Buying a Second Home to Rent: 7 Factors to Consider

Posted on 9th January 2024

The process of buying your first home may be daunting, but it is rewarding as well. Once you have acquired your first home and have returned to a comfortable financial position, investing your money in real estate is a great way to grow your finances. 

One way to do so is to buy a second home and rent it out. Buying a second home in Ontario for renting purposes is not uncommon, and even millennials these days have the potential to purchase a second home while residing in their first home and paying a mortgage. 

There are things to consider before going ahead with this decision. There are some advantages and challenges of renting a second home in Ontario. 

Let’s start with the advantages:

1. Tax advantages

As challenging as it is, being a landlord comes with its perks, and there are some significant economic perks. There are taxes you pay to the government because property expenses like insurance, property taxes, maintenance costs, utility bills, and more are from your rental income. 

You can also deduct losses against your other income, as well as deduct depreciation from your taxes. Furthermore, if you wish to, you can sell the rental property and use that income towards another rental property without paying capital gains tax. 

2. Growth of property value

The value of your property will grow over time. In cities like Toronto, Vancouver, and others, and Ontario in general, the increasing demand for real estate has fuelled property prices. Buying a second home in Ontario for rent will allow you to own real estate that continues to grow in value and become an asset. 

If you decide to sell the rented property, you can turn a significant profit to invest in a bigger property without having to shell out extra from your pocket. 

3. Regular monthly income

Rent becomes another source of income and is something you can depend on every month in addition to your other primary income. Some homeowners invest in multiple houses for rent, which becomes their primary source of income. Buying a second home in Ontario for rent will give you the peace of mind of having a regular monthly income even if your other sources of income stop or face delays. 

For working professionals with a typical 9 to 5 job, a second source of regular income is always welcome.

With the advantages covered, buying a second home in Ontario does come with some challenges. As mentioned, these are challenges instead of disadvantages, so you do not need to worry too much. However, as a landlord and the owner of a second home, there are things you need to keep in mind and deal with regularly.

4. Getting the funds ready

Buying a second home in Ontario, for rent or any other reason, is a costly affair. If you are already paying a mortgage on your first home, you may look elsewhere for the funds, like going to the bank for a loan or asking someone you know. 

Canadalend allows you to take a second mortgage on a previously mortgaged home. A second mortgage gains access to funds for various reasons, including paying off credit card debt, starting a small business, buying a car, or making a down payment for a second home. 

It is also a way to refinance your first mortgage and get more equity against your home, allowing you to get a bigger loan. A second mortgage from Canadalend can help you cover home renovation costs, pay outstanding bills, quickly get cash on hand, stop a power of sale, and more. 

5. Dealing with tenants

Every landlord wishes for decent tenants who respect the property and treat the home as they would their own. Yet, sometimes, a tenant causes issues for the landlord. You must tow the line between setting the rules straight and giving the tenants their freedom. 

It can be challenging as you, the landlord, may have to deal with issues like neighbour complaints, delayed rent, higher maintenance costs, and more. One way to avoid dealing with troublesome tenants is to vet them before signing the contract. Meeting with the potential tenant and understanding their mannerisms is essential as this would dictate your future interactions with them.

6. Complicated taxation

Filing income taxes is more complex with a second home and new avenues of saving on taxes. Not all homeowners know how to minimize income tax payments and maximize deductions. 

You may have to employ a third party to help you save money on income tax but, in turn, have to pay them to do the tax filing for you or give advice on what steps to follow.

7. Staying updated with property regulations

As the landlord and owner of the second home, you will be responsible for keeping the property up to code. It means you must stay updated with the rules and regulations that change in the real estate space. If there are some changes in local regulations, you will be required to be on top of them. 

Your tenant will inform you about any new changes, and it is your responsibility to ensure the house is up to code and you follow the new regulations.

Buying a Second Home to Rent: Final Thoughts

Buying a second home in Ontario to rent is a wonderful investment and an asset. It gives you an extra source of regular income but also acts as an investment that will turn a profit in the future if you decide to sell it. There are some challenges to deal with, but that is a small price to pay for the potential economic gain.  

For more information about buying a second home for rent or a second mortgage, call Canadalend at 1-844-586-0713 or contact us here.

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