Maybe you already own an income property (or two), and you’re looking to expand your portfolio. Perhaps you’d like to get your foot in the door to owning rental property.
But maybe you have limited time, complex finances or anxiety around property management. For those looking to enter the market or manage their existing properties, here are six ways to make a rental property work for you.
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1. Start smart
Put down 20% to avoid mortgage default insurance and get better rates. If your down payment is less than 20%, an insurance premium is typically added to your monthly mortgage payment. Premiums from insurers like the Canada Mortgage and Housing Corporation (CMHC) range from 0.60% to 4.00% of the loan amount, and they can be even higher depending on the down payment amount and other factors.
As for rent, use the 1% rule as a baseline, which means the monthly rent you charge should roughly equal 1% of the purchase price. However, in many high-cost Canadian urban centres, like Toronto or Vancouver, and even some parts of Calgary or Montreal, 1% could be an unrealistic and challenging target to achieve.
Also, build a reserve fund to have on hand for repairs, vacancies and unforeseen events. A general rule of thumb is to keep at least four to five months of rent payments in your reserve fund for unexpected repairs, emergencies or time between tenants.
If the Canada Revenue Agency (CRA) deems your rental activities an active business, you may be able to use rental losses to offset your other income sources — for example, wages. You could also consider purchasing real estate under a corporation. This separates your personal assets from your investment properties, and gives you a legal buffer — but be sure to consult with a tax professional to determine if the purchase is the most appropriate action to optimize your returns.
2. Pick the right property
The property you choose can directly impact your bottom line, as well as the type of tenants you’ll attract, for better or worse. Aim to buy properties near job centres, universities or transit hubs, and choose homes that will appeal to your target tenants — families want good schools, whereas young professionals want convenience.
A strategically chosen property can appreciate in value over time, while a poor choice could lead to higher vacancy rates (and more management headaches). It’s also best to avoid overly unique properties that may limit your renter pool. Sometimes the right move is to buy the ugliest house on the street. However, it’s important to carefully assess the renovation costs, market demand and your own resources before making a purchase.
3. Manage cash flow
For long-term success, managing your cash flow is critical. That means finding reliable tenants who pay on time and take care of your property. If you end up with unreliable tenants, you could end up chasing down rent payments or dealing with costly legal issues. Before you hand over the keys, screen tenants thoroughly by verifying their income, checking their credit score and following up with their references.
Charge market rent and raise it annually. If you’re not local or lack the time, consider outsourcing tasks to a property management company.
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4. Maximize tax benefits
While rental income is taxable, the Canada Revenue Agency (CRA) gives opportunities to lower your taxable income. For example, you can claim a Capital Cost Allowance (CCA) on your property to allow for depreciation. This means you deduct a portion of the building’s capital cost over several years. A professional tax preparer can help you with this.
Be sure to keep detailed records of all your legitimate expenses such as repairs, maintenance and other services. For liability protection, consider purchasing your rental property under a corporation.
5. Build wealth over time
Housing is one asset that typically increases in value with inflation — after all, everyone needs a place to live. Rental income can help you pay down your mortgage while the property appreciates. Aside from passive income, you can also benefit from tax benefits and consistent cash flow.
To maximize the benefits from property appreciation, consider refinancing when rates drop to access equity for more investments. Treat your investment property like a business with clear financial goals and exit strategies.
Properly classify your property’s assets
Canadian investors should be sure their property’s assets meet proper classification to fully optimize their deductions and cash flow.
Rental income is taxable, but you can deduct a Capital Cost Allowance (CCA). Your rental property’s physical building and its contents sit in different tax classes and have different CCA rates. For example, the structure may be in a low-rate class, such as 4% every year on a declining-balance basis. However, assets inside the property, including appliances, furniture and fixtures, are in higher-rate classes at 20% or 30%. When you properly classify these assets and their costs using a tax professional, you can get significant deductions through your investment’s early years, while staying compliant with the CRA.
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Sources
1. CMHC: CMHC mortgage loan insurance explained: coverage, premiums and down payments (Jun 30, 2025)
2. CMHC: Mortgage loan insurance premiums
3. Azibo: The 1% Rule vs. the 2% Rule in Real Estate Investing- A Guide for Property Owners, by Gemma Smith (Jul 2, 2024)
4. Government of Canada: Rental losses
5. Government of Canada: Rental income
6. Government of Canada: Capital cost allowance for rental property
7. NBG Chartered Professional Accountant Professional Corporation: Using a Holding Company to Buy Real Estate in Canada, by Neena Gambhir (Aug 14, 2023)
8. CoPilot Tax: How to Calculate CCA on Rental Property A Comprehensive Guide
9. Government of Canada: Rental – Classes of depreciable property
10. Bomcas: Essential Tax Strategies for Real Estate Investors in Canada
This article originally appeared on Money.ca under the title: 6 practical ways to make a rental property work for you as a Canadian investor — and save on taxes owed
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.