Today, Toronto’s once immensely active condo market is settling into more balanced conditions. As trends continue to shift, some owners (particularly those who need to move) are reassessing their options and electing to rent out their condo instead of selling.
In Canada, the answer to “Can I rent out my condo if I have a mortgage?”, is yes. In fact, in active rental markets such as Toronto and Vancouver, most investors and landlords have mortgages for their income properties. However, that doesn’t mean you can simply transition your primary residence condo to an income-generating rental property without regulation or consequence.
In this article, we will explore several considerations for renting out your condo while you have a mortgage. Continue reading for further insights.
Wondering how to rent out your condo without losing money? Click here for helpful tips on budgeting for investment property maintenance.
Can You Rent Out Your Condo Before Paying Off the Mortgage?
The Toronto condo market is in a unique position. With seller’s market conditions fading into the rearview, some condo owners who purchased their property during a period of escalated demand are finding difficulty recuperating their investment. So instead of selling, they elect to rent it out and move elsewhere while waiting for market conditions to turn.
One significant perk of renting out the condo you already own is that you don’t have to deal with the stresses and variables that buying a rental property may entail. However, certain restrictions and considerations may still apply – especially if you are still paying off your mortgage.
Seeking insights on Toronto’s lucrative investment market? Explore these resources from our blog.
- 3 Ways to Invest in Toronto Real Estate Without Buying an Income Property
- The Advantages of a Multi-Family Investment Property
- How to Budget For Investment Property Maintenance
Can I Rent out my House Without Telling my Mortgage Lender?
If you wish to rent out your condo and have been using it as a primary residence up until this point, it is a good idea to notify your lender first. Or at the very least, confirm that it is permitted in your mortgage contract.
Why do banks care? In a lender’s eyes, renter-occupied properties present a greater risk – particularly if the condo was purchased with the express intent to rent it out. However, even if you did not initially plan to rent out the entirety or a portion of your condo, there could be a clause in your mortgage contract related to hosting tenants or earning income.
Breaking your mortgage contract can bring serious financial penalties and other complications. Therefore, it is best to confirm that you have permission before presenting a prospective tenant with a lease agreement.
Home Insurance For Landlords
Your mortgage provider isn’t the only person you need to notify about your plans to rent out your condo. You’ll also need to tell your insurance company. Similar to your mortgage, your insurance agreement will have strict stipulations about what is (and isn’t) permitted under their coverage.
Failing to update your insurance is a major risk. Not only could you lose coverage entirely but you may also face liability in the event of an emergency. Once you’ve informed your provider that the condo is no longer your primary residence, you will get an updated policy at an updated rate.
Have more questions about condo ownership? Explore these related resources.
- Top 5 Condo Buying Mistakes
- What Do Condo Fees Cover?
- Do Toronto Condos Hold Their Value Like Homes?
Tax Implications For Selling a Rental Property
Once you’ve worked with your mortgage provider and insurance company to ensure you can rent out your condo, you should be ready to find a tenant. However, there will still be other implications to be mindful of down the road.
If you turn your condo into a rental property, new tax rules will apply once you decide to sell it. While most primary residences are exempt from capital gains tax, your condo loses its primary residence status the moment you move out, regardless of how long you lived there first. This is called deemed disposition.
In this case, your condo is seen as having been sold at market value and then repurchased as a dedicated investment asset at the time of your move – at least in the eyes of the Canada Revenue Agency (CRA). The condo’s market value at the time of deemed disposition becomes the adjusted cost base, which is then employed in the calculation of capital gains upon the property’s sale or reconversion to a principal residence.
Selling your Toronto condo? We can help. Call us at 416-722-4723 or reach us by email at evan@christensengroup.ca.
