protects you and your tenant.

Guests Come and Go

Your tenants are allowed to have guests. Ontario’s guide to the standard lease lists a clause banning guests as void. Living upstairs, you’ll see and hear people coming and going, sometimes a lot.

Late Rent Changes the Relationship

When a tenant misses rent and you raise it with them, the relationship often changes. That’s harder when they live under the same roof. Keep every conversation about money in writing and use the proper Landlord and Tenant Board notices. Careful screening before move-in helps reduce the risk.

Should You Hire a Property Manager for a Full Rental?

A property manager’s fee comes out of the rent every month. Owners most often hire one when they won’t live at the property and can’t get there quickly, or when they’re new to being a landlord. Build the fee into your cash flow before you buy, and weigh it against what the manager handles for you.

Before you sign, ask for references from owners they manage for now, and read the agreement for every fee, including leasing fees and any markup on repairs. Ask who would represent you at the Landlord and Tenant Board. That person must be a lawyer or a licensed paralegal unless they’re exempt from licensing.

What Ontario Rental Rules Affect Your Return?

Say you rent the unit for $3,200 a month and your costs rise the next year. If the unit is covered by the rent increase guideline, the most you can raise it after 12 months, in 2027, is 1.9%, or about $61 a month. Ontario’s Residential Tenancies Act also limits deposits and sets out how a tenancy ends.

Rent Increases and the Guideline

Ontario’s rent increase guideline is 2.1% for 2026 and 1.9% for 2027. Units first occupied for residential purposes after November 15, 2018 are exempt from the guideline. Every landlord, exempt or not, can raise rent only once every 12 months, with at least 90 days’ written notice on the proper form.

An increase you skip doesn’t carry over to the next year, so review the rent against your costs every year.

Leases and Deposits

Most tenancies must use Ontario’s standard lease. You can hold up to one month’s rent as a deposit toward the last month, and you owe the tenant interest on it each year at the guideline rate. Damage and pet deposits aren’t allowed. Our article on Ontario lease clauses covers what else you can and can’t put in a lease.

When a Tenant Stops Paying

For notices given on or after September 21, 2026, the N4 notice period for unpaid rent dropped from 14 days to 7. An N4 is a notice, not an eviction order. If the rent still isn’t paid, you file an L1 application with the Landlord and Tenant Board, and only the Board can order an eviction. For qualifying applications filed on or after September 21, 2026, a tenant who wants to raise other issues at the hearing must first pay half the arrears claimed directly to the landlord, at least seven days beforehand.

The changes also gave persistent late payment a clearer benchmark. Paying more than seven days after the due date at least three times in six months now counts as persistent late payment, which allows the landlord to serve an N8 notice. Other patterns of late payment can still qualify.

Even with the shorter notice, getting to a hearing takes time. Our article on tenant screening in Ontario covers what you can lawfully ask before anyone moves in.

Buying a Property With a Tenant in Place

A buyer takes over the existing tenancy on closing. If the complex has three or fewer residential units, or it’s a condo unit, the seller can serve an N12 notice on your behalf once you have a signed agreement of purchase and sale. The person moving in must be you, your spouse, a child or parent of either of you, or a caregiver, and the need has to be genuine. Siblings, cousins and friends don’t qualify. The termination date must be at least 60 days after the notice is given and fall on the last day of a rental period or fixed term.

An N12 doesn’t guarantee vacant possession. The tenant can stay and dispute it, and only the Landlord and Tenant Board can order an eviction, after an L2 application and a hearing. If your closing depends on an empty unit, talk to your real estate lawyer about timing and the conditions in your offer before you sign.

The tenant must still receive one month’s rent in compensation. The September 2026 rule that waives compensation with 120 days’ notice applies only to a landlord’s own use, not to a notice served for a buyer.

Before you firm up on an occupied property, get a copy of the lease and ask, in writing, for the date and amount of the last rent increase, any rent deposit the seller holds (it transfers to you on closing) and any rent owing.

Which Local Rules Apply in the GTA, Hamilton and Niagara?

Several cities in our markets now license rental housing or restrict short-term rentals, so check the rules in the city where you’re buying.

Brampton and Hamilton Rental Licensing

Since January 1, 2026, Brampton’s rental licensing pilot program covers owners renting one to four units in every ward. Under the current licence rules, the licence is free, but you need proof of at least $2 million in liability insurance and must complete a one-time online education module. Hamilton approved a permanent rental housing licensing program in December 2025 for Wards 1, 8 and parts of Ward 14.

Toronto and Mississauga

Toronto requires a licence for multi-tenant houses: four or more rooms rented to people who don’t live together as one household. Its 3% Vacant Home Tax applies to homes empty for more than six months of the year, and every owner must file an occupancy declaration, even when the home is rented. In Mississauga, landlords who serve an N13 renovation notice on or after September 1, 2026 must get a Rental Repairs and Renovations Licence.

Short-Term Rentals

Toronto, Mississauga, Oakville and St. Catharines all limit short-term rentals to the host’s principal residence, and each requires a licence or registration. Niagara Falls doesn’t require the owner to live in a licensed vacation rental unit, but it allows them only in designated commercial zones and on a few sites the city has rezoned. Confirm the property’s permitted use with the city before you buy.

How Is Income Property in Ontario Taxed?

You report rental income every year on a statement of income and expenses. According to the CRA’s rental income guide, you can deduct reasonable expenses, and claiming capital cost allowance is optional, although it can’t create or increase a rental loss.

When you sell, the gain on a rental is a capital gain, and half of it is taxable. If you claimed capital cost allowance, you may also have to add an amount back to your income as a recapture. A property that is only ever rented out doesn’t qualify for the principal residence exemption. Talk to an accountant before you buy.

Buyers who aren’t Canadian citizens or permanent residents should also know that Ontario’s Non-Resident Speculation Tax of 25% applies across the province to foreign nationals, foreign corporations and taxable trustees, unless an exemption applies.

When Should You Walk Away From an Income Property?

In our experience, the clearest warning sign is cash flow that turns positive only at full occupancy. Other red flags include a plan that depends on rising prices, rent you can’t confirm, and a second unit with no permit record.

Ask yourself how long you could carry a monthly shortfall, and what happens if a vacancy, a major repair and a rate renewal hit in the same year.

Before You Make an Offer

• Confirm the lawful rent, the lease, any rent deposit and any arrears for each unit.
• Check the permit record and zoning for every rental unit.
• Get the actual property tax bill, a written insurance quote and recent utility bills.
• Run the cash flow with vacancy and maintenance reserves included.
• Confirm with your mortgage professional how much of the rent the lender will count.
• Check the city’s rental licensing rules and, for a condo, the declaration and status certificate.
• Don’t assume you can raise a current tenant’s rent to market.
• Keep the home inspection, even in a competitive offer, and tell your insurer the property will be rented.

We are not accountants, lawyers or mortgage professionals, and this article is not tax, legal or financial advice. The rules here are current as of October 2026 and can change, and the cash flow example uses assumed figures. Confirm your financing with a mortgage professional, your taxes with an accountant, and any tenancy or licensing question with a real estate lawyer or licensed paralegal before you buy.