When you earn rental income, you report it on your personal tax return on Form T776 Statement of Real Estate Rentals. You can claim rental expenses to reduce your taxable rental income. Common expenses include:
Advertising
Insurance
Mortgage interest
Legal and accounting fees
Management fees
Condo fees
Repairs and maintenance
Property taxes
Utilities
This list is not exhaustive, and repairs and maintenance can be complicated because some expenses that are more lasting in nature—like a renovation—may be capital expenses that must be depreciated over time.
Rental losses
If you have more expenses than income, you can have a rental loss. A net rental loss can be deducted from your other sources of income. This can result in tax savings.
If you have consistent rental losses, especially if the losses result from charging a low rent, the Canada Revenue Agency (CRA) may start asking questions.
Renting below fair market value
If you are charging below market rent because you have a long-time tenant and provincial guidelines limit rent increases, that may be an exception. But if the rent is low because you have a non-arm’s length individual like a family member you are giving a good deal, this may negate your ability to claim rental losses.
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“In certain cases, you may ask your son or daughter, or anyone else living with you, to pay a small amount for the upkeep of your house or to cover the cost of groceries,” according to the CRA. “You do not report this amount in your income, and you cannot claim rental expenses. This is a cost-sharing arrangement, so you cannot claim a rental loss.”
This seems to be the case with your clients, Hans, so I would say the “rent” is not taxable rental income, at least in the eyes of the CRA.
Common-law status
You mention a three-year time horizon for common-law status in Ontario. This is a family law concept and may apply when two people are living in a conjugal relationship concept. After three years of cohabitation, there may be support payments payable by one party to the other should their relationship break down. Exceptions may apply, most notably if they have a child together.
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Family law implications can be complex and vary across provinces and territories. In some parts of Canada, common-law couples have the same rights as married couples, and property rights may apply even for common-law couples.
Regardless, it is important to note that for tax purposes, there is only a 12-month threshold before common-law status applies. Once a couple has lived together for one year, they must report this change in status on their tax return. It is not optional.
When a couple is common-law, they may be able to save tax by combining medical expenses or donations on one spouse’s tax return to claim higher non-refundable tax credits. But they may also lose access to certain means-tested government benefits, like the GST/HST credit.
Summary
Rental expenses can only be deducted when you incur them to earn an income. When someone pays you “rent,” it may not be rent from a tax perspective if it is simply a cost-sharing arrangement.
Although you can rent a property to a family member, it must be treated like you would if the tenant was an arm’s length stranger. So, make sure you understand the rules so that you file your tax return correctly.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
This form is typically used for foreign bank accounts, foreign investment accounts or foreign rental properties, but it can include other foreign assets. Foreign investments, including U.S. stocks, must be reported even if they are held in Canadian investment accounts. Foreign personal-use properties, like a snowbird’s condo that is not earning rental income, may be exempt.
U.S. citizens or green card holders must generally file U.S. tax returns despite living in Canada. The United States is one of the few countries in the world that has this requirement for non-residents. As a result, you may have to report both Canadian and U.S. income, deductions, credits and foreign tax payable.
Adding to the complexity is that certain types of income are taxable in one country but not the other, and some deductions or credits may only apply on one tax return.
Voluntary disclosure for previous years
If you have not reported foreign income or declared foreign assets in the past and you should have done so, you may be able to file a voluntary disclosure with the CRA. This program may allow relief on a case-by-case basis for taxpayers who contact the CRA to fix errors or omissions for past tax returns.
There are five conditions to apply:
You must submit your application voluntarily and before the CRA takes any enforcement action against you or a third party related to you.
You must include all relevant information and documentation (including all returns, forms and schedules needed to correct the error or omission).
Your information involves an application or potential application of a penalty.
Your information is at least one year or one reporting period past due.
You must include payment of the estimated tax owing, or request a payment arrangement (subject to CRA approval).
Before pursuing a voluntary disclosure, you should seek professional advice. The CRA also offers a pre-disclosure discussion service that is informal and non-binding, and it does not require the disclosure of your identity.
Bottom line
When you are a Canadian tax resident, whether you are a citizen or not, you have worldwide income and asset disclosure requirements on your tax return. Some Canadian residents, despite living abroad, may still be considered factual residents or deemed residents of Canada with ongoing tax-filing requirements.
The act of adding a name to a property itself does not give rise to capital gains tax. There’s a distinction between legal ownership (whose name is on title) and beneficial ownership (who technically owns the property). If only legal ownership changes, and not beneficial ownership, there may not be a tax event.
For example, an elderly parent might add their child’s name to their bank account or to the title to their home. They might do this based on the perception that it will simplify dealing with the assets as they age, or in an attempt to avoid probate tax. In these situations, a power of attorney or similar estate document (depending on the province or territory) may be better. The asset may not fall outside of the estate and avoid probate if beneficial ownership remains with the parent. There can also be risks to adding a child’s name to title, including creditor issues if the child is sued, family law disputes if the parents divorce, and elder abuse given the children can access the asset.
Was there a deemed disposition?
In your case, Flo, it sounds like your husband intended to partially dispose of the property. Did he document this specifically with a lawyer, or did he just add your daughter’s name to the rental property? Is she now receiving half the rental income?
A true intention to transfer results in a deemed disposition of one-half of the property at the fair market value. It’s equal to selling part of the property, with tax payable when your husband files his tax return next year.
Dealing with the increased capital gains inclusion rate
It seems your husband added your daughter to the property title because of the increase in the capital gains inclusion rate on June 25, 2024.
Beginning on that date, the inclusion rate for individuals rose from one-half to two-thirds for a capital gain of $250,000 or more in a single year. This means two-thirds of the capital gain is taxable instead of just one-half (as was the case prior to June 25). It’s only the capital gain in excess of $250,000 that is taxable at the higher rate. (For corporations and trusts, the inclusion rate is two-thirds for all capital gains.)
You mention, Flo, that this was done for estate planning purposes. I assume you intend to hold the property for the rest of your lives. If that could be many years, it may not be advantageous to accelerate the payment of capital gains tax. Some of the capital gain will still likely be subject to the higher inclusion rate—no matter what—and paying tax earlier than you need to could be disadvantageous.
I’m raising this not as a criticism, but because you may still be able to reconsider, if you haven’t specifically documented your intention and you simply added your daughter’s name to the property title. You should do some tax calculations with your accountant and discuss the documentation of the transfer with your lawyer.
According to the Canada Revenue Agency (CRA): “To make this election, attach a letter signed by you to your income tax and benefit return of the year in which the change of use occurs. Describe the property and state that you want subsection 45(2) of the Income Tax Actto apply.”
So, there isn’t a specific form to file to claim this election.
A taxpayer in Canada may be able to extend the four-year limit indefinitely, but this requires your employer or your spouse’s employer to ask you to relocate. It sounds like you relocated in order to look for work, Hugh, so this extension will not apply.
Filing an election late
The 45(2) election is supposed to be filed in the year you move out of the home. The deadline is the tax filing deadline for your tax return that year. This would be April 30 for most taxpayers, and June 15 for those who are self-employed or whose spouse is self-employed.
The CRA can accept a late-filed subsection 45(2) election, if your situation matches one from a list of extraordinary circumstances.
There is jurisprudence to support late-filed election. In Irene Gjernes v. Canada Revenue Agency, the CRA was ordered to reconsider a disallowed 45(2) election that was filed late by the taxpayer despite no extraordinary circumstances.
For the late-filed election, the CRA can levy a penalty of the lower of $8,000 or $100 per month past the due date. If the tax savings are more than the penalty, a late-filed election may be worth the penalty risk.
Capital gains tax when changing the use of a property
Since a home that is converted into a rental property is subject to a deemed disposition at the time of conversion, the fair market value at the time the rental began is the adjusted cost base (ACB) for capital gains tax purposes. A subsection 45(2) election could defer this conversion date.
Sometimes, emotions are the motivation for buying a vacation property. I like to evaluate a property purchase from a financial point of view as well—and here’s how.
The costs of buying a vacation property
Say, a property’s purchase price is $500,000. Whether you use cash, a mortgage/home equity line of credit, or a combination of the two, there are other costs to consider.
If you purchase with cash that you could otherwise invest for a 4.5% return (to use a conservative assumption), there is an opportunity cost of not investing that money or leaving it invested. If you borrow money, there may be an interest cost of 4.5%. So, to keep it simple, we will assume an opportunity cost or financing cost of 4.5%.
Property taxes, utilities, insurance, condo fees, and maintenance could easily add another 2% to 4% per year in costs. Those costs could be even higher for an older cottage or for a property with amenities and high fees, but we will assume 3% per year for discussion purposes.
So far, our costs are up to 7.5% per year on a $500,000 property, which works out to $37,500 per year for our notional vacation property.
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Expected returns on vacation properties
What about the financial return from owning the property? Canadian real estate prices have risen by about 6.3% per year for the 10 years, ending Dec. 31, 2023. Over the past 30 years, the increase is about 5.1%. Some cities have seen much higher growth rates, and others much lower. Prices have also cooled off significantly in the past couple of years. (Check out MoneySense’s guide on where to buy real estate in Canada.)
Over the long run, in the U.S., real estate prices have risen just slightly more than inflation. In fact, since 1890, U.S. real estate has increased by less than 0.6% per year above the rate of inflation. Given the Bank of Canada’s 2% inflation target, despite a recent spike in the cost of living, I would argue a more reasonable long-term growth rate for real estate is 2% to 3%.
So, we will assume the value of our notional $500,000 property grows at 3% per year; in the first year, that would be $15,000. That means the net cost in year one of owning the property is 7.5% (or $37,500) minus 3% (or $15,000), totalling 4.5% (or $22,500).
Buying versus renting a vacation home
If you are contemplating a $500,000 vacation property purchase, and you think my assumptions are reasonable, you need to ask yourself: Are you going to get $22,500 worth of use out of the property? Could you rent a comparable property for less than $22,500 per year, for the time you plan to use it? If you could, a vacation property purchase may not be the best financial choice.
It sounds like you sold or are planning to sell a property in the U.S., Bob. To cut to the chase, selling costs, like a realtor commission, would be deductible on your Canadian tax return.
This assumes the property is taxable, which is typically the case for a foreign property. Interestingly, a property outside Canada can qualify as your principal residence. But this would be unusual for a Canadian resident, whose Canadian home would typically be more valuable than a foreign one, and therefore, more appealing to claim as your principal residence.
Do you have to report the sale in Canada?
Assuming the property in question is a vacation or rental property, the sale would be reported on your Canadian tax return. In addition to your selling costs, Bob, your acquisition costs, including legal fees, renovations or improvements, can reduce your capital gain.
Your capital gain would be calculated based on your net sale proceeds minus the acquisition cost, including renovations. You have to convert these amounts from U.S. dollars to Canadian dollars based on the applicable exchange rates.
The Canada Revenue Agency (CRA) says you should report foreign income or expenses based on the Bank of Canada exchange rate on the date of the transaction. It will accept a different rate for the transaction date if the source is:
Widely available
Verifiable
Published by an independent provider on an ongoing basis
Recognized by the market
Used in accordance with well-accepted business principles
Used to prepare financial statements (if any)
Used regularly from year to year
Bloomberg L.P., Thomson Reuters Corporation, and OANDA Corporation meet these criteria and are “generally acceptable” to use, according to the CRA.
U.S. tax implications of selling property in the U.S.
The U.S. property sale will also have U.S. tax implications, even if you’re not a U.S. citizen. When a Canadian sells real estate in the U.S., they must file a U.S. tax return with U.S. capital gains tax potentially payable. This is a common requirement in other countries as well.
The U.S. tax paid can qualify as a foreign tax credit to reduce your Canadian tax payable, Bob, to avoid double taxation.
Alexa Castelvecchi was glad when she and her roommates found their new apartment about a year ago, in a modern building in Hollywood with a big, sleek kitchen and oversized windows. It was nothing like the aging, rent-controlled apartment she once sublet in Venice, where she often had to cook using a toaster oven.
But with the end of her lease on the three-bedroom apartment fast approaching, she has found herself worrying about how much the already high monthly rent of nearly $4,000 might increase.
Little did she know that she has some of the strongest protections available. Unbeknownst to many tenants across the city, an obscure city rule requires some newly built rental properties to be put under the city’s rent stabilization ordinance, commonly referred to as rent control.
Developers have built more than 10,000 such units since 2007, city records show, adding a new crop of rent-controlled housing across the city.
The buildings offer a counterpoint to real estate industry claims that rent control limits new construction. But they also raise a question: do their tenants even know they live in rent-controlled units?
Castelvecchi said she had no idea that she lived in a building with rent caps until a Times reporter told her recently.
“Nobody said anything,” she said.
Generally, the city’s rent control law only applies to buildings built on or before Oct. 1, 1978 — a cutoff date many landlords and at least some renters are acutely aware of. Under the rules, landlords can set the rent whenever a unit becomes vacant, but face limits on how much they can raise rent on individual tenants annually, usually between 3% and 8%, depending on inflation.
Newer buildings typically do not have those protections, but they can depending on what was there before. Under a 2007 city ordinance, newly constructed apartments, townhomes and condos must be rent controlled if an older rent controlled property was demolished on site.
The data show that developers across the city frequently pursue these projects despite their buildings being subject to rent caps the moment a lease is signed.
The apartment building at 5800 Harold Way in Los Angeles, CA is under rent control.
(Myung J. Chun / Los Angeles Times)
Leeor Maciborski, owner of ROM Residential, which currently owns Castelvecchi’s building, purchased that building after another investor built it. However, he said he’s developed five or six other properties in Los Angeles knowing they’d fall under the city’s rent stabilization ordinance.
The projects made financial sense because he could set the initial rent at market rate and was allowed at least a 3% increase each year, he said.
“If I could build something … and I can count on 3% to 4% annual increases, I am happy,” the developer said.
Tenant advocates, meanwhile, say that even if some new rent-controlled apartments are being built, replacing older rent controlled units for new ones is devastating. Not only are people evicted, but new construction demands a premium when the unit is initially rented.
“The only ones who make out with this trade off is the developers and the landlords who are pulling in more and more profits and income on the backs of those people they have displaced,” said Larry Gross, executive director with the tenants advocacy group Coalition for Economic Survival.
Since mid-2007, owners have removed more than 13,000 older rent-controlled units from the market , leading to concern the demolition is worsening the city’s affordability and homelessness crisis.
Over the same time frame, housing department data show 10,252 new units have been put under the city’s rent stabilization ordinance.
New buildings can be exempt from the rules if they open for rent more than five years after the old property was removed from the market, or if the developer dedicates a certain number of new units as income-restricted affordable housing — though units will revert to rent control once those income restrictions expire in coming decades, according to the housing department.
About 3,000 additional units fall into the latter, temporarily exempt category, although some are already income restricted.
In theory, newly constructed rent-controlled properties could increase the overall number of apartments with rent caps in the city, because developers often knock down a small building to build more units. For now, that hasn’t happened.
The real estate industry — as well as many housing economists — have long argued that far fewer developers would build if they are subject to rent caps, leading to even higher rents as supply shortages worsen. As a result, rent control ordinances across the country typically exempt new construction.
Until recently, state law in California outlawed rent caps on properties built after Feb. 1, 1995, and even earlier in some cities like Los Angeles, with the exemption for newly built properties that replaced older rent controlled units.
Then in 2020, a new law took effect and put statewide rent restrictions on buildings older than 15 years, though these caps are less strict than in places like Los Angeles, whose rules remain in place.
The state bill’s author, then-Assemblyman David Chiu (D-San Francisco), had proposed 10 years as a cut off, but it was extended another five years to lessen opposition. At the time, the California Apartment Assn. took credit for the change, saying it would “mitigate the bill’s impact on future development of rental housing.”
Fred Sutton, a senior vice president with the California Apartment Assn., said the fact that some developers build under the L.A. rules does not mean housing construction would not decline if rent caps were placed on all new buildings. As restrictions are added, fewer projects can be expected to turn a reasonable profit — even if some go forward, he said.
“Can people still figure out a way to do it?” Sutton said. “Yes, but you’re not going to get as many people as you need.”
Two developers told The Times they didn’t know about the rules before building. One said he’d do so again, while another wouldn’t because rent control gives him less flexibility to earn a profit.
Maciborski said he’d take a different tack. He’d be willing to build another rent-controlled building, but only if the project would expect a greater return than before, to buffer him from potential actions by the Los Angeles City Council that might undercut his revenue stream.
The pandemic pushed the council to freeze rent in controlled buildings for nearly four years. Only a few months ago did officials allow landlords to raise rent.
“I’d consider it,” Maciborski said of constructing another rent-controlled property. “But now knowing what potential tools the city council … has at their disposal, it’s definitely a little scarier.”
Renters who live in any rent-controlled buildings — old or new — should know about it. The Los Angeles Housing Department requires the landlord to alert tenants by posting notice at the property. But several residents who spoke to The Times at the newer buildings said they had no idea.
After learning about her building’s status, Castelvecchi checked her lease and noticed that rent control is mentioned in a section she had previously overlooked. And she found a sign in the building outlining the rules, which she hadn’t previously noticed.
It would have been better, she said, if she had simply been told verbally about the rules when she rented the apartment.
“It’s extremely unnerving that it wasn’t communicated by anyone I met,” she said. “When you have to read the fine print, it feels difficult to trust.”
Maciborski said that if a tenant asked, a leasing agent would tell them if a building was rent controlled, but when dealing with legal issues his company relies on putting it in writing.
“It’s verifiable,” he said, adding written notices can also give more detailed information than a leasing agent may have on hand.
Gross, the tenant advocate, said it’s a constant struggle to educate tenants of their rights, with many residents of older properties not understanding they have rent control protections. He believes the problem is even worse in newer buildings, because even if people understand rent control exists they often believe all new properties are exempt.
“There’s not enough education and outreach,” Gross said.
Monique Mendoza, who pays $3,800 a month to live in a townhome in Boyle Heights, said she also had no idea that her newer unit also falls under the city’s rent control protections. It would have given her some relief just to know, she said. She is constantly worrying about the cost of rent and probably couldn’t afford a big increase.
Even without a rent hike, she said, “for us, as a family, it’s not affordable.”
For more information on real estate trends and the top neighbourhoods in each region, as well as insights on the top-ranked regions nationally, return to the national page or select a region from the drop down menu.
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In the table below, you’ll find the best Vancouver neighbourhoods for real estate purchases. To view all the data, slide the columns right or left using your fingers or mouse. You can download the data to your device in Excel, CSV and PDF formats.
Source: Zoocasa
Top three neighbourhoods in Vancouver
The steep price tag of homes in Point Grey is justified by their extravagant features. Sprawling mansions grace expansive properties that seamlessly blend into meticulously maintained streets. In spite of a 2023 benchmark home price of $2,532,842, Point Grey has seen steady price growth in recent years. In many Vancouver neighbourhoods, the benchmark home price stalled or fell over the last year, but Point Grey’s benchmark price was 6% higher than in 2022. It was 24% higher than in 2020 and 14% higher than in 2018, earning Point Grey a value score of 3.9.
Point Grey’s housing stock is mainly luxury houses, and many of Vancouver’s premier amenities are nestled within or near this opulent community. Everything is conveniently within reach, from top-tier schools like Queen Mary Elementary, Lord Byng Secondary, Jules Quesnel Elementary and West Point Grey Academy to exceptional recreational facilities like Jericho Tennis Club, Royal Vancouver Yacht Club and Brock House. While Point Grey may seem like an exclusive gated community reserved for the elite, a mix of residents calls this neighbourhood home, including working professionals, business owners, faculty members of the University of British Columbia, artists, university students and young families. One drawback of Point Grey is its accessibility score of 1.9, which is the third-lowest in Vancouver.
One of the more expensive areas of the city, Dunbar is located near the University of British Columbia campus. It’s home to a mix of high-income people and older residents who bought in years ago. That’s why you’ll find everything from enormous mansions to small bungalows in this neighbourhood. And it’s why Dunbar had a 2023 benchmark home price of $3,044,625. However, home prices aren’t increasing as fast as those in other Vancouver neighbourhoods. The benchmark price remained unchanged last year, and it was 12% higher than in 2020 and just 7% higher than in 2018. As a result, Dunbar has a value score of 1.8. Its neighbourhood economics score of 5.0 helped propel it to the number two spot on our list.
Residents in this area love the local golf course and their easy access to the forested trails of Pacific Spirit Regional Park. Indeed, the area has a lot of parks—as well as riding stables nearby. While there are several great public schools in Dunbar, the area is known for its private schools, including Crofton House and St. George’s. Dunbar has a family feel, with many baseball diamonds and soccer fields for extracurricular activities. It’s no surprise that it has Vancouver’s highest concentration of households with children (at 51%). Because the housing stock is mostly single-family homes, Dunbar is not as accessible as other areas of the city, but it still has a decent accessibility score of 2.9 out of 5.
Killarney is perched on East Vancouver’s south-facing slope, offering a scenic view of the Fraser River. Housing costs in this area are relatively more reasonable compared to downtown, offering home buyers a balance between affordability and proximity to the city centre. But having seen significant price growth in recent years, homes here are also a great investment. Killarney’s 2023 benchmark home price was $1,677,192, which was 1% higher than in 2022, 30% higher than in 2020, and 27% higher than in 2018. That works out to a value score of 4.4.
As one of the newer neighbourhoods in Vancouver, Killarney radiates a stronger connection to nature and a distinct lack of congestion. However, it falls short in terms of accessibility, earning a neighbourhood accessibility score of only 0.7. Known for its tranquility, Killarney features small shopping plazas and residential cul-de-sacs. With four public schools, including the notable Killarney Secondary—the largest secondary school in Vancouver—the neighbourhood has a large number of households with children (47%).
What’s happened in the Vancouver real estate market?
In 2013, Vancouver home prices followed a trajectory similar to those in other markets; the benchmark price continuously climbed until it reached a peak of $1,210,700 in July, and then it gradually declined, finishing the year at $1,168,700. Despite higher borrowing costs last year, the Vancouver real estate market still experienced price growth, with the benchmark price rising by about 5% from January to December. Most of this price growth occurred in the first half of the year, driven by an exceptionally limited supply of homes.
Demand for the more affordable home types stalled, while the luxury market saw less of a slowdown. “The price of luxury homes went up quite a bit last year,” says Geoff Pershick, a local eXp real estate agent. (Zoocasa, the author of this study, is wholly owned by eXp World Holdings.) “More homes sold for more money than expected, and it speaks to the influx of capital that is coming to the area.”
High interest rates deterred many sellers from listing last year and prompted many buyers, including cash buyers, to postpone their purchases. But better conditions are already emerging for 2024.
“The global wealth shift is ushering in an increasingly diverse group of buyers to Vancouver,” says Pershick. “Last year’s uncertainties might have slowed down [real estate] activity, but with interest rates finding their footing and a sense of stability returning, I’m expecting a resurgence of cash buyers.”
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What’s next for real estate in Vancouver?
The number of Vancouver home sales was up about 6% month-over-month in January, and up about 45% month-over-month in February, according to Greater Vancouver Realtors. If this momentum continues, the Vancouver real estate market is poised to have a stronger year in 2024 than in 2023.
“As interest rates decline, we’re going to see a surge in buyers alongside a decrease in sellers within the Vancouver market,” says Pershick. “This imbalance will drive property prices up and shape a competitive landscape for potential home buyers.”
Though buyer sentiment is improving from 2023, the supply of Vancouver homes has remained scarce since last year, pushing the market further into seller’s territory. “Greater Vancouver is consistently grappling with supply challenges, and I don’t think that will change in 2024,” says Pershick.
Between December and January, the benchmark home prices in Port Coquitlam and Coquitlam increased by about 3% and 2%, respectively. In Port Moody, the benchmark home price dipped by about 1%, but home prices will likely climb as the spring market kicks off.
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Burnaby, New Westminster and Richmond, B.C.
The city of Vancouver is bordered by Richmond to the south, and by Burnaby and New Westminster to the east. Burnaby and Richmond are B.C.’s third- and fourth-largest cities, respectively, each with a population above 200,000.
Best places to buy real estate in Burnaby, New Westminster and Richmond
In the table below, you’ll find the top neighbourhoods for real estate purchases in Burnaby, New Westminster and Richmond. To view all the data, slide the columns right or left using your fingers or mouse. You can download the data to your device in Excel, CSV and PDF formats.
Source: Zoocasa
Top three neighbourhoods in Burnaby, New Westminster and Richmond
Situated in Richmond, Hamilton is just north of Annacis Island and the Annacis Channel, and west of Queensborough. Hamilton’s 2023 benchmark home price was $947,750 as a result of a consistent and stable increase in property values. The benchmark was 3% higher than in 2022, 37% higher than in 2020, and 22% higher than in 2018. This trend contributes to Hamilton’s impressive value score of 4.6.
Hamilton is a distinctive neighbourhood with a blend of residential properties, predominantly single-family homes, alongside businesses and recreational facilities. It offers various amenities such as the Hamilton Community Centre, Hamilton Highway Off-Leash Dog Park, and the Bridges Marina. The neighbourhood boasts several parks, including the well-kept and popular Hamilton Community Park. Locals appreciate the trails that lead to the waterfront, a popular spot for dogs to take a swim. Hamilton has the highest percentage of households with children (57%) in this part of Metro Vancouver, by a significant margin. Families can send their kids to Hamilton Elementary School, the Choice School for Gifted Children, or Queen Elizabeth Elementary School. However, Hamilton has the third-worst accessibility score among the three cities, at 0.3.
In the southwest corner of Richmond lies the historic community of Steveston, where the powerful Fraser River meets the Pacific Ocean. Steveston is bordered by Williams Road to the north, the Fraser River to the south, No 2 Road to the east, and the Strait of Georgia to the west. The neighbourhood’s 2023 benchmark home price was $1,529,183, considerably higher than those of surrounding neighbourhoods. Home prices in Steveston Village have been on a slight upward trajectory. The benchmark home price was 1% lower than in 2022, but 28% higher than in 2020 and 17% higher than in 2018. As a result, Steveston has a modest value score of 2.0. However, it has by far the highest neighbourhood economics score in the region (5.0), which helped push it to the top.
So, what brings buyers to this neighbourhood? Following the closure of the fish canneries, significant residential development has transformed the area, with the emergence of new luxurious condominiums and townhomes reshaping the landscape. Residents benefit from outstanding local dining options, unique boutiques, a picturesque boardwalk that is popular among both tourists and locals, beach access, parks, playgrounds and biking trails—all enhancing Steveston’s charm. While primarily residential, Steveston has several parks near schools like Diefenbaker and James McKinney Elementary, along with the expansive Manoah Steves Neighbourhood School Park, which features four sports fields, three ball diamonds and a playground. The neighbourhood has one of the highest concentrations of households with children (49%).
Nestled in North Burnaby, the Brentwood Park neighbourhood has traditionally offered a balanced mix of affordable single-family detached homes and condominiums. With The Amazing Brentwood housing spectacular developments, Brentwood Park is poised to become one of the largest urban destinations in North America. In 2023, the neighbourhood’s benchmark home price stood at $881,425. Home prices in Brentwood Park haven’t risen as rapidly as those in other neighbourhoods on our list. The 2023 benchmark price was 1% lower than in 2022, 18% higher than in 2020, and 11% higher than in 2018. This translates to a value score of 3.2. But Brentwood Park has one of the highest neighbourhood economics scores, 3.1, in this part of Metro Vancouver, behind only Steveston.
The neighbourhood boasts stunning views of Burnaby Mountain and the North Shore Mountains. Beecher Park offers forested areas, a sports field, a children’s playground and Beecher Creek, a local salmon spawning habitat connecting to Still Creek. Eileen Dailly Leisure Pool & Fitness Centre is well known for its swimming pool, children’s water play area, sauna and steam room, weight room, and more. The area is also home to the McGill Branch of the Burnaby Public Library. Public schools in Brentwood include Brentwood Park Elementary, for kindergarten to grade seven, and Alpha Secondary School, which offers an advanced placement program allowing students to take college-level courses while still in high school.
What happened in the real estate markets of Burnaby, New Westminster and Richmond?
Real estate activity was stable in all three cities last year, and there was much less fervour compared to previous years. Home prices experienced modest price growth from January to December 2023, though this was due more to tight competition than increased demand.
Burnaby East experienced the most price growth, with the benchmark price rising about 7% from January to December. But the area is also the most expensive, with a December benchmark price of $1,157,400. New Westminster had the most affordable homes, with a benchmark home price of $815,600 in December, up about 4% from the beginning of the year. In Richmond, the benchmark home price rose from $1,109,200 in January to $1,153,400 in December—an increase of about 4%.
“Interest rates played a pivotal role in shaping affordability [in these areas], and there was a noticeable withdrawal from the market among potential buyers,” says Pershick. For the three cities combined, total home sales across all property types in 2023 came in below 2022 levels.
What’s next for real estate in Burnaby, New Westminster and Richmond?
Between December 2023 and February 2024, benchmark home prices in all three cities inched upward, suggesting a stronger start to the year than in 2023. Of the three, Richmond’s benchmark price increased the most, rising about 2% to $1,173,100 in February. Burnaby South has also experienced a decent increase, with the benchmark price rising by about 2% to $1,113,500 over the same period.
As of February, year-to-date sales for detached properties in Burnaby and Richmond are up compared to 2023. However, it’s Burnaby condo apartments that have gotten the most attention, with year-to-date sales up by about 19%.
Nestled in Markham, Vinegar Hill is encompassed by Highway 7 to the north, Highway 407 to the south, and streets situated just west and east of Main Street South, with the Rouge River serving as its natural border. The neighbourhood is a sought-after residential destination known for its picturesque settings and historical charm. In 2023, its benchmark home price was $1,126,400—which was 44% higher than in 2022, 72% higher than in 2020, and 40% higher than in 2018.
The community’s name is thought to have connections to either a cider mill located on the east side of the river valley or barrel makers who filled their barrels with vinegar to assess their straightness as they rolled down Markham Road. Slightly more than half (53%) of households in the area have children. Despite its desirability, Vinegar Hill has a relatively low accessibility score of 1.8—which is still higher than the other two top neighbourhoods in York.
Located in the northeast part of King Township, Pottageville stands out for its distinctive topography and environmental importance. It’s situated atop the elevated ridges of the Oak Ridges Moraine and within the Ontario Greenbelt corridor, and it features an abundance of ranch-style bungalows and older homes. Coming in second among our top three neighbourhoods in York, Pottageville had a benchmark home price of $1,657,917 in 2023, and a value score of 3.3. The benchmark price was 55% higher than in 2022, 27% higher than in 2020, and 113% higher than in 2018. With above-average levels of household income, education and home ownership, Pottageville has a perfect neighbourhood economics score.
It also has an above-average number of families with children, representing 56% of households. With easy access to the Greenbelt Route, a province-wide bike trail, it’s the perfect area for bikers. Pottageville may only have a general store, a gas station and a few small businesses, but there’s ample recreational space centred around Pottageville Community Park, which features a playground, a baseball diamond, tennis courts and soccer fields. There’s a train station a 10-minute drive away, making it easy to commute to Toronto, but the neighbourhood still only has an accessibility score of 0.4.
Concord benefits from excellent commuter highway access, with both Highway 407 and Highway 7 passing through. In 2023, Concord’s benchmark home price was $742,158, which was 2% lower than in 2022, but 9% higher than in 2020 and 54% higher than in 2018. The area has the second-highest value score (3.6) of our top three York neighbourhoods, and it does well on neighbourhood economics as well, scoring 4.6.
Concord residents often spend their time enjoying recreational and leisure activities. One popular destination is Vaughan Mills shopping centre, with its many retail stores, entertainment options and family-friendly attractions. Locals can also explore Concord’s natural beauty while visiting Boyd Conservation Area or Black Creek Pioneer Village. Many families live in modest brick detached homes and townhomes with single-car garages, which are popular in the area.
What happened in the York Region real estate market?
In 2023, York Region’s home prices fell less than those in other regions of the GTA. In January, the benchmark home price was $1,285,583, and by December, it had dropped 0.4% to $1,281,020. But with mortgage rates as high as they were last year, the market was never able to gain much momentum.
“Last year, as banks tightened their borrowing criteria, we saw a decrease in sales while average prices remained relatively flat or decreased just a little,” says Kirby Chan, a local eXp real estate agent. “It was tough,” he says, because even though prices came down a bit, interest rates were so high that mortgage affordability suffered.
Buyer uncertainty played a big role in slowing down home sales, as many people were hesitant to enter the market amid the anticipation of rising interest rates. The number of home sales in York stayed above 1,000 during the spring and summer, but trickled off in July. In December, there were only 612 sales.
What’s next for real estate in York Region?
January started off with a boost in home sales, suggesting the market is rebounding. Home sales were up about 27% from December and about 42% from January 2023.
“Buyers are coming out now into the market, and there’s a positive outlook on how the market is going to look this year,” says Chan. “But if buyers wait until interest rates come down, then prices will go up and their buying power will go down.”
York Region buyers could face more competition than last year, as would-be Toronto buyers are attracted by the area’s comparable affordability. “With the city of Toronto increasing property taxes soon, I think there’s a good possibility this will drive more buyers into York Region and areas like Markham, Richmond Hill and Vaughan,” says Chan.
Assuming mortgage rates go down and buyer confidence returns, Chan expects this year to be a strong one for York Region real estate. “Sales-wise and price-wise, I think we’re going to have a record year in 2024. Last year, the government raised interest rates to cool everything down, and so there were fewer sales. That means there’s a lot of buyers out there waiting, and this pent-up demand is going to push prices even higher.”
In the table below, you’ll find the top Halifax neighbourhoods for real estate purchases. To view all the data, slide the columns right or left using your fingers or mouse. You can download the data to your device in Excel, CSV and PDF formats.
Source: Zoocasa
Top three neighbourhoods in Halifax
For the second consecutive year, Cole Harbour is the top place to buy a home in HRM. Located east of Dartmouth, Cole Harbour is named after a local harbour. It has easy access to Highway 107 and Highway 111, making it an attractive location. Cole Harbour’s 2023 benchmark home price was $505,774, and that’s the result of consistent price growth in recent years. The benchmark price was 13% higher than in 2022, 66% higher than in 2020, and 69% higher than in 2018, giving Cole Harbour a value score of 4.0. It also has a neighbourhood economics score of 4.3, the third-highest in HRM.
The area has several schools—a convenience for the above-average 47% of households with kids. Residents love the area’s beaches and trails, including the Salt Marsh Trail and Rainbow Haven Beach Provincial Park. Cole Harbour is also a popular tourist destination: the quaint Cole Harbour Heritage Farm Museum and Fisherman’s Cove are two must-see stops. However, with the neighbourhood’s accessibility score of 0.6, you’ll likely need a car to get around.
View Cole Harbour real estate listings on Zoocasa.
Situated on the Eastern Shore of HRM near the Shearwater Canadian Air Force base, Woodside-Eastern Passage is a popular destination for military families due to its mid-sized community feel. Boasting a dozen eateries, convenient access to Halifax through the Woodside Ferry, the main Nova Scotia Community College campus and abundant character, this emerging neighbourhood proves to be a smart investment and a delightful place to live. Woodside-Eastern Passage’s benchmark home price was $432,486 in 2023, which was 18% higher than in 2022, 64% higher than in 2020, and 97% higher than in 2018. It’s the only neighbourhood in HRM with a perfect value score of 5.0.
The area features multiple recent subdivisions that provide a variety of housing options, including semi-detached and detached homes. There are many elementary, junior high and high schools that cater to the 45% of households with children. Like most places in HRM, you’ll likely need a car to live here, though.
Located a mere 10 minutes from the airport and 30 minutes from downtown Halifax, the Waverly-Fall River-Beaver Bank area is renowned for its scenic landscape, featuring numerous lakes, expansive open spaces and generously sized lots. It also has the most expensive homes of the top three neighbourhoods on our list, with a 2023 benchmark price of $666,815. That was 8% higher than in 2022, 62% higher than in 2020, and 83% higher than in 2018. Notably, Waverly-Fall River-Beaver Bank has the second-highest economics score on our HRM neighbourhoods list.
All homes in this area use septic systems; some rely on wells for water, while others are connected to city water. Residential lots are spacious and feature a range of traditional-style homes. Many residences boast lake access, and some even enjoy a lakefront setting. The neighbourhood has many sought-after schools. While the area may have limited amenities, it boasts a well-established canoe and kayak club, multiple daycare facilities, a post office and a convenience store. Living in Waverly-Fall River-Beaver Bank may necessitate owning a car, given its accessibility score of 0.1.
What’s happened in the Halifax real estate market?
Unlike the ups and downs of 2022, Halifax real estate prices did not sharply increase or decrease in 2023. The benchmark price consistently rose from January through the end of the spring market and reached a late peak of $530,900 in August. Following this, home prices softened before experiencing a modest rise in December, settling at a benchmark price of $511,600.
“In the first quarter of 2023, prices and sales were up, but then the market really slowed down after the spring,” says local eXp real estate agent Richard Payne. (Zoocasa, the author of this study, is wholly owned by eXp World Holdings.) “Properties were lingering on the market longer, and we didn’t see multiple offers on a home anymore. By the second half of the year, buyers had shifted to a more cautious stance, preferring to wait on the fence to see how conditions would evolve.”
As interest rates rose in the summer, buyers experienced some frustration, which morphed into confusion about what to expect from the market, says Payne. “Once buyers got confused, they didn’t feel confident to make any decisions, and this contributed to the slowdown in market activity.”
The uncertainty also influenced buyers’ budgets. “A lack of affordable options, especially in the $400,000 to $600,000 range, pushed many buyers to look out of the core and into more of the suburbs,” says Payne. “Homes in that range were getting more attention as interest rates rose.”
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What’s next for real estate in Halifax?
The benchmark home price in Halifax has increased by a little more than 1% since December, reaching $518,500 in January. With demand expected to rebound, price growth will likely continue, though that will depend on the mortgage rate outlook.
Payne expects the opposite of 2023 to unfold in 2024—with a quiet start to the real estate market, followed by an active second half. “In the beginning of 2023, activity was fairly up, and then as interest rate hikes were announced, it put the brakes on momentum,” he says. “This year, I anticipate a surge in activity in the second half of the year as buyers catch on to falling interest rates and rush back into the market.”
Buyers who were sitting on the sidelines last year may be better positioned to join the market in 2024. An influx in buyer activity might also encourage more sellers to list their homes, leading to a much-needed bump in the number of homes on the market.
The agency released its biannual housing supply report on Wednesday, which showed combined housing starts in the Toronto, Vancouver, Montreal, Calgary, Edmonton and Ottawa regions dipped 0.5% compared with 2022, totalling 137,915 units.
That was in line with the annual average of around 140,000 new units over the past three years. CMHC deputy chief economist Aled ab Iorwerth said the 2023 numbers came in “better than we thought.”
“We ended up being positively surprised by 2023. We were really quite concerned that higher interest rates were going to really have an impact,” said ab Iorwerth.
“They did have an impact, but it seems to have been on smaller structures, single-detached (homes) and so forth.”
Apartment starts grew 7% to reach a record 98,774 individual units last year. However, those gains were offset by declines in the number of new single-detached homes, which fell 20% year-over-year, due to weaker demand for higher-priced homes in an elevated mortgage rate environment.
More housing needed to address affordability gaps
The agency continued to warn about the need to ramp up housing construction to address affordability gaps and significant population growth in Canada.
It said housing starts are projected to decrease in 2024, despite the CMHC’s forecast that Canada will require an additional 3.5 million units by 2030, on top of what is currently projected to be built, to restore affordability to levels seen around 2004.
Its report cited rising costs, larger project sizes and labour shortages last year that led to longer construction timelines, prompting various levels of government in Canada to announce new programs aimed at stimulating new rental housing supply.
The data released Monday by Rentals.ca and Urbanation, which analyzes monthly listings from the former’s network, shows the average monthly cost of a one-bedroom unit in February was $1,920, up 12.9% from the same month in 2023.
The average asking price for a two-bedroom was $2,293, up 11.3% annually.
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How much have rent costs increased in Canada?
The report says asking rents in Canada have increased overall by a total of 21%, or an average of $384 per month, from two years ago, just before the start of interest rate hikes by the Bank of Canada (BoC).
Alberta maintained its status as the province with the fastest-growing rents, with total average asking prices up 20% annually last month to reach $1,708.
British Columbia and Ontario posted the slowest growth in February, with annual increases of 1.3% and 1%, respectively. But the provinces remain Canada’s most expensive for renters, with total average asking rents of $2,481 in B.C. and $2,431 in Ontario.
What’s the most expensive city in Canada for rent?
On a municipal basis, the largest cities in those two provinces also remain the most expensive major cities to live in Canada for renters. The average asking price for a one-bedroom unit in Vancouver last month was $2,653, down 1.1% from a month earlier, though still 0.5% higher than February 2023.
In Toronto, landlords were listing one-bedroom units for $2,495 on average, down 0.6% on a month-over-month basis and 0.2% from a year ago.
Condos vs. apartments
Traditional purpose-built rental apartments posted the fastest year-over-year price growth in February with a 14.4% increase, as rents averaged $2,110. Condominium rentals, with an average rent of $2,372, and apartments in houses, at $2,347, had slower annual growth of 5% and 5.3%, respectively.
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It sounds like you are aware that you can carry back capital losses, Ramesh. If you have a net capital loss on your 2023 tax return, you can carry it back up to three years. So, you can ask the Canada Revenue Agency (CRA) to apply that loss to capital gains you had in 2022, 2021 or 2020.
When should you carry back a capital loss?
You can apply some or all of the loss to one or more of those years. If you had capital gains in more than one of the past three years, there are three primary considerations.
1. 2023 is the final year you can carry back losses to 2020. In 2024, the furthest you can carry back a capital loss is 2021.
2. If you had a high income in one of those three years, you might be better off carrying the loss back to the year with the highest income. That way, you can maximize the resulting tax refund.
3. If your income and tax rate were relatively low in one or more of the past three years, you might want to defer claiming the loss. Capital losses can be carried forward indefinitely to use against capital gains in a future higher-income tax year.
You are not restricted, Ramesh, to claiming a capital loss on securities against a capital gain on securities. So, in your case, you could carry back a capital loss on securities to claim against a previous capital gain on a rental property.
How to carry back a capital loss
In order to carry back a capital loss, you have to complete Section III – Net capital loss for carryback on Form T1A, Request for Loss Carryback on your tax return. Although it can be printed, filled out and submitted to the CRA, a taxpayer or their accountant would generally submit the form as part of their annual tax filing.
After your tax return for the current year is assessed, you will later receive a notice of reassessment from the CRA with a tax refund for a previous year, if applicable.
How you intend to use the property—i.e., for personal use (such as a second home or cottage) or as a rental or investment property.
Whether or not the property will be owner-occupied—i.e., whether you will be living in the property (alone or with a tenant) or renting out all the units in the building.
If the second property is for personal use, such as a vacation property or cottage, you will likely have to meet the same down payment requirements as with your first home. For example, a second home purchased for $800,000 requires a down payment of 5% on the first $500,000, plus 10% on the portion above $500,000.
Rentals that are owner-occupied—maybe a home in which the owner lives on the main floor, and a tenant lives in the basement suite—generally are subject to the same rules, says Elan Weintraub, co-founder and mortgage broker with mortgageoutlet.ca.
However, if the property will not be occupied by the owner, meaning the entire property will be rented out, Weintraub says you should have a down payment of at least 20%, no matter the price of the home. He adds that certain lenders have different requirements.
Lenders take the question of owner occupancy seriously, so always be honest about your plans, advises Weintraub. “If you say you will live in the property, then that’s the expectation, and depending on your lender and the mortgage type, you could be in default if you do not live there.”
Should you get a mortgage on a second property?
Managing two mortgages is a big financial commitment, so it’s important to plan ahead and consider seeking expert advice if you’re unsure if you can afford it.
Weintraub says there are several key factors to consider before deciding to take on a second property mortgage. These include:
Your financial situation: Do you have extra savings in case, say, the roof collapses, the tenant stops paying rent, and so on? Buying a second property could be risky if you’re using your entire savings to make the purchase, leaving no room for unexpected expenses.
The time commitment: A second property (especially a cottage and/or rental property) could require a lot of maintenance and attention. Do you have the time to care for the property yourself, or extra money to pay for those services? If not, owning additional real estate may not be something you have time for.
Your income stability: How secure is your job or your business? Are you certain you will have the income needed in the future to continue making payments on two mortgages?If you’re unsure about your ability to make payments in the future, you may not have the financial means of owning multiple properties.
Your time horizon: If you’re planning to sell the property in a few years, you may not recoup the costs of your initial investment. There are many upfront costs to account for when buying and selling real estate, including land transfer taxes, realtor fees and legal fees.
Second mortgage rates in Canada: What to expect
Whether you go with the same lender or a different one for your second mortgage, the interest rate will likely be higher than for your first mortgage. That’s because your second mortgage takes second priority: If you foreclose on the home, the debt owed to your first lender must be repaid first. Therefore, your second mortgage provider takes on a greater risk and is compensated for this risk by charging you a higher mortgage rate.
Keep in mind that you’ll also have to pay the same administrative costs as with your first mortgage, including things like appraisal and legal fees. Furthermore, Weintraub emphasizes that cash flow should be another consideration. “You would need a strong income to acquire a second property, as you would have significant debt—a mortgage on your primary and secondary residence. A few years ago, rates were 1% to 3%, so it was much easier to borrow money. Today, the mortgage stress test essentially requires the mortgage to be tested at 8% or higher.”
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Is a second mortgage worth it?
Getting a mortgage on a second property can help you purchase the perfect cottage hideaway, support your adult children’s housing needs, or become a landlord for the first time. However, second property mortgages aren’t for everyone. Before committing to a second property, understand your financial position and consider speaking to a financial advisor or mortgage broker.
A corporation’s investment income is generally taxable at between about 47% and about 55%, depending on the corporation’s province of residence. This includes interest, foreign dividends and rental income.
Canadian dividend income earned by a corporation is generally subject to about 38% tax, although dividends paid between two related corporations may be tax-free (i.e. paying dividends from an operating company to a holding company).
For a corporation, capital gains are 50% tax-free—just as they are for individuals—such that corporate tax on capital gains ranges from about 23% to about 27%.
Rental income
Rental income is fully taxable personally and corporately at regular tax rates. So, this means 31% for an Ontario resident with $100,000 of income, for example, and between 47% and 55% corporately depending on the corporation’s province or territory of residence.
The caveat is that only net rental income is taxable. A rental property investor can deduct eligible rental expenses including, but not limited to, mortgage interest, property tax, insurance, utilities, condo fees, professional fees, repairs and related costs.
Income in an RRSP
Registered retirement savings plan (RRSP) accounts are tax-deferred with tax payable on withdrawals. However, there are tax implications to owning investments in your RRSP and other registered retirement accounts.
Foreign dividends are generally subject to withholding tax before being paid into your account or an RRSP investment at rates ranging from 15% to 30% (in the case of a mutual fund or ETF). In a taxable account, this withholding tax does not matter as much because you generally claim a foreign tax credit to avoid double taxation. In an RRSP, the foreign withholding tax is a direct reduction in your investment return with no way to recover the tax. This does not mean you should avoid foreign investments in your RRSP. It is simply a cost of diversifying your retirement accounts.
One exception is U.S. dividends. If you buy U.S. stocks or U.S.-listed ETFs that owned U.S, stocks, there is no withholding tax on dividends paid in your RRSP. If you own an ETF that owns U.S. stocks that trades on a Canadian stock exchange, or you own a Canadian mutual fund that owns U.S. stocks, there will be 15% withholding tax on the dividends of the underlying stocks before they are paid into the fund.
So, how much of a down payment do you need for a second home? That depends on a few factors, including whether or not you intend to live at the property.
Down payment requirements in Canada
Every Canadian home buyer is required to have a minimum down payment when purchasing property. A down payment is the money provided up front towards the purchase of the home, and it is directly tied to the value of the property.
When buying a home, the down payment rules in Canada are as follows:
Purchase price
Minimum down payment required
$500,000 or less
5% of the purchase price
$500,000 to $999,999
5% of the first $500,000 of the purchase price + 10% of the portion of the purchase price above $500,000
$1 million or more
20% of the purchase price
If you’re buying a home priced under $1 million and your down payment is less than 20%, you’ll need to purchase mortgage default insurance, also known as mortgage loan insurance—which protects the lender if you can’t make your mortgage payments. Using a mortgage down payment calculator is the fastest and simplest way to figure out how much money you will need for your home down payment.
Minimum down payment for a second home in Canada
Contrary to popular belief, there’s no blanket 20% down payment requirement for second-home purchases in Canada. In fact, the down payment rules for a second home are similar to those listed above for single-property ownership, as long as the second home will be owner-occupied, meaning the owner will be living in it.
“You can purchase a second home with 5% down as long as the property is intended for family use throughout the year and the mortgage is under $500,000,” says Samantha Brookes, CEO of Toronto-based Mortgages of Canada.
The 5% down payment requirement applies to second homes with one or two units in them. For properties with three or four units, the minimum down payment jumps to 10%.
Buildings with five or more units are considered commercial buildings, and they require a commercial mortgage. Depending on the property’s location and the buyer’s cash flow, lenders may require a buyer to have a down payment of 20% to 35% on commercial properties, according to Brookes.
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One of the oldest and easiest ways to create passive income is through rental properties. Luckily for investors and entrepreneurs, the property rental market remains strong and continues to grow. Based on data from the U.S. Census Bureau, more than 35% of households in the U.S. rent homes. Additionally, RentCafe reported that multifamily construction in 2022 reached a 50-year high nationwide, and according to Axios, “one million rental units are slated for completion through 2025.”
Additionally, a recent GoBankingRates survey revealed that 14% of Americans don’t believe they will ever be able to afford a home, and 27% have no interest in buying a home, contributing to the demand for rental housing options. This is due to a variety of factors, including a low inventory of homes for purchase, barriers to homeownership such as high prices and high-interest rates, and a growing nomadic workforce that doesn’t want to be tied down to one location.
Although rents appear to be stabilizing, demand for rental properties is still high and on-time rental collection rates recently rose above pre-pandemic levels. That means now may be a good time to rent out property, which may be easier than you think.
Here are six types of rental properties that can help you earn passive income and even begin building generational wealth.
1. Traditional investment properties
Traditional investment properties have long been a popular choice for those seeking to generate passive income through rentals. It’s a rather simple concept: purchase a property, find tenants to rent it out and collect monthly rental income. Investors have the opportunity to decide whether to invest in long-term, mid-term, or short-term (vacation) rentals.
Long-term rentals offer stability in rental rates and cash flow with a reduced risk of vacancies, while vacation rentals and short-term stays allow for higher rental rates with a higher risk of vacancies. Vacation rentals are also less passive, requiring more work to clean and ready the property in between stays and find tenants on a much more frequent basis. But the returns on investment can be much higher.
There’s also a “mid-term rental” investment option, where the lease lasts for more than one month but less than one year (college student housing would fit into this category). Mid-term rentals require a bigger time investment than long-term properties but aren’t as demanding as short-term rentals. Some investors may want to diversify their rental property portfolio by owning a mixture of long-term, mid-term, and short-term rental properties, while others may commit to whichever style best suits their preferences.
2. The accidental rental
Investing in a new property isn’t always necessary to become a rental property entrepreneur. There are instances where you may already own extra property, such as a vacation home, a newly inherited property or perhaps you recently got married and both you and your spouse own your own home. Instead of selling these extra properties, you may consider renting them out.
Sometimes, it’s more beneficial to hold on to a property over the long term rather than collecting a quick payout. Retaining properties for rental purposes cannot only help you build more real estate equity, but it can bring in a significant amount of passive income as well (and you may benefit from tax savings, but consult a tax professional on that). Combining the extra income with long-term equity gains can contribute to building generational wealth.
3. House hacking
Another strategy that has gained traction in recent years is “house hacking.” House hacking involves renting out a portion of your own home. If you own or purchase a property that is bigger than your housing needs, and you’re looking for a way to earn some extra cash, rent out a room (or several rooms).
House hacking allows you to significantly reduce or eliminate your own housing expenses by using the rental income from renting out extra rooms to help pay down your mortgage and/or offset utilities and other costs of homeownership. House hacking can be a great way to start building passive income without the need for a large initial investment.
4. Built-for-rent
A growing trend in real estate is the “built-for-rent” market. Built-for-rent homes are built by companies that specifically design their properties for rental purposes only. These properties are often strategically located in desirable areas, ensuring high demand and consistent occupancy rates, and are marketed to people looking to maximize their returns on investment in the real estate industry.
Investing in built-for-rent properties has become one of the most lucrative ways to generate a steady stream of passive income. By purchasing residential properties specifically designed for rental purposes, you can benefit from a consistent monthly income with minimal involvement. Typically, the built-for-rent company handles all aspects of property management, including finding tenants, handling maintenance and repairs, and collecting rent. This enables you to sit back and enjoy your rental income without the stress and time commitment associated with traditional real estate investments.
5. Mixed-use properties
A mixed-use property is a real estate asset that combines both commercial and residential spaces. This provides a unique opportunity to rent out both residential and commercial units. Leveraging the potential of these properties can lead to a sustainable and reliable passive income source, but there are several strategies to consider.
One effective strategy for generating passive income through mixed-use properties is maximizing rental yields. This can be achieved by strategically curating a mix of commercial and residential tenants that complement each other. For example, having a retail shop on the ground floor of a residential building can attract more tenants and increase rental demand.
Another strategy is to focus on choosing the right location for your mixed-use property by conducting thorough market research to identify the most profitable locations. For example, investing in areas with strong growth potential, high foot traffic, and a good mix of commercial and residential demand can increase the value and attractiveness of your property.
In addition, look for other shared space opportunities like coworking spaces that provide short-term or flexible rental options that cater to the evolving and increasingly nomadic habits of modern workers. By taking an innovative approach to offering mixed-use rental spaces, you can tap into a variety of rental markets and maximize their passive income potential.
6. Storage units
When you think of rental properties, storage units usually don’t come to mind. However, renting out storage space can also generate passive income streams. There is a high demand for storage space, and fulfilling this need can help you earn money effortlessly by maximizing unused space. In addition to renting out traditional storage units, people can also rent out space in garages, basements, attics, and spare rooms. By getting creative and marketing effectively, you can effectively turn your empty spaces into profitable assets.
Regardless of what kind of property you decide to rent out, technological advancements have streamlined property management, making it a more efficient and attractive endeavor. Property management tools and software automate many routine, time-consuming tasks such as listings, tenant screening, rent collection, and maintenance requests. This means you can spend less time on administrative duties and focus more on more important life activities, all while maximizing your passive income.
