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Buying a rental property

The pros and cons of investing in a rental property Add to ...

​There are a number of advantages and disadvantages to buying a property and then renting it out. Talk to an accountant, lawyer, mortgage broker or other financial expert about how it may affect your taxes and financial situation.

3 key advantages

1. You pay less tax

You can deduct certain expenses from your income – reducing the taxes you owe. The list includes:

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  • mortgage interest

  • property taxes

  • insurance

  • maintenance/upgrades

  • property management

  • utility bills (if you include them in the rent).

2. You may be able to deduct losses for tax purposes

If your expenses exceed your rental income, you may be able to deduct that loss from any other sources of income you have. This could reduce your total tax bill.

3. You get a regular monthly income

Other kinds of investments may pay out less often or income may be less predictable.

As a landlord, you can deduct certain property expenses from your income – reducing the taxes you owe. If your expenses exceed your rental income, you may be able to deduct that loss from any other sources of income you have.

3 key disadvantages

1. You take on the responsibilities and challenges of a landlord

Rental units need repair – sometimes on an emergency basis. Dealing with tenants can be challenging, especially if they don’t pay their rent on time and cash flow is tight. If you hire a property manager to take care of these things for you, their salary is an added cost.

2. It may be difficult and costly to sell the property later

Real estate is not a liquid investment. That means it can take time to sell, depending on market conditions. It can also be costly to sell due to real estate and legal fees.

3. It may be difficult to finance the purchase

You must have a down payment of at least 20% when you buy a second property. You may need a mortgage. And, you will have high monthly expenses to cover when you own a building. Of course, you hope the income you receive from your tenants will cover this.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

Follow us on Twitter: @GlobeInvestor

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