How Much Money Do You Need to Start Investing in Rentals?

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Real estate investment in Quebec requires startup capital that varies significantly depending on the type of property and your occupancy strategy. For a 1-to-4-unit property where you occupy one of the units, the Canada Mortgage and Housing Corporation (CMHC) allows a down payment as low as 5% of the purchase price, with an insurance premium added to the loan. For a non-owner-occupied property, the Office of the Superintendent of Financial Institutions (OSFI) requires a minimum 20% down payment. For buildings with 5 or more units, classified as commercial properties, the down payment typically rises to 25% or more, and financing falls under the commercial lending sector rather than residential. Beyond the down payment, savvy investors must budget for closing costs (notary, land transfer duties known as the welcome tax in Quebec, inspection, appraisal), a cash reserve for unexpected expenses, and working capital for the first months of operation. Positive cashflow, the surplus of rental income over total expenses, is the central criterion for any rental investment's viability. An AMF-certified mortgage broker can help you structure the optimal financing for your project.

How Much Capital You Need for Rental Property Investment

"How much do I need to get started?" is the first question every aspiring real estate investor asks. The answer depends on three main factors: the type of property, your occupancy strategy, and the local market in Quebec. Understanding CMHC and OSFI requirements enables you to plan your entry into rental property investment effectively.

Down Payment Requirements by Property Type

Owner-occupied property (1 to 4 units): When you live in one of the units, CMHC allows a down payment of 5% on the first $500,000 and 10% above that, up to the maximum eligible purchase price. A mortgage insurance premium (from 2.8% to 4.0% of the loan amount depending on the loan-to-value ratio) is added to the mortgage balance.

Non-owner-occupied property (1 to 4 units): OSFI requires a minimum down payment of 20% of the purchase price. This type of financing is not eligible for CMHC mortgage insurance. Rates may be slightly higher than for an owner-occupied property.

Commercial property (5 or more units): Financed under commercial lending rules with a minimum 25% down payment. Qualification is primarily based on the property's income (debt coverage ratio) rather than the buyer's personal income.

Beyond the Down Payment: Costs to Budget For

The down payment represents only part of the required capital. In Quebec, closing costs include notary fees (mandatory for all real estate transactions under the CCQ), land transfer duties (commonly called the welcome tax, calculated in tiers based on the sale price), pre-purchase inspection, and the professional appraisal required by the lender. These costs typically represent between 2% and 5% of the purchase price.

Calculating Your Monthly Cashflow

Cashflow is the lifeblood of rental property investment. It is calculated by subtracting all monthly expenses from gross rental income. A property that generates positive cashflow from the outset is ideal, but in Quebec's urban markets like Montreal, it is sometimes necessary to accept neutral or slightly negative cashflow while counting on long-term appreciation. The 1% rule (gross monthly rent should represent at least 1% of the purchase price) is a quick initial filter, though it is difficult to achieve in higher-priced markets.

Gross monthly rental income (rents from all units)
Less: mortgage payment (principal and interest)
Less: municipal and school taxes (divided by 12)
Less: insurance (divided by 12)
Less: maintenance provision (5% to 10% of gross income)
Less: vacancy provision (3% to 5% of gross income)
Less: management fees if applicable (5% to 10% of gross income)
Equals: net monthly cashflow

Frequently Asked Questions

What is the minimum down payment for an owner-occupied duplex in Quebec?

If you occupy one of the two units, the minimum down payment is 5% of the purchase price for the first $500,000 and 10% for the portion above that, with CMHC mortgage insurance. For example, for a $600,000 duplex, the minimum down payment would be $35,000 (5% of $500,000 + 10% of $100,000).

How much do closing costs run in Quebec?

Budget between 2% and 5% of the purchase price for closing costs. This includes notary fees ($1,500 to $3,000), land transfer duties (welcome tax, calculated in tiers), pre-purchase inspection ($500 to $1,000), appraisal ($300 to $500), and municipal and school tax adjustments.

What is positive cashflow and how do I calculate it?

Cashflow is the difference between your monthly rental income and all expenses: mortgage payment, municipal and school taxes, insurance, maintenance, management, and vacancy allowance. Positive cashflow means the property is self-financing and generating a surplus. A cashflow of $75 to $150 per door per month is generally considered acceptable.

Can I use my RRSP for the down payment on a rental property?

The Home Buyers' Plan (HBP) allows you to withdraw up to $60,000 from your RRSP tax-free to purchase a first home or a property you will occupy. This program does not apply to a purely rental property where you do not reside. The funds must be repaid into your RRSP over 15 years.

How much should I keep as a cash reserve?

The prudent rule is to maintain a reserve equivalent to 3 to 6 months of total property carrying costs (mortgage payment, taxes, insurance, maintenance). For a property with $3,000 in monthly carrying costs, this translates to a reserve of $9,000 to $18,000.

Is financing different for buildings with 5 or more units?

Yes, buildings with 5 or more units are financed under commercial lending rules. The minimum down payment is typically 25%, rates are slightly higher, and qualification relies more on the property's income than on your personal income. Valuation is done using the income approach (capitalization) rather than comparables.