While labour and materials for minor repairs and maintenance are deductible, the landlord’s own investment of time and effort is not – and the non-financial cost of being on call can be significant.sturti/iStockPhoto / Getty Images
Real estate may be appealing because it’s more tangible than other investments, but investors who choose to buy property to rent face risks and drags on performance that are unique to the sector – especially in the current environment.
Landlord investors typically expect two sources of returns: rental income and capital appreciation. Both are currently constrained.
The Canada Mortgage and Housing Corp.’s (CMHC) Housing Market Outlook 2026 projects “more balanced” rental markets as supply outgrows demand, with “higher vacancy rates and slower rent increases” across the country.
Meanwhile, the CMHC anticipates that housing prices nationally will “stabilize and then rise modestly.” The Re/Max 2026 Canadian Housing Market Outlook is less optimistic, projecting prices of housing to drop 3.7 per cent.
“In the long term, we see the real estate fundamentals are quite strong, [but] 2026 [will likely be] more moderate and stabilizing,” says Merrick Bao, a Re/Max real estate agent in Newmarket, Ont. “Investors have to be selective, do their own due diligence and market analysis, and [consider] future economic predictions.”
Mr. Bao says investor confidence and interest rates are holding some buyers back. Financing costs have risen to 5 per cent to 6 per cent from about 2 per cent in recent years, and that makes it more difficult to generate positive cash flow from rental income.
He estimates that 80 to 90 per cent of Toronto condo investors have negative cash flow, and if they bought in the past three to five years, they’re likely in the red on market value as well.
Chris Merrick, principal and fee-only financial planner with Merrick Financial Inc. in Toronto, is a landlord himself, managing two rentals. Becoming a landlord investor is a long-term proposition, he says.
“Unless you can buy it and hold it for 10, 20, 30 years, you shouldn’t buy real estate.”
Fluctuations in housing prices are one reason, but another is transaction costs. Purchasing real estate may require payment of land transfer taxes, realtor fees, legal fees and renovation expenses.
Mr. Merrick recommends making a down payment higher than the minimum (investing in real estate shouldn’t be a stretch) and always maintaining a financial buffer in case rent isn’t paid or repairs are needed.
In addition, he points out that investing in real estate isn’t as tax-efficient as many other investments. Rental income is taxed as regular income at the investor’s marginal tax rate, and the capital gain on a property that isn’t a principal residence will be taxed when it’s sold. Tax write-offs for expenses are available, but Mr. Merrick says that, in his experience, they don’t amount to huge savings.
Deductible expenses fall into two categories: capital expenses and current expenses.
- Capital expenses include those paid to purchase the property and associated legal and other costs, as well as the price of furniture and equipment rented with the property.
- Current expenses may include mortgage interest, insurance, property taxes, ongoing legal and accounting costs, fees paid to a property manager, and amounts to pay agents to collect rent or find new tenants.
Ethan Astaneh, wealth advisor and client relationship manager with Nicola Wealth Management Ltd. in Vancouver, says another tax advantage many aren’t aware of is that rental income generates RRSP contribution room, creating the opportunity for a tax deduction.
Putting a value on time
While labour and materials for minor repairs and maintenance are deductible, the landlord’s own investment of time and effort is not, and the non-financial costs of being on call can be significant.
Mr. Astaneh experienced being a landlord when he stepped in to help manage rental properties his father owned. In one “extremely disruptive” instance, a dishwasher flooded and he had to cancel personal plans and spend the weekend on the phone with insurance companies, checking out the property and getting the tenant settled into a hotel.
“When you compare this to your alternatives – investing in other things – the math has to work,” he says, and that includes putting a value on your own time.
“What if you could theoretically get that same stream of income without having to do any work or without having to pay anyone as an intermediary?”
He points to dividend-paying stocks as an effortless alternative to generate a more tax-efficient income stream with better liquidity – although he acknowledges that some investors like being involved actively and knowing that their effort dictates outcomes.
Monitoring government policy
Mr. Astaneh recommends people who want to invest in real estate take a “temperature check” on government policy as part of their due diligence.
Governments set property taxes, which can be a substantial drag on a landlord’s income.
In addition, in recent years, governments have tightened rules around short-term rentals, made it more difficult for foreign investors to invest in real estate, and imposed vacancy taxes on unoccupied properties. Lower immigration targets also affect demand for real estate.
Prospective landlord investors should also keep a close eye on interest rates, as real estate tends to perform best when rates are low.
Furthermore, location is critical in real estate, of course. Mr. Astaneh notes certain geographic pockets of the market are doing extremely well even in the face of current challenges – for example, Whistler, B.C., and Victoria.
Investing in a place where demand is stronger than supply, and rents are rising, means monthly income will go up – and, with higher rents, so will the property’s value.
“I would talk to other people who have done it,” he stresses. “Get anecdotal feedback, especially if you’re a first-time landlord.”