If you're new to the world of multifamily property investment, Patrick with 30+ years of experience in residential real estate and multifamily property investment can get you quickly up to speed with Ottawa's landscape, the key terminology and where to begin.
Whether you are new to Ottawa or new to investing in residential real estate in Ottawa, the following chapters of information are intended to introduce new and experienced investors to the opportunities available in our city. More specifically we identify investable areas of the city, along with their pros and cons, crime rates, and capitalization rates. We will even provide you with the most up-to-date statistics of unit sales and prices, every thirty days.
Bigger picture, you can find important historical information for all Ottawa real estate prices beginning in 1956 to the present. This history will segment different configurations of multi-unit investment properties from the MLS data available to us which dates from the mid-1990s.
Note that properties trading on the Ottawa MLS system frequently do not exceed 20 units in size.
Finally, you will find chapters devoted to rent control laws, who administers this law, exceptions to rent control, and other nuances to its implementation and how it affects you as the investor. We will explore alternative types of residential investment in the event that multi-unit buildings are not part of your portfolio or they are not located in areas of the city in which you choose to invest.
Let’s get started to see if investing in Ottawa is right for you.
There are many advantages to investing in real estate. Here are 7 reasons to consider:
Real estate is recognized as one of the greatest assets to own. It is viewed most favourably by anyone looking at your financial portfolio. Real estate is easy to borrow against should you need extra capital. In fact, many investors pull equity out of an existing rental property and use that equity to buy a second or third rental property.
Over the past years and especially over the initial pandemic years, real estate values have increased. In Ottawa, the average annual increase is about 5%. There have, of course, been some periods where values have decreased, but the overall trend has been up.
One of the best things about buying real estate is that you can purchase a large asset with a relatively small amount of money. You can buy a $300,000 home with only a 10% down payment or less. To illustrate the power of leverage, consider this example:
Suppose you bought $10,000 worth of stocks, gold, or mutual funds. Let's say that goes up 10% for the year. Not bad. Your investment is now worth $11,000, so your return is 10% of $10,000 or $1,000. Now, let's suppose you take that same $10,000 and use it as a down payment to buy a $100,000 house. Again, let's say the value goes up 10% for the year. Great. Your property is now worth $110,000. In other words, your $10,000 investment increased by $10,000. That's a 100% return on your investment not even considering the equity build-up resulting from the constantly decreasing mortgage, cash flow, and tax advantages). All of this assumes your rents well cover your costs, etc. but it's more to stress the potential upside of this type of investment over others. Also keep in mind that until you sell said property, what it's worth is on paper only.
You can deduct expenses such as property taxes, insurance, repairs, inspections, and depreciation on your investment in real estate, no matter how much you own. Talk to your accountant about the specifics of your situation. Don't confuse this with the rule for personal residences. If you do sell an investment property you are subject to capital gains taxes, which do not apply to your principal residence.
Compared to owning an income-producing business, real estate consumes less personal time. While there is some management and record keeping required, it is nothing compared to some other investments. If you invested in a business such as a dry cleaners or a restaurant, you would be married to it, putting in countless hours. Real estate investing can be done without too much interference with your current job, allowing you to manage it and save the property management fees.
Tenants pay you rent each month, which you in turn use to pay your mortgage. The tenants literally end up paying for your investment property for you! Unlike stocks, bonds or precious metals, where you have to pay for the investment.
Real estate is most often chosen as a means to gaining a predictable monthly cash flow. If you are in it for the long haul as most are, this can translate into retirement funds after the loan is paid off, or prior to this, a means toward more vacations or a down payment toward your next income property. Any way you slice it, having a regular monthly income helps you to plan.
Real estate creates wealth in three primary ways: positive cash flow, paying down the mortgage, the appreciation of value. In producing wealth in this manner, you can also benefit from freedom, leverage, tax advantages and owning a solid asset.
Just like anything else in life, real estate is not for everyone. Your personal financial situation, mindset and skillset may or may not lend themselves to this investment path. A wise investor in real estate will also diversify into stocks, bonds, precious metals, REITS, ETFs or mutual funds.
Be sure to consult professionals for advice at every stage of your decision making and if you want to venture down this path, ensure an experienced Realtor with income property expertise is brought on to advise and guide you. Oh, and don't forget they can help you find properties in real time through their networks and on the MLS.
If you're considering investment in an income property you might want to start on the smaller side, with a Duplex or Triplex, which can be financed similar to a regular residential home. If you're more seasoned you might be looking for larger properties with 5 or more units which are classified as commercial, requiring a higher down payment and overall investment.
You might also want to avoid fixer-uppers for your first investment and leave those for the more seasoned. Issues you might encounter, particularly with older buildings are things like aluminum wiring, asbestos, knob and tube wiring, and more, which can affect the purchase or the sale.
A Duplex has two, a Triplex has three and a Fourplex has four self-contained units. These types of properties are a great entry into income property investment for new investors or for those who want to live in one of the units while tenants help pay down the mortgage.
There are fewer restrictions from CMHC on these smaller properties, but the property is still expected to meet building code requirements and be fire retrofit.
Larger properties with five or six units may be considered commercial or residential depending on the lending institution. More than five or six units are almost always considered commercial by the banks. More inspections and clauses may be needed before you'll qualify to purchase one of these. You may need to have a higher net worth, pay a higher mortgage rate and pay more money down.
To help you understand what income property investment entails, watch the following video:
Income Property investment is most often done with a view to the future. The high cost of buying and selling real estate makes it risky to try to make a short-term return on a real estate investment. It can take years to recoup your initial investment, but it can also yield a handsome return given the power of appreciation and a fully tenanted property.
Time of life is another consideration. If you are gainfully employed with many work years ahead, the risk is lower and financing could be more assured than if you are retired with a more finite cash flow.
Keep in mind that financing for any of these investments can require additional assessments, inspections, or CMHC may require a higher down payment. The big five banks and all banks in general are conservative about issuing mortgages for rental properties and will want to ensure you are financially fit to pay for this additional mortgage over and above your other financial obligations. So obtaining financial approval, as much as possible, early on in the process is important.
Besides "approving you", at the conditional time of purchase, a lender will want to "approve" the property. This means they will do a financial analysis to determine if it meets their lending threshold. Things they'll review about you are your credit history and other investment holdings for example. Above all, they want to be sure that you have the ability to pay your mortgage even without the rental income to account for vacancy and countless unexpected expenses that can affect affordability.
Bottom line - take care of as much personal debt as you can, prior to seeking financing.
You have to develop a mindset that whatever can go wrong may, or will. Your expenses will be between 25% to 50% of your monthly rent, and don't forget about your additional taxes and insurance costs. Over and above there are the unexpected repairs and maintenance costs that mean you'll want to put aside a portion of your monthly rent for the "unexpected" and the other half to go to utilities and other regular costs of owning a rental property.
You know the old adage when it comes to real estate, "Location, Location, Location!", and that's normally about primary residence and choosing the nicest neighbourhood that your money can buy to ensure the ability to resell down the road for top dollar.
When it comes to income properties, there are slightly different criteria involved in choosing a neighbourhood. This has to do with finding a sweet spot that allows for a rental property with low maintenance and insurance costs as well as an ideal rent that keeps tenants happily in place paying every month. Go too modest and you'll run into crime, vacancy and NSF cheques!
Other considerations are whether the area has an abundance of vacant properties. There's no point in purchasing where nobody wants to live. Another thing to research is the employment in the area. You want lots of employed individuals looking for a place to live.
Now you have to get inside your tenant's shoes and imagine living in this property. Does your tenant own a car? Many don't and if not, the transit system and walkability become key to your property standing out.
If your tenants have automobiles, do you have a place for them to park or will they be stuck searching for a spot every time they come home? Are there schools in the area for families? How close are the grocery stores? Are there personal services facilities close by?
All of these factors may affect how easily you find and keep renters. We have outlined what is available in each of the neighbourhoods below.
If you have the opportunity to include parking with your multi-unit property, do. Having parking spaces will grossly widen your potential tenant pool. In the more densely populated areas like Sandy Hill and the ByWard Market parking comes at a premium or simply isn't available. In areas like Vanier, you may have more access to parking, so absolutely consider this in the mix of features when choosing your investment property.
The data you find below is derived from multiple sources:
Why did we select these nine areas to write about? It’s simply because this is where the vast majority of residential multi-unit properties are located. For the most part they are in more centrally located areas which are older, more mature neighbourhoods, inside Ottawa’s Greenbelt.
More than one third of Ottawa’s population does not live in these older neighbourhoods. They live in newer, more suburban areas that are dominated by three locations: Orleans to the east, Barrhaven to the southwest, and Kanata/Stittsville to the west.
The suburban areas typically do not have multi-unit buildings that trade hands on the MLS system. Instead, you will find very large rental and condominium apartment towers or the odd two-unit building appearing on the market, but almost no three to twenty-unit buildings that trade on the Ottawa MLS.
However, in late 2022 the Government of Ontario created legislation to increase density in all parts of the city. This is intended to impact areas with R1 zoning (single family detached residential). We will see if this indeed results in more three-unit buildings being constructed in R1 areas.
What we are seeing in these newer neighbourhoods, if only a little bit, is the construction of Secondary Dwelling Units (SDUs). You will find more about this in Chapter 9, Alternative Residential Investment Properties.
Read about each of these nine locations below.
Vanier is densely populated with 118,806 residents at Census 2021. Vanier can be split into Vanier North and Vanier South with Montreal Road as the East-West dividing line.
In Vanier North, 63.9% of residents rent their homes with a median monthly cost of $949, and 36.1% of residents own their homes. The median household income is $46,681 (Census 2016). Vanier North has a walk score of 82/100 and a bike score of 90/100. The median age is 42 years.
Age of Dwellings in Vanier North:
In Vanier South 71.8% of residents are renters with a median monthly rent of $912, while 28.2% own their homes. The median household income is $38,290 (Census 2016). Vanier South has a walk score of 80/100 and a bike score of 83/100. The median age is 43.5 years.
Age of Dwellings in Vanier South:
Ottawa University is just across the Rideau River via bus along Montreal Road to Laurier Avenue, making Vanier viable for students or families with lower rental requirements.
While becoming more expensive in recent years with increased gentrification, Vanier is still one of the last neighbourhoods that is relatively inexpensive for young families and renters who want to be close to downtown but also have access to parks, playgrounds, community centres and recreational facilities.
Montreal Road has a number of services, including the Vanier Medical Centre and Animal Hospital, the LCBO and a Jean Coutu Pharmacy. McArthur Avenue has both a Loblaws and FreshCo grocery stores.
Vanier North has 18 restaurants and 4 nightlife venues, while Vanier South has 5 restaurants and no nightlife venues.
Transit: Bus lines run along the parallel roads of Donald Street in the south, McArthur Street in the middle and Montreal Road further north.
Read more about the History of House Prices in Vanier
61% of residents in Overbrook rent their homes with median monthly rent of $993 (Census 2016). The median household income is $48,299 and media age is 39. Overbrook has a walk score of 74/100 and a bike score of 93/100. The median age in Overbrook is 39 years.
Overbrook is well-equipped with 8 grocery stores, 49 fast food outlets, 30 restaurants, 8 nightlife venues, and 8 pharmacies.
Age of Dwellings in Overbrook:
Amenities and Services:
Tenants in this area of town have access to the St. Laurent Shopping Centre with 190 stores via transit or LRT. The Rideau Sports Centre provides a multi-use sport dome, fitness classes, a pool, after-school and camp programs, just to name a few. Also nearby is the RCGT Park baseball stadium with seating for over 10,000, as well as Riverside Memorial Park that provides walking and cycling paths as well as a playground for children. South of Overbrook you'll find Ottawa Trainyards outdoor mall, including the Walmart Supercentre.
The University of Ottawa is just west of Overbrook and accessible via the Queensway, transit or LRT.
Lowertown is bordered by Sussex Drive and the Ottawa River to the north, the Rideau Canal to the west, Rideau River to the east and Rideau Street to the south. With its central location just east of downtown, it is the oldest area of Ottawa and very well-known because of its proximity to the commercial ByWard Market.
Lowertown has a median household income of $34,677 and median monthly rent of $910 (Census 2016). The median age in Lowertown is 37 years.
Age of Dwellings in Lowertown:
ByWard Market has a median household income of $54,686 and median monthly rent of $1,133 (Census 2016). The median age in the ByWard Market is 37.5 years.
Age of Dwellings in the ByWard Market:
The ByWard Market neighbourhoods have a mix of high-rise condominium apartments, residential homes and townhomes, ranging from brand new to neo-Gothic.
The ByWard Market neighbourhood overall boasts bars, pubs, restaurants, cafés, nightclubs and Ottawa's largest indoor and outdoor market, with a beloved Farmers' Market as the main feature. The street vendors have a superb selection of fresh produce and home made wares. Tenants in this area have the benefit of walking without the need for a car. Its lively nightlife is also a draw for students attending the University of Ottawa with its campus right next door.
Residents have lots of opportunity to enjoy green spaces, with eight parks, including Majors Hill standing above the Rideau Canal as it enters the Ottawa River. The view of the locks from the street or on a patio at the historic Chateau Laurier Hotel restaurant makes it an ideal area for residents and their guests to enjoy.
Owning a car in Sandy Hill can be more challenging for tenants that have no allocated parking spot. Street parking requires a pass from the City of Ottawa, so that's an extra cost and something to consider in how you price and market your rental units.
There are 3 grocery stores, 42 fast food outlets, 114 restaurants and 3 pharmacies.
Tenants in this area of town have lots of options for how to get around if they don't want to own a car. Lowertown has a walk score of 89/100 and a bike score of 98/100, while the ByWard Market has a similar walk score of 89/100 and 95/100.
Residents can happily bike, walk, take the bus from the nearby Rideau Centre transit station hub, or the Light Rail Transit Confederation Line with stops at Parliament, Rideau and uOttawa as pictured below.
Rideau Centre is one of Ottawa's premiere shopping destinations serving the Lowertown and ByWard communities.
Lowertown has no coffee shops, while the ByWard Market has 13. That said, all residents are within 15 minutes walking distance to the nearest place to grab some java.
Lowertown has 1 nightlife venue, 1 grocery stores, 4 restaurants, 2 fast food outlets, and 2 pharmacies.
When you consider investment in the Sandy Hill area, use Chapel Street as the dividing line, where rental prices are higher to the East as you get closer to Range Road now nicknamed "Embassy Row" as it's known, where Ottawa's elite used to live, right across from Strathcona Park; and more affordable to the West, as you get closer to the University of Ottawa with more student housing needs.
With the proximity of uOttawa, Sandy Hill has become a prime location for builders and investors to build and rent to students. There has been a vast amount of housing redevelopment and renovation to suit multi-unit investment.
Students can easily walk to uOttawa, but would need transit to get to Carleton or Algonquin College. The walk score is 84/100 and the bike score is 97/100. With a large student population, the median age of Sandy Hill is 30 years old.
Median Household Income $45,461 with median rent of $1,055 (Census 2016).
Age of Dwellings in Sandy Hill:
Sandy Hill tenants can enjoy 21 nightlife venues, 21 coffee shops, 39 restaurants and 6 pharmacies. They also have access to two main grocery stores plus a few convenience stores:
Food Frenz along Laurier Ave., Loblaws or the Hasty Market on Rideau Street, Sandy Hill Pet and People Food Co-Op on Wilbrod, Barwaago Food Centre on Mann Avenue and you'll find other, more expensive convenience stores like the Quickie and Pivik.
Centretown is quite a trendy and highly desired location with many condos, especially along Laurier Avenue, however you'll also find a mixture of residential homes from single detached to high-rises. The median age is 34.4 years with a dense population of 23,823 as of Census 2016.
Age of Dwellings in Centretown:
A walker's and biker's paradise, Centretown has a high walk score of 94/100 and a bike score of 98/100. Renters in this area can walk to the University of Ottawa and nearby neighbourhoods of The Glebe, Sandy Hill and the ByWard Market. Those with school-aged children will have access to public and elementary schools. Approximately 77% rent in this neighbourhood.
There are 10 grocery stores, 188 restaurants, 157 fast food outlets and 12 pharmacies, making it a nicely self-contained neighbourhood. Along with key amenities, there is also access to parks, museums and sports areas like Minto Park.
Commuters who drive or use public transit via the transitway can enjoy the scenic 4-lane Sir John A. Macdonald Parkway (formerly known as the Ottawa River Parkway) with those who may choose to bike able to access a parallel path along the parkway.
Residents and students have access to Ottawa's LRT system with it's east-west Confederation line with stops at Rideau, Parliament, Lyon and Pimisi. This has prompted even more condominium and apartment construction as more and more go car-free to take advantage of this fast and convenient mode of transporation.
The upscale Glebe neighbourhood is close to downtown and the Rideau Canal. Residents and tenants here can enjoy Lansdowne Park and the TD Place Stadium with its abundance of sports, concerts, restaurants and shops. In addition, there are two condominium towers that overlook the sports fields and the canal where people run and boat along in the spring and summer and where they can skate in the winter.
There is convenient access to outdoor activities and moving around the city like the Rideau Canal, park land, 5 grocery stores, 49 restaurants, 14 fast food outlets, and 4 pharmacies.
There are a variety of houses in the Glebe, both older and fully renovated to modern standards, making this a very interesting area for investment. It's proximity to Carleton University is another bonus for those looking to rent to students. Approximately 47% rent in The Glebe.
Age of Dwellings in The Glebe:
The median age in The Glebe is 34 years. The walk score is 86/100 and the bike score is 89/100 meaning that most amenities are walkable.
Ottawa has many walking and cycling paths, and one example in the Glebe allows residents to bike from the intersection of Fourth Avenue and Bank Street out east to Innes and Blair Road in Pineview.
While there is OC Transpo service along the length of Bank Street, the closest O-Train Station is the Parliament Confederation Line, about a 30-minute walk to O'Connor and Queen Streets.
The median age in Old Ottawa South is 40 years. The proximity to Carleton University has made this neighbourhood a prime location for both professors and students. Located between the Rideau Canal and the Rideau River, there are countless walkable and cyclable paths with scenic experiences for potential tenants, along with parks to dog walking and sports activities.
Old Ottawa South's walk score is 81/100 and bike score is 97/100. Approximately 27% rent in this neighbourhood. This means that most errands can be accomplished on foot. This community is popular amongst those committed to environmental sustainability and leveraging reuse with its consignment and antique shops.
You'll find 1 grocery store, 15 restaurants, 12 fast food outlets and 4 pharmacies. With a car there is easy access to buy groceries or visit restaurants within a 10 minute drive. Billings Bridge provides a large transit station to venture to all parts of the city.
Age of Dwellings in Old Ottawa South:
Hintonburg is just west of Ottawa's downtown and is nicely nestled between transit options with the Queensway in the south and OC Transpo's bus transitway in the north, along Scott Street. The O-Train Trillium Line forms the eastern border with Holland Avenue to the west.
Tenants here are lured by Wellington Street's trendy boutiques, coffee shops, cafes and bistros by day with equally entertaining trendy supper clubs and pubs at night. Known as a arts district, this neighbourhood celebrates arts in its many disciplines.
There are 3 grocery stores, 10 convenience stores, 35 restaurants, 19 fast food outlets and 4 pharmacies.
Just north is Mechanicsville which has become home to the many government employees working at Tunney's Pasture. Assuming many will continue to spend time at this government campus, this pool of potential tenants makes this area strong for finding well-paid professionals with consistent employment.
Hintonburg residents enjoy a walk score of 88/100 and a bike score of 97/100. The median age here in Hintonburg and Mechanicsville is a little younger at 36.5 years. Approximately 66% rent in this neighbourhood.
Age of Dwellings in Hintonburg-Mechanicsville:
The walkability score of Island Park and Wellington Village is a little lower at 74/100, but the cyclability is very high at 95/100. Residents here have a median age of 41 years.
This older residential neighbourhood has large single-family homes that were built in the 30s, 40s, and 50s with the addition of more modern infill housing dotted throughout. About 25% rent in this area.
Age of Dwellings in Island Park and Wellington Village:
Residents here can enjoy 3 grocery stores, 20 restaurants, 3 fast food outlets and 1 pharmacy. Wellington Street is home to some really notable restaurants and specialty shops making it a draw for foodies and shoppers.
OC Transpo's bus hub is located north of the area with six bus routes serving this area or residents can use the Queensway or Line 1 of the O-Train.
The walkability score of Westboro is 77/100 and the cyclability score is 94/100. The media age in Westboro is 44 years. Approximately 52% rent in this area.
Westboro is one of the trendiest neighbourhoods in Ottawa with boutique and major brand name shops as well as eclectic bars and restaurants.
There are 5 grocery stores, 23 restaurants, 12 fast food outlets and 4 pharmacies.
Recreation can be found at Dovercourt Recreation Centre and the many parts nearby. Hampton Park has a couple of baseball diamonds, a basketball court, pool and playground, as well as trees that are estimated to be more than 250 years old.
Age of Dwellings in Westboro:
The median age in Laurentian View is 46 years. With a slower pace it will appeal to those who enjoy spending time outside.
The walk score for Laurentian is 74/100 and bike score is 84/100. Tenants will enjoy Laurentian for its provision of several means of transportation.
Age of Dwellings in Laurentian:
Laurentian has 3 grocery stores, 7 restaurants, 21 fast food outlets and 3 pharmacies.
Median Household Income (2016) $43,986, and media age of 35 years.
With a walk score of 65/100, residents in Carlington may need a car for certain errands, but they could like do a lot of via bicycle with a bike score of 87/100. Approximately 66% of residents rent their homes.
Age of Dwellings in Carlington:
In terms of recreation, it's a short drive to Dow's Lake with restaurants, water sports and a beautiful Arboretum, with over 4,000 specimens to learn about. There are also three parks allowing for outdoor sports and time in nature.
Carlington has 1 grocery store, 9 restaurants, 5 fast food outlets, and 2 pharmacies.
The Ottawa Civic Hospital, Carleton University and Algonquin College are all nearby, making this area ideal for students.
The Ottawa Real Estate Board (OREB) has compiled MLS Residential Sales (including Condominiums) along with the Percentage Increase and Decrease over Previous Year in the following table.
1993: 61 sales, average of $71,261
2022: 354 sales, average of $566,422
Commercial Properties with 5+ Units
1995: 2 sales, average of $514,500
2022: 65 sales, average of $1,806,974
The following chart tracks the average Cap Rate in selected neighbourhoods across Ottawa that are well-known for having many multi-unit investment properties. It provides you with the average cap rate based on 4-5 properties in each area with 3-4 units each and in some cases Commercial properties with 5+ units or more, Sold between April and November, 2022.
As you'll see, Island Park, Westboro and McKellar Park district neighbourhoods had the lowest average Cap Rate of 2.9% and as you review the graph, you'll see how the other areas compare and how much higher than 2.9% their cap rates are.
April - November, 2022
If you'd like to learn more about how to evaluate various rental properties and what metrics are important as part of that analysis, have a look at our video "How to Analyze a Multifamily Rental Property".
Each month we make vides covering the multifamily market in Ottawa, each video gives you the stats for smaller buildings, followed by the numbers for larger buildings with 5 or more units in them.
There are two ways to look at minimum down payments in Ottawa:
Firstly, what is required by the Canada Mortgage and Housing Corporation or CMHC,
Secondly, how much is required by a lending institution.
CMHC’s policy is that for owner-occupied properties, the minimum down payment is 5% on the first $500,000 of the purchase price and 10% on the amount over $500,000.
For an investor who is purchasing an investment building, (not owner occupied) the CMHC minimum is 20%. However, if a buyer is to live in one of the units of a two-to-four-unit building, then the 5% minimum rule applies. Note that these requirements change from time to time, are dependent on the buyer’s income and creditworthiness, and very much on the current cash flow of the building.
Confused? You should be.
Here's the reality about down payment requirements for an investment property:
Prior to the 2008 and 2009 financial crisis, a sharp investor could purchase a multi-unit building with a 20% down payment and achieve a positive cash flow at year end. The crisis was an American contagion with global implications. The TSX was not immune to the decline. Things changed almost overnight as investors took equity out of the stock market to place it in bricks and mortar. Multi-unit properties seemed to become the new stock market with demand surging far beyond the available supply. When demand outstrips supply it drives prices upward.
It wasn't long before investors needed a 30% down payment, then 35% before things seemed to stabilize somewhat. That 35% is not required by CMHC but rather by the lenders, i.e. your bank, who provides the mortgage. Typically, a lender will not provide mortgage funds to an investor if a building has a negative cash flow. The bank's concern is that the property could go into default with a negative cash flow, if the investor does not have a significant personal covenant (other monies or assets to put up as collateral).
Another key metric involving down payments that both a lender and CMHC will look at before financing or insuring an investment property is something called a “Debt Service Ratio” (DSR) or a “Debt Service Coverage Ratio” (DSCR). These both mean the same thing.
So, what is a DSCR and why is it important for investors to understand?
Basically, the DSCR is the ratio of a building's operating income to cover all of its expenses. The operating income is income from all sources including such things as tenant rent, parking fees, laundry fees, storage locker rental, etc. From this income, a lender will deduct all of the building's expenses including such things as management, maintenance, vacancy rates, utility costs, insurance, and mortgage payments.
When the expenses are deducted from the income, one ends up with a net operating income. The ratio of expenses to income is that for every one dollar of expense, a lender may require 1.1 dollars of income. CMHC may require 1.2 dollars of income. This is expressed as 1 to 1.2.
The higher the down payment, the lower one’s mortgage payments which are referred to as an Annual Debt Service.
The bottom line is that an investor should budget about 45% down payment to purchase a multi-unit building in Ottawa, as of this writing (December, 2022). In these volatile financial times, this percentage could change quickly.
Here's are some real-life examples to put it into context for you, don't forget to subscribe to our YouTube Channel for Investing.
The statistics below show Ottawa Crimes against Persons from Jan-Dec, 2019 for our selected neighbourhoods containing multi-unit properties and compare it to the overall Ottawa figure of 7,730.
Crimes against the person involve the use or threatened use of violence against a person, including homicide, attempted murder, assault, sexual assault and robbery. Robbery is considered a crime against the person because unlike other theft offences it involves the use, or threat of, violence. This data includes all founded Criminal Code of Canada offences reported to the Ottawa Police. Offences have been categorized according to the Uniform Crime Reporting (UCR) Survey version 2.2. The crime statistics published are accurate on the day that they were produced. Due to ongoing police investigations and internal data quality control efforts, this information is subject to change, including addition, deletion and reclassification of any and all data.
The following chart is compiled based on the Ottawa Neighbourhood Study's data as pulled from the Ottawa Police Service. For more statistics about crime in Ottawa, visit https://www.neighbourhoodstudy.ca/
In Ontario, rent increases are governed by strict guidelines set by the province's Landlord Tenant Board (LTB). For 2022, this amount was fixed at a maximum of 1.2%, and for 2023 the maximum is 2.5%. Typically, landlords who increase rent will apply the maximum amount, so this also reflects the average rent increase from year-to-year. As a landlord, you cannot round up the rent increase. If it's $1,250 + 2.5% or $31.25, then the Notice of Rent Increase will be for $1,381.25, not rounded to $1,382.
What are the exceptions to Rent Control?Landlords in Ontario can only raise rent by more than the allowable limit in certain situations:
By the rules as outlined above, you could be purchasing a property that is both bound by and exempt from rent control, i.e. pre- and post-November 15, 2018. Find this out prior to the purchase so you are clear about the revenue potential of your investment.
Make sure you have proof in writing of the age of the property as well as dates surrounding SDU occupancies, additions etc.
While it can be argued that there are many alternative types of residential investment, this section will deal with three of the most common: Secondary Dwelling Unit, Airbnb, and Single-Family Home.
The Secondary Dwelling Unit, more commonly known as "SDU", is simply an apartment added to a property. An SDU is permitted in any area of Ottawa excluding Rockcliffe Park.
A two- or three-unit building has traditionally been called a duplex and a triplex. Each of these had to be located in an area that was zoned accordingly. The building needed to have a minimum area of land, allocated parking, etc. As of September 2005, the City of Ottawa decided to increase intensification of existing neighbourhoods. To accomplish this they removed conditions as stated above and permitted an SDU to be added to almost any house.
Specifically, an SDU can be built inside a single family home or as part of a duplex. It can be built in a detached or semi-detached (side-by-side) house. It can even be built in a duplex (up and down), as a third unit.
A secondary dwelling unit cannot exceed 40 per cent of the floor area of the principal residence. Basement units are an exception, there is no maximum size.
The new unit must have separate access to the ground floor but that main access cannot be at the front of the house. There are no parking requirements for an SDU. If parking spaces are created, they must meet city requirements.
SDUs must meet all building and fire code requirements as set out by the City of Ottawa and the province of Ontario. For example, if one builds an SDU in the basement of a single family home, it must have two means of egress. Besides the main access, the secondary egress is frequently a fire-rated window(s) built into the foundation. Besides allowing an escape in the event of a fire, the large windows add natural light to these basement units, making them more appealing.
Your insurance rates will increase to reflect the added value of the property and there will be changes in liability. Property taxes will also increase. Rent of course must be declared with CRA and will be taxed.
SDUs are common throughout Ottawa and there will frequently be concentrations of them in neighbourhoods around our universities and college. Owners will construct a three-bedroom SDU in the basement and rent it to students for $700 to $800 per bedroom.
Regarding rents, any SDU constructed after November 2018 is not under Ontario rent control. An investor could rent an older main floor bungalow and it would be under rent control while the newly constructed basement SDU would not be under rent control.
While Airbnbs are legal in the City of Ottawa, a number of newer bylaws have come into effect in recent years in an attempt to mitigate noise and disturbance complaints from neighbours.
Before signing on to any online rental platform, it is prudent to read city bylaws concerning short-term rentals. This is called the “Short-Term Rental (By-law No. 2021-104) | City of Ottawa” and may be found at this link: https://ottawa.ca/en/business/permits-and-licenses/short-term-rentals
Some key points about Short-term Rentals:
The investment rental of single-family homes is common through all neighbourhoods of Ottawa. There are even niche markets within this type of investment vehicle.
For example, some landlords choose to rent homes only to families. The rationale is that there will be less damage to the property and a lower rate of default on rents. Within this niche, some landlords will only rent in more upscale neighbourhoods.
However other landlords take the opposite approach and only rent to students. They acknowledge that there will be higher maintenance costs but they view students as “cash cows” and basically rent on a per bedroom basis. How much a house or bedroom will rent for is dependent on its proximity to a university or college and to public transit.
While it is not legal, it is not uncommon to have more than three unrelated people (students) living in the same house. The city calls these properties “bunk houses”. More than three unrelated people living together is legally acceptable and is called a “rooming house”. However, these must be licensed by the City of Ottawa and are permitted only in neighbourhoods zoned accordingly.
While house rentals are located in most neighbourhoods, the areas of Kanata and Barrhaven are very popular. This is because they have employment centers outside of the city core with many people preferring to live near their place of work. For example, the suburb of Kanata is a thriving high technology center. Barrhaven has both the RCMP headquarters and the Department of National Defence in nearby Bells Corners.
There are as many investment vehicles as there is need and creativity. Some landlords only buy to rent condo apartments to seniors. Their rationale is the exterior of the property is taken care of with condo fees, a senior will do little damage to the unit and many have guaranteed income thereby decreasing the risk of rental default.
Ottawa has a market for most any type of investment rental.
According to City News Ottawa, based on 1,511 people polled between February 18-21, 2022, using Leger's online panel, 42% of homeowners who rent out rooms or a floor of their homes, including basements, don't tell their insurance companies about what they are doing.
24% didn't know they had to update their insurance company. In fact, according to the Insurance Bureau of Canada, you may end up voiding your home insurance by not divulging your tenants because the policy only covers contents and personal liability of you, your spouse and your dependents.
If something were to happen to your home or belongings as a result of your tenants in the home, you would fully responsible for the costs to repair or replace.
Don't pay for more heat than you have to. Many tenants will suggest it's "too cold" and they may indeed find it cold, but perhaps putting on a sweater or second layer will solve the issue rather than jacking up the heat and paying more as a landlord. Bottom line, know the law when it comes to your responsibilities as a landlord.
According to the City of Ottawa's Heat By-law 2010-210, "adequate and suitable heat" means between 11:00 pm or any day and 6:00 am of the next following day an air temperature in the centre of each reasonably ventilated room of not less than 16.67 degrees Celcius (62 degrees Fahrenheit) and between 6:00 am and 11:00 pm of any day an air temperature in the centre of each reasonably ventilated room of not less than 20 degrees Celcius (68 degrees Fahrenheit).
During the lifetime of owning rental properties you may (hopefully not) have to take the necessary steps to evict one of your tenants. There is a strict process as set out by the Landlord Tenant Board, that must be followed to legally carry out this eviction and it can take a substantial amount of time.
Depending on the circumstances you'll have to choose the appropriate N form to notify your tenant as part of the paperwork involved.
The landlord can end a tenancy for any reason allowed by the Residential Tenancies Act. He or she must give notice in writing and the paperwork has to be completed correctly or the application to evict your tenant can be dismissed. Ending a tenancy can be "for cause" or "no fault".
Reasons for ending a tenancy "for cause" could be:
Reasons for ending a tenancy that are "no fault":
In the "no fault" situation where the tenant has done nothing of cause, the landlord will likely have to pay compensation which will be based on the number of units and the reason.
For all of the details, be sure to consult the Landlord Tenant Board rules.
According to Ken Hoyt, Real Estate Lawyer in Ottawa, here are things to consider about the actual purchase:
Give Your Lawyer enough time to do his or her work.
As a Buyer, you need to allow sufficient time for your lawyer to do due diligence on your behalf. Make sure the Closing Date allows for this. Your lawyer will need to consult with the City of Ottawa to ensure you are buying what you think you are buying.
He or she will order a Zoning Compliance Report
If your Agreement of Purchase and Sales states you are buying a 4-unit building, we need to be sure it actually is a 4-unit. Your lawyer will make enquiries with the City of Ottawa by requesting a Zoning Compliance Report (whether the City of Ottawa recognizes it as a 4-unit building or is it just a triplex?)
What is the legal use and are there any work orders against the property? If there is a discrepancy, you will want to potentially turn it back to the Seller to rectify the building from the legal 3 units to 4 units as advertised. If the Seller won't do this, the Buyer can terminate the transaction or potentially have the price reduced to then take on this work.
Watch our video: The Lawyer's Role in Buying an Income Property