Canada’s First Home Savings Account, or FHSA for short, is a valuable tool for prospective home buyers to reach their real estate goals and begin building personal equity. However, despite the advantages provided by an FHSA, there are certain limitations in how it may be utilized, particularly in terms of what type of property you can (and can not) purchase.
In this blog, we will address whether or not you may use a First Home Savings Account to buy an investment property in Canada, among other key considerations for buyers and investors.
Searching for guidance on Toronto real estate? Our team has decades of industry experience to support your goals. Call 416.772.4723 or reach us by email at evan@christensengroup.ca.
What is an FHSA (First Home Savings Account)?
Before delving into the intricacies of Canada’s First Home Savings Account, let’s explore the basics.
The FHSA is a registered tax-advantaged savings account designed to help eligible Canadians purchase their first home. Similar to an RRSP or TFSA, FHSA contributions are primarily tax-deductible. Withdrawals are also non-taxable when done within the expressed terms. Currently, prospective buyers can contribute up to $8,000 each year to their FHSA, with lifetime contributions limited to $40,000.
Not that the First Home Savings Account is different from the Home Buyers’ Plan, a related program similarly aimed at helping buyers reach their goals.
Preparing to make a real estate investment? Consider these posts from our blog for helpful guidance.
- Converting Your Family Home into an Investment Property
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- What Investors Should Know About Toronto’s Municipal Accommodation Tax
Understanding FHSA Eligibility
One important aspect regarding FHSAs is that not everyone is eligible for one. Even if you’ve never bought or owned real estate personally, you’ll need to confirm your qualification before applying.
To be eligible for the First Home Savings Account, you must be the age of majority in your home province, a Canadian citizen or permanent resident, and cannot have lived in or owned a qualifying home (as outlined by FHSA requirements) this year, or within the previous four calendar years.
Can I Use My FHSA to Buy a Rental Property
No, you can’t use a First Home Savings Account to buy a rental property. As per the Federal Government’s program stipulations, an FHSA can only be used to purchase real estate that you intend to use as your primary residence. As a result, you can’t use funds from a First Home Savings Account to buy a dedicated investment property, which includes long term rentals, short term accommodations (such as Airbnb), or properties that you explicitly intend to resell for a profit (flipping).
Although buyers may not use FHSA funds to purchase an investment property, first-time home owners can be creative in how they utilize their primary residence, and in certain cases, can still tap into Toronto’s lucrative rental market. In other words, once you’ve acquired a primary residence, there will be opportunities to bolster your equity and offset carrying costs from an investment perspective.
Secondary Suites & ADUs in Starter Homes
One of the Federal Government’s driving motivators behind introducing the First Home Savings Account was affordability. Right now, Canadian real estate comes at a premium, particularly in major markets like Toronto. So for many first-time home buyers, the financial strain incurred by purchasing a house can be significant.
With that in mind, there are certain strategies that homeowners (including first-time buyers) can use to offset expenses. More specifically, utilizing an existing secondary suite or additional dwelling unit (ADU), or adding one, to earn passive income through Toronto’s lucrative rental market.
While an FHSA cannot be used to purchase a multi-unit rental property where you will not reside, the guidelines do allow for an income-generating secondary suite or ADU on a property that serves as your primary residence.
Common examples of secondary suites and ADUs include basement apartments, laneway homes, and garden suites. You can also rent out a spare bedroom if you wish – although the regulatory considerations will be different.
Seeking insights on Toronto’s lucrative investment market? Explore these resources from our blog.
- How to Budget For Investment Property Maintenance
- Is it Possible to Take the Risk Out of Real Estate Investing?
- 3 Ways to Invest in Toronto Real Estate Without Buying an Income Property
Adding a Rental Unit to Your Home
Creating a secondary suite or ADU in your first home or on the surrounding property will entail upfront costs. However, with a well-executed plan, the earned income from your rental unit can significantly offset the initial investment.
With that in mind, accurately prospecting your income potential requires you to consider a number of factors, including the square footage of your unit, the number of bedrooms and bathrooms, the location of your home, and more. In order to best assess the income potential of a secondary suite in your home, ask a local real estate agent. They can conduct a market analysis to help determine a realistic rental rate for your suite.
Work With Christensen Group
If you’re looking to make a strategic, high-return investment in Toronto real estate, you’ll need an expert in your corner. Boasting over four decades of experience, Christensen Real Estate Group is your best resource for finding the ideal starter home or investment property.
Buying in Toronto? Work with industry experts. Call 416.772.4723 or reach us by email at evan@christensengroup.ca.
