Buying a Second Home and Renting Out the First in Canada: What You Need to Know
Thinking about buying a second home and turning your first into a rental property? You're not alone. Many Canadians are exploring this route as a way to grow their wealth, generate passive income, or finally buy that dream home without letting go of the original one. But before you dive in, there’s a lot to think through—financially, legally, and logistically.
Let’s break it all down in a way that makes sense (and doesn’t sound like a mortgage document).
Start with the “Why”
First things first: what’s your motivation?
Are you buying a second home because you want more space? Planning to retire somewhere quieter? Maybe you’re just tired of renting out your basement and want something more strategic. Whatever the case, your goal will shape every decision from here on out.
If you’re planning to rent out your first home:
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Focus on location – Is it in a desirable rental area?
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Think about market demand – What kind of tenants are you likely to attract?
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Evaluate how much rent you could realistically charge – Check local listings and talk to a real estate agent.
Can You Afford Two Homes? (Really)
This is where the rubber meets the road.
Owning two homes means double the property taxes, utilities, insurance, and maintenance—not to mention the potential headache of being a landlord. You'll also need to qualify for a second mortgage, which is trickier than the first.
Here are some key considerations:
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Down payment: Most lenders require 20% down for second homes.
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Debt-to-income ratio: Lenders will look closely at your total monthly obligations.
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Rental income: Some lenders may count a portion of projected rent as income—but only with proof.
💡 Tip: If you’ve built up equity in your first home, you might be able to tap into it with a Home Equity Line of Credit (HELOC) to help fund your second purchase.
The Mortgage Game Changes with a Second Home
Don’t assume the mortgage rules are the same. They’re not.
With a second property, your lender may:
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Require more documentation
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Expect a larger down payment
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Charge a slightly higher interest rate
You’ll also need to tell your lender that your first home is being converted into a rental. Keeping them in the loop helps you avoid violating your mortgage terms.
Renting Out Your First Home: What You Need to Know
Becoming a landlord isn’t just about collecting cheques.
Here’s what you’ll need to take care of:
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Set a fair market rent – Too high and it’ll sit empty. Too low and you’re leaving money on the table.
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Screen your tenants carefully – Look for reliability, steady income, and solid references.
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Have a solid lease agreement – Make sure it includes all the essentials: rent due dates, responsibilities, and expectations.
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Know the landlord-tenant laws in your province – These vary and they matter. Seriously.
You also need to budget for things like:
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Vacancy periods
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Emergency repairs
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Annual maintenance
And yes, you’ll need rental insurance too—on top of your existing homeowner’s policy.
Taxes, Equity, and Capital Gains (Yup, the CRA Gets Involved)
When you turn your primary residence into a rental, it changes how the property is viewed from a tax perspective.
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Rental income is taxable – But you can deduct many expenses like mortgage interest, repairs, property taxes, and even depreciation.
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There may be capital gains tax later – If you sell the rental down the road, the CRA may charge capital gains on the increase in value since you started renting it out.
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Track everything – This is where an accountant who understands real estate can save you major money (and headaches).
Should You Manage the Property Yourself or Hire Help?
Ask yourself: do you want to deal with late-night maintenance calls?
If you live near the property and have time to manage it, self-management could save you 8–10% in management fees. But if you're buying farther away or just don’t want the hassle, a property manager can:
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Handle tenant screening
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Collect rent
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Coordinate repairs
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Keep you compliant with the law
Just be sure to vet your property manager like you would any tenant—reviews, references, and transparency matter.
Final Thoughts: Is It Worth It?
Buying a second home and renting out your first isn’t just a savvy move—it’s a milestone. But it’s also a big commitment.
If you have the financial stability, long-term vision, and willingness to take on some responsibility, it can be one of the best ways to build equity, cash flow, and personal freedom.
Just make sure you: ✔️ Define your goals clearly
✔️ Crunch the numbers (conservatively)
✔️ Understand your rights and obligations
✔️ Plan for the unexpected
Done right, this move can set you up for a stronger financial future.
FAQs
1. Can I use projected rent from my first home to qualify for my second mortgage?
Yes—some lenders will let you use a percentage of projected rental income, especially if you have a signed lease or rental history.
2. Do I have to pay tax on the rent I collect?
Yes. Rental income is taxable in Canada. The good news? You can also deduct eligible expenses.
3. Will I lose my principal residence exemption if I rent out my first home?
Not entirely, but the clock starts ticking. Once you start renting, you may owe capital gains tax on any increase in value during the rental period when you eventually sell.
4. Do I need to tell my mortgage lender that I'm renting out the home?
Absolutely. It's part of your mortgage agreement. Failing to notify them could be a breach of contract.
5. Is it better to buy the second home first or sell/rent the first one first?
It depends on your finances. If you need equity from your first home for the second purchase, you might need to act on the rental or sale first. If not, buying first gives you more flexibility.
