Real Estate

Put condo on rent; buy a house in GTA

  • Last Updated:
  • Jul 22nd, 2020 8:52 pm
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[OP]
Newbie
Jul 17, 2020
14 posts
1 upvote

Put condo on rent; buy a house in GTA

Hello,

Current situation:
- We live in a condo and plan to buy a bigger place (house, semi or town) in Greater Toronto Area.
- Condo is paid off and we are thinking of putting it on rent.
- Down payment (20% or more) for the house will need to be a refinance from the condo.

Questions:
1. Should we sell the condo or put it on rent? It's in a nice area and should sell quickly. Same for rent - should be comparatively easy to put it on rent.
2. Is it worth the hassle to rent it out?
3. Advantage of selling the condo vs putting on rent?

Questions below are on the scenario if we were to rent out the condo:
4. Are there any taxation benefits? Even though we are taking out funds from our principal residence at the moment (condo); we will buying a property (house) that will be our principal residence and condo will be investment property. Does this allow the mortgage interest on the condo or the house to be interest free?
5. How is the rent taxed? For eg, if we get $2500 and say maintenance fees and property tax are around a $1000...how much is considered additional income that is taxable? Would it be $1500 per month?
6. For folks who have been in this situation; how have you set it up to keep the 2 properties/transactions separate to have proper record keeping (rent income, maintenance and property taxes completely separate)? Separate bank accounts?
7. Any real estate lawyers that you had a great experience with and would recommend?

Anyone in this situation? How has it been working out for you so far?

Thank You.
14 replies
Jr. Member
Apr 6, 2020
108 posts
72 upvotes
Toronto
1,2,3 - depends on your situation and if you need the money (and how much)
4,5,6 - yes, there are tax write-offs for your investment property, it would be best to speak with an accountant about the finer details of getting everything set up to benefit you the most
7 - Kormans LLP
GTA Real Estate Agent
Sr. Member
Oct 21, 2016
946 posts
717 upvotes
Condo rental market is terrible for landlords in Toronto right now
Last edited by Shaun80 on Jul 22nd, 2020 8:51 pm, edited 2 times in total.
Deal Addict
Mar 3, 2018
2948 posts
3287 upvotes
GTA
Pulling a mortgage from your condo to put towards your new principal residence will not create tax deductible interest. There are methods to make it deductible over time such as the Smith maneuver. However depending on the interest rates and costs to set up it may not be worth it.
Jr. Member
Aug 21, 2017
195 posts
132 upvotes
You'd have a hard time getting mortgage or best rates right now. Make sure you talk with someone before making any decisions.
Deal Addict
May 13, 2015
1276 posts
1690 upvotes
Dartmouth, NS
I would sell the condo.
Sr. Member
Jun 21, 2006
856 posts
475 upvotes
If you bought the condo 3-5 years ago you should re finance it to buy a house and keep renting out the condo
Deal Addict
Sep 7, 2018
1532 posts
1819 upvotes
Shaun80 wrote: Condo rental market is terrible for landlords in Toronto right now
Do you speak from experience? I have had zero issues
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Deal Addict
Mar 3, 2018
2948 posts
3287 upvotes
GTA
iGarage wrote: If you bought the condo 3-5 years ago you should re finance it to buy a house and keep renting out the condo
But then the interest would not be tax deductible because the funds were not used for investment purposes. They were used to buy a principal residence.
Deal Addict
Aug 28, 2010
1275 posts
329 upvotes
Toronto
Mortgage your condo to the max and use that as DP TD is 2.09% 5 year fixed + $2-3k cash back. Rent out the condo and write-off 100% of the interest, maintenance fees, insurance, against your income.
Thats what I did and was laughing at thinking of selling at the end. The more you lose on the condo, the more you save. (so mortgaging the investment prop over principal prop is a no brainer)

There is risks of non-payment/etc but its a chance you try to avoid by doing your due diligence. Always be ready to cover both mortgages for a few months in emergencies.
Deal Addict
User avatar
Jan 2, 2012
4344 posts
2445 upvotes
Toronto
porchemasi wrote: Mortgage your condo to the max and use that as DP TD is 2.09% 5 year fixed + $2-3k cash back. Rent out the condo and write-off 100% of the interest, maintenance fees, insurance, against your income.
Thats what I did and was laughing at thinking of selling at the end. The more you lose on the condo, the more you save. (so mortgaging the investment prop over principal prop is a no brainer)

There is risks of non-payment/etc but its a chance you try to avoid by doing your due diligence. Always be ready to cover both mortgages for a few months in emergencies.
You can't write off the mortgage interest on rental condo if the mortgage proceeds were used to fund a principal residence.
Deal Addict
Aug 28, 2010
1275 posts
329 upvotes
Toronto
rob444 wrote: You can't write off the mortgage interest on rental condo if the mortgage proceeds were used to fund a principal residence.
The primary residence now has a mortgage. At a later point in time he makes a change in use and rents it out. I do not see why the interest once rented to be eligible for expensing.

I agree there are probably tax implications taking money out of a rental and writing off interest unrelated to the rental itself, i would need to ask an accountant as i see red flags with that approach
Deal Addict
User avatar
Jan 2, 2012
4344 posts
2445 upvotes
Toronto
porchemasi wrote: The primary residence now has a mortgage. At a later point in time he makes a change in use and rents it out. I do not see why the interest once rented to be eligible for expensing.

I agree there are probably tax implications taking money out of a rental and writing off interest unrelated to the rental itself, i would need to ask an accountant as i see red flags with that approach
You are talking about 2 completely different scenarios.

An existing mortgage on a primary residence, that is later converted to a rental, would be tax deductible as long as it remains the original amount/mortgage.

As you said "mortgage condo to the max and use that as DP" on a primary residence, is NOT tax deductible whatsoever. The original mortgage used to purchase rental would be tax deductible, but any new proceeds to purchase a principal residence are not.

In terms of what is and isn't tax deductible, the source of the funds or what home it's secured against is irrelevant. All that matters is what the funds were used for.
Deal Addict
Aug 28, 2010
1275 posts
329 upvotes
Toronto
rob444 wrote: You are talking about 2 completely different scenarios.

An existing mortgage on a primary residence, that is later converted to a rental, would be tax deductible as long as it remains the original amount/mortgage.

As you said "mortgage condo to the max and use that as DP" on a primary residence, is NOT tax deductible whatsoever. The original mortgage used to purchase rental would be tax deductible, but any new proceeds to purchase a principal residence are not.

In terms of what is and isn't tax deductible, the source of the funds or what home it's secured against is irrelevant. All that matters is what the funds were used for.
I think we are both on the same page,. " An existing mortgage on a primary residence, that is later converted to a rental, would be tax deductible as long as it remains the original amount/mortgage." is what i am trying to say.
Sr. Member
Oct 21, 2016
946 posts
717 upvotes
Shaun80 wrote: Condo rental market is terrible for landlords in Toronto right now
superscoots wrote: Do you speak from experience? I have had zero issues
Yes personal experience as a landlord downtown Toronto . Look at all the vacancies , one beds prime downtown are going for under 1800k a month. Read the rental investing strategy thread . Lot of pain for landlords during the pandemic.

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