Income Property: A Guide for First-Time Buyers

Investing in a duplex or triplex is an excellent way of building a real estate portfolio.

An income property as a first real estate purchase may seem impressive; it may also prove to be the most financially advantageous option for the buyer, mainly because the tenants’ rent will cover a portion of the mortgage payment.

Interested? Follow our guide!

Essential Pre-Purchase Checklist

Rental income and occupancy rates:

Review the existing leases and analyze the income generated.
Check whether rents are in line with market rates or below market value to evaluate the potential for future increases.
Ensure that the current tenants have a good payment history.

Recurring and Upcoming Expenses:

Municipal and school taxes.
Maintenance costs and eventual repairs.
Home insurance premium.
Heating and electricity bills (also, are these paid by the tenant or the landlord?).

The Condition of the Units and Building:

Have the building inspected by a qualified inspector to identify any structural, electric, or plumbing problems.
Check that the units are in good condition and that the materials used are of good quality (flooring, windows, roofing, etc.).
Confirm the building complies with municipal bylaws and applicable regulations.

Thankfully, You Have Your Broker by Your Side!

Feel a little overwhelmed? You can rely on your real estate broker’s expertise throughout the verification process. They can also assist you:

Identify market opportunities and avoid problematic properties.
Analyze the property’s financial statements to ensure it’s profitable.
Negotiate sales conditions and help you write a purchase offer.
Recommend professionals (inspector, notary, accountant) to guarantee a secure transaction.
Look over the leases to see if everything is in order or if there are special particulars to consider.

What Can You Do if You Only Have a “Small” Downpayment?

It’s true that purchasing a multiplex building can be challenging for first-time buyers since it requires a higher downpayment.

Nevertheless, broker Nathalie Bégin believes some people unknowingly pass up this kind of opportunity.

It’s important to remember that the downpayment can be as low as 5% thanks to CMHC-type insurance. This makes buying a multiplex far more affordable than you might think.

Nathalie Bégin

Real Estate Broker

If you’re a first-time buyer, don’t hesitate to meet with a financial advisor to find out if you can turn this dream into reality. And to learn more about the CMHC, consult our article!

The Fiscal Advantages of Owning a Multiplex

Owning an income property also offers some financial benefits.

Possible tax deductions:

Mortgage interest.
Municipal and school taxes.
Management and maintenance fees.
Building depreciation (under certain conditions).
Advertising costs for finding tenants.

Ability to Finance the Purchase With RRSPs (through the HBP):

Thanks to the Home Buyer’s Plan (HBP) program, first-time buyers can withdraw funds from their RRSP to finance their downpayment for a duplex or triplex, but only if they occupy one of the units.

Capital gains tax exemption:

If you live in a section of the building, a portion of the capital gains earned upon resale may be tax-exempt.

Restrictions to Be Aware of

A fully occupied building saves the new owner the hassle of finding tenants for the vacant units. However, it’s important to note that leases can’t be modified without the tenant’s consent and that it’s impossible to evict a tenant simply because the building has changed owner. The only exceptions are

eviction by the owner to repossess a unit for their own use or to house a close family member (with six months’ notice and subject to certain conditions);
eviction to allow for major repairs that render the unit temporarily uninhabitable (with compensation and authorization by the Tribunal administratif du logement);
A lease termination negotiated directly with the tenant (compensation is often mandatory).

Moreover, while a new owner can always raise very low existing rents, they can only do so according to the rules set by the Tribunal administratif du logement. Consequently, the buyer may not see returns on their investment as quickly as expected.

Tips from a Pro

To ensure your experience as a first-time multiplex owner is a pleasant one, we recommend keeping these three aspects in mind:

1. Choose a building in a desirable location, such as near public transit. The property’s value will certainly increase, and you’ll have no trouble finding tenants.

2. Avoid buildings that require extensive renovation work. As a first-time buyer, it’s best to prioritize your peace of mind.

3. If the multiplex’s units are already fully or partially occupied, make sure the rents cover the buyer’s budget because raising them over the coming years will prove challenging.