How to Buy a New Home

Buyers Guide for Investment Properties

How to Buy a New Home: Ottawa

The Ultimate Buyers Guide for Investors

Planning &
& research

Owning a rental property can be a great way of diversifying your investment and acquiring an asset that’s sure to appreciate in value over time. What’s more, your rental income may be used to pay down your mortgage owing, so you wind up owning a valuable property at the end of the amortization period while your tenants have had a good place to call home.

But like anything, buying an investment property requires some careful planning and management. Our Ultimate Home Buyer’s Guide for Investors is your path to buying a house as a rental property. So, let’s get started!

Financial considerations

Getting your finances in order is crucial if you’re thinking of buying a new house and renting it out. But you also need to be comfortable with both the financial benefits and potential risks of investing in real estate.

Does your budget allow for you to be an investor?

Buying a new house as a rental investment means asking the basic question: “Does it fit my budget?”

Your individual circumstances ultimately dictate the answer, and that means first adding up your expenses (more on that in a minute) and savings. Those savings include equity in an existing home. If you don’t know how much equity you have, contact your banking representative for a bank appraisal.

You also need to answer some basic questions about your own finances:

  • Can you make a sizeable purchase like this while still meeting your existing personal and/or business financial obligations? Those obligations could range from buying groceries to paying off debts and saving for retirement.
  • Is your credit in good standing? Learn more about credit score reporting.
  • Do you already have a mortgage on another property? If you do, it means financial obligations, but you may also be able to use that property (or at least your equity in it) as a financing source for a new home.

Once you have pulled together all the information above, you can work out a rough budget for your proposed new home purchase.

Tip: Our affordability calculator will help you estimate how much you can afford.

Your down payment

The down payment on a rental investment property can vary depending on the number of units, and whether or not the owner lives there and rents out other space in the building. For instance, if you purchase a one- or two-unit building and live there, your down payment can be as little as 5%. However, if you are thinking of buying a one-unit property like a single-family home or townhome where you will not live, your down payment will need to be at least 20% of the purchase price.

Amortization periods for an investment property can range up to 30 years with a 20% down payment. The cost of mortgage default insurance from Canada Mortgage and Housing Corporation also varies depending on the length of amortization and the amount of the down payment.

Up-front costs, rebates & more

There is more than just a down payment and mortgage payments involved when you calculate the cost of buying a home as an investment. Fortunately, you could also qualify for some government rebates and incentives.

Additional up-front costs when buying a home

Deposits: Builders will require you to make a deposit when you purchase a new home. Before you take possession, you’ll also need to follow a schedule of interim payments. Minto Communities, for example, requires a minimum deposit of $5,000 at signing followed by additional interim payments. The amount depends on the type of home you buy.

Additional investments: Finishes in a new home generally offer plenty of variety, but there is often the opportunity to choose alternate layouts or to upgrade finishes like cabinetry and flooring. These can be a great way to add an enticing designer’s touch to your rental and even potentially enhance resale value.

Speak to your Sales Representative and your builder’s design team about creating a package that’s within your budget.

Closing costs: These usually run between 1.5 to 2% of the selling price of the home. You pay them on closing of the property via your lawyer.

While adding designer upgrades are an additional investment in the home, consider when and where they might be worth it to make the home even more appealing to renters.

Standard closing costs

Land transfer tax: A percentage of your purchase price, you can calculate it here. There are rebates on land transfer tax for first-time buyers (see below).

Legal fees and disbursements: Legal fees for buying a house vary. You can expect to pay in the neighbourhood of $1,500.

GST/HST: This is the full responsibility of the homeowner when a home is purchased for investment purposes. It is paid as a separate value on closing and could be up to 13% of the purchase price.

New Home Enrolment Fee: There are two regulatory bodies included in the enrolment process – (1) Tarion, a not-for-profit consumer protection organization who provides homeowners with warranty coverage, and (2) Home Construction Regulatory Authority (HCRA) who licenses the people and companies who build and sell new homes in Ontario. Both fees are collected by Tarion and rates depend on the value of your home, check their websites for current fees.

Tip: If your financing is stretched, think about including the cost of additional investments in your mortgage — another reason it’s important to know how much you can afford when buying a home for rental purposes

Other costs: There may be other fees. For instance:

Your individual circumstances ultimately dictate the answer, and that means first adding up your expenses (more on that in a minute) and savings. Those savings include equity in an existing home. If you don’t know how much equity you have, contact your banking representative for a bank appraisal.

You also need to answer some basic questions about your own finances:

  • Bank fees connected with your mortgage.
  • You will have to buy mortgage loan insurance if you are making a down payment of less than 20%. Canada Mortgage and Housing Corporation (CMHC) and other approved institutions provide the insurance, and the cost is related to the price of your home. Premiums can be paid as a lump sum upfront or you can make them part of your mortgage payments.
  • You’ll need home and property insurance. The cost will be geared to factors like the value of your home.
  • It’s a good idea to have a resale home inspected before concluding your purchase. That costs around $400.
  • You should have a few hundred dollars set aside to pay for electrical, Internet and other hook-ups.
  • You may also need to pay for eavestrough, appliances, landscaping, and the like
Financial assistance for new home buyers

If this investment home is also your first new home purchase (whether for investment or to live in yourself), you may qualify for some of the government incentives created for first-time home buyers. Some incentives apply even if you already own a home. The following assistance programs are in force at the time of publishing, but you should confirm them.

Federal government
  1. The Home Buyers’ Plan: You can withdraw up to $35,000 from your RRSP to put toward your purchase if you are a first-time buyer. You have 15 years to repay it.
  2. The First-Time Home Buyers’ tax credit: A $5,000 non-refundable income tax credit. You are eligible once you’ve secured a tenant for a one-year term within 2 years of your closing date
  3. Homes certified under certain energy programs could qualify for a partial premium refund of up to 25% on CMHC mortgage loan insurance. This program applies to rental and non-rental properties as long as you meet the requirements. There’s a similar program with Sagen.
Ontario government assistance
  1. Land transfer tax rebate: First-time buyers can qualify for a rebate of up to $4,000.
  2. The Ontario energy and property tax credit: Assistance with the sales tax on energy and with property taxes for low- to moderate-income Ontario residents.
Finalize your budget

Now you can go back to that rough budget you worked out earlier and fine-tune it using the additional costs and financial assistance that you have calculated. A worksheet from the Financial Consumer Agency of Canada can help determine all the costs involved in buying and maintaining a home. Once you’ve got the total results, you’re ready to begin making informed decisions on home buying.

What kind of house do you want to buy?
  1. Are you thinking of a more spacious freehold home or a low-maintenance condo? Learn more about freehold homes and condos.
  2. How big a home do you want to buy? Bigger homes mean more space to maintain and higher taxes, and the higher rent you can charge may not cover the extra expense of operating the home.
  3. Do you want to buy new or resale?

Note: Government programs are introduced, changed and eliminated all the time. A Google search and a conversation with your Sales Representative will alert you to changes.

Your lifestyle: Does it fit with being a landlord?

Having your finances in order is critical in the process of buying a house as an investment. But you need more than just money to make that investment pay off — you also need to know why and what you are buying, and to ensure your personality and lifestyle fit the role of landlord.

Ask yourself:
  1. Why are you buying a house as an investment property? As a long-term investment? Is it part of a longer-range plan to own multiple rental properties? If you’re considering a condo, maybe you are planning to rent it out for several years and then move into it yourself. Clear, long-term objectives will help you make the right buying decision.
  2. Is now a good time to buy? Are interest rates and the availability of properties favourable? What is the rental market like in Ottawa and what are professionals like Canada Mortgage and Housing Corporation saying about its future?
  3. What is your personality like? Do you enjoy dealing with people, including young professionals, families and retirees? Any or all of these folks could be your tenants, and tenants can be very demanding.
  4. Does your lifestyle allow you the freedom you need to be an accessible landlord? If you plan to be the main contact point, can you respond to a panicky call from a tenant late at night?
  5. Who will maintain your property? You or a rental management service? A new-build home may require less maintenance than a resale home, but repairs and upkeep still have to be done.
  6. Are you able to visit your property regularly to ensure your tenants are treating it well?

Your team of professionals

From a lender to a lawyer, you’ll want to work with the best when you are a real estate investor.

Banks and Mortgage Brokers

If you have an existing mortgage, start by talking to that lender or mortgage broker about your rental investment plans. But don’t leave it there; research other lenders and brokers to see if they can offer a better deal. That includes comparing interest rates; our calculators can help with that.

The importance of mortgage pre-approval

Having mortgage pre-approval before you start shopping is considered a golden rule because it’s the only way you’ll know exactly how much money you have to spend. Just remember that a pre-approval doesn’t guarantee that the money will actually be available to you. Check your pre-approval agreement carefully to ensure you understand all the terms and conditions you’ve negotiated. Learn about mortgage pre-approval.

A mortgage pre-approval is the golden rule of home buying.

3 things to know about mortgages
  1. Mortgage products for investment properties can be different from residential property mortgages depending on the lender.
  2. Sites like are a reliable source of current mortgage rates and other information.
  3. Money professionals often suggest not using the full amount of money a lender offers when buying a home. Having a little extra available is handy if you encounter unanticipated expenses.
Legal Assistance

Line up your real estate lawyer early in the buying journeying so you can have the Agreement of Purchase and Sale. Home buyers often ask friends and family for recommendations on a lawyer.

Don’t hesitate to quiz your prospective lawyer on their experience in rental real estate investments. A lawyer who knows the community and builder may know about potential pros and cons you should consider as an investor in an area.

Other legal tips:

  • Get legal advice on creating rental contracts and leases.
  • Ask your lawyer about tenant/landlord laws and regulations in Ottawa and Ontario.
  • Inquire about liability and liability insurance as a landlord.
  • Do you have a will and a power of attorney? If not, discuss them with a lawyer. You need to protect yourself and your estate as you grow your investment portfolio.
  • More on hiring a lawyer when you are buying a house.

Buyers frequently ask, “Do I need a Realtor when buying a house?”

If you are thinking about a resale home as an investment property, the Realtor route is the one to take. A good real estate agent will save you time and help shepherd you through the purchase process.

But as the buyer of a new-build home, you have no real need of a Realtor. Builders’ Sales Representatives know their homes and communities from top to bottom, and will help you find the house you want at a price you can afford. It’s true that they represent the builder, but their training means they are skilled in being objective and putting your needs and expectations first.

Real Estate Property Manager

These folks take care of your property for you, from renting and maintaining it to handling tenant relations and problem solving.

Yes, they charge for their work, but do you want to be answering tenant emergencies at all hours of the day and night, cutting grass and shovelling snow, and repairing that faulty faucet?

To find a reliable property management firm, ask your lawyer, your builder’s Sales Representative and any real estate investors you know.

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