Investment Property in Ontario: Buying Considerations
Buying an investment property can be exciting, but there are important considerations to be aware of when purchasing an investment property which may be different from purchasing a family home.
Residential Tenancies Act
If your investment property will be a rental property, you will become a landlord. Depending on the rental unit, you may be governed by Ontario’s Residential Tenancies Act and the associated regulations, which means you will be responsible to ensure you comply with the Act’s requirements.
- The form of lease to be used
- Rental deposits
- Rent increases
- Eviction of tenants
- Maintenance and repairs
- And more
It may be possible to hire a property manager to manage the property, but that will be an added cost and you, as the landlord, will still ultimately be responsible for compliance with the Act and its regulations.
Residential Rental License
If your investment property is a residential rental unit in the City of London, Ontario, you may need to obtain a rental license pursuant to the City of London Residential Rental Units Licensing By-Law. The by-law requires a rental license for any rental property with four units or less, except in limited circumstances.
To obtain a new rental license, the landlord must:
- Submit an application form
- Fill out a self-certification checklist
- Pay a rental license fee
- Pay a fire inspection fee
As part of the process to obtain a rental license, both a Property Standards Inspection and a Fire Inspection will be completed (unless there has been a fire inspection completed within the last two years). If your property is a duplex, you will also need to have a general electrical inspection completed by the Electrical Safety Authority.
Rental licenses are not transferable, so each purchaser of a rental property will need to apply for a new rental license. The residential rental license must also be renewed annually, which requires the payment of a renewal fee.
If you do not have a rental license, you may be subject to a fine upon conviction. Currently, the maximum fine upon a first conviction is $25,000 for a person and $50,000 for a corporation. The maximum fines are doubled for subsequent convictions.
Investment Property Zoning
When purchasing an investment property, it is important to confirm that the property is zoned for the intended use, be it commercial or residential. Buying a property that does not comply with the zoning by-law will be problematic; it may affect your ability to obtain financing, it may prevent you from obtaining a business license, and it will prevent you from obtaining a residential rental license in the City of London, Ontario.
A property that does not comply with the zoning by-law will need to go through the costly process of being brought into compliance. The process may be as simple as obtaining a building permit, or more complex such as going through a Minor Variance application, going through a Zoning By-Law Amendment application, or, in some situations, removing units.
Investment Property Ownership
Another consideration when purchasing an investment property is how to purchase the property.
For example, you can purchase:
- As a partnership
- As a limited partnership
- As a joint venture
- Through a corporation
A corporation provides advantages such as limited liability and creditor protection; however, there are other considerations when determining how to purchase the property, such as tax considerations and personal circumstances, which may influence the decision.
If you intend to obtain a mortgage, you will need to advise the lender that the property will be an investment property. Generally, lenders require higher down payments for investment properties.
In addition, for rental properties, the lender may have other requirements such as requirements to have existing leases, that the property be a legal rental property, an appraisal of the property to confirm the rental income to be generated, etc.
Investment Property Taxes
All property purchasers in Ontario are required to a pay land transfer tax on the purchase of a property (there is an additional land transfer tax for those purchasing in the City of Toronto).
Land transfer tax is calculated as a percentage of the consideration paid for the property. Qualifying first-time homebuyers are eligible for a land transfer tax rebate of up to $4,000.00, but one of the qualification requirements is that the purchaser must occupy the property as their principal residence within nine months of the date of transfer. Accordingly, a first-time homebuyer of an investment property would generally not qualify for the rebate. Some investment properties may also be subject to Harmonized Sales Tax (HST) or Goods and Services Tax (GST) on the purchase.
Buying an investment property is a dream for many individuals, and it can be a great investment. Still, there are many important considerations to navigate through when acquiring an investment property, which your real estate lawyer can assist you with. Contact the experts at Brown Beattie O’Donovan today.