Trying to get myself knee deep in rentals.

But first, the research:

Timeline

How to approach buying a rental if it’s your first time (the conservative approach but not full-on Dave Ramsey):

• Pay off high-interest debt (for me right now, this will be done in 7 months or by Aug 2025, then on to the no-interest loan from a friend which will be paid off by Feb 2026)
• Save 6-12 months emergency fund (will calculate how long it will take me once I’ve hit Mar 2026)
• Save for a condo down payment (it’s a toss up right now between 20% to avoid CMHC & keep monthly cost within the recommended 35% housing budget vs 5% & invest the rest in market which provides better returns — TBD) (3 -5 years depending on savings rate)
• Buy a personal condo then a rental later OR a house with roommates.

Some of the list is up in the air right now, focusing on the immediate next step, then will recalibrate after each step concludes. (But of course, monitoring along the way.)

That will allow flexibility to adjust and incorporate better strategies as I continue learn more. By the looks of it, conservative timeline is still 10 years away, but wanted to make sure I have all my ducks in a row when the time comes.

Saving for a Condo Down Payment in Canada

First Home Savings Account (fhsa)

An FHSA is a registered plan in Canada designed to help first-time homebuyers save for a qualifying home purchase.

• Can contribute $8k a year to a maximum of 40k (small amount, I know, considering what the house prices are nowadays, but it can work in conjunction with the RRSP Home Buyers Plan (HBP))
• Unused contribution room can be carried forward to the next year, up to a maximum carry-forward of $8,000. Carry-forward amounts start accumulating only after you open your first FHSA.
• Acts like a TFSA + RRSP
  • RRSP characteristic: anything you put in is not taxable (so it lowers your taxable income for the year, yay.)
  • TFSA characteristic: any interest earned on it is not taxable, which is fantastic.
• Bonus characteristic: withdrawals made to purchase a home are tax free. So it’s a forever tax-free amount if you use it to buy a home. (But if you use it for something else, you’re going to have to include it in your income & pay taxes on it.)
• You have 15 years from when you opened the account to use the funds (or until you reach the age of 71, whichever comes first).
• If unused, or you’ve hit the 15 year limit, funds can be transferred into RRSP without it affecting your RRSP contribution room. Alternatively, you can withdraw the funds, but then the amount will be taxable.
• If you’ve:
  • withdrawn it to purchase a home
  • or you’ve hit the 15 year limit
  • or you’ve turned 71 and you gotta close up shop
  • then you have to close the FHSA account on Dec 31st of that year.
• An FHSA can hold various qualified investments, similar to those allowed in TFSAs and RRSPs, including:
  • Savings deposits.
  • Stocks, bonds, and mutual funds.
  • Exchange-Traded Funds (ETFs).
  • Guaranteed Investment Certificates (GICs).
  • Cash.
• For beginners, especially beginner Muslims looking to invest: try Wealthsimple. You can choose a halal portfolio. Or if you’re looking try dabbling, you can find a listing of halal stocks & cross reference against a listing of good companies that pay out dividends frequently and at a good amount and try your hand. I’ve done that in the past, not as much fun, did not have the patience. I prefer the ‘set and forget it’ kind of investing lol.
• Eligibility:
  • Residency and Age: You must be a Canadian resident aged 18 to 70 years old as of December 31 of the year you open the account.
  • First-Time Homebuyer: You are considered a first-time homebuyer if you have not owned a home in the past 4 years + in the current calendar year.

RRSP’s Home Buyer’s Plan (HBP)

HBP is a Canadian program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to purchase or build a qualifying home. Here’s an overview of the key rules and features:

Eligibility:

• First-Time Homebuyer: You are considered a first-time homebuyer if, in the four-year period prior to the withdrawal, you did not occupy a home that you or your current spouse or common-law partner owned. Canada.ca
• Written Agreement: You must have a written agreement to buy or build a qualifying home.
• Residency: You must be a Canadian resident at the time of the withdrawal and up to the time a qualifying home is bought or built.
• Intention to Occupy: You must intend to occupy the qualifying home as your principal residence within one year after buying or building it.

Withdrawal Limits:

• Maximum Withdrawal: As of April 16, 2024, you can withdraw up to $60,000 from your RRSP under the HBP. Fidelity Canada. Couples can withdraw $120,000.

Conditions for Withdrawal:

• RRSP Holding Period: The funds must have been in your RRSP for at least 90 days before the withdrawal. RBC Royal Bank
• Timing of Withdrawal: Withdrawals must be made within 30 days of acquiring the qualifying home.

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TIMELINE NOTE that wraps up all the completely bolded bullet points above:

• Save up to $60k
• Wait the 3 months RRSP holding period
• Get into an agreement to buy a home
• Withdraw funds within 30 days of acquiring home

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Repayment Terms:

• Repayment Period: You have up to 15 years to repay the amount withdrawn to your RRSP.
• Start of Repayment: Repayments begin the second year following the year you made the withdrawal. Canada.ca
• Annual Payments: Each year, you must repay at least 1/15 of the total withdrawn amount. (So if you’ve taken out the full 60k, that’s $4,000 a year or $334—rounded to the next nearest dollar to be on the safe side—a month.)
• Missed Repayments: If you do not repay the required amount in a given year, the difference will be included in your income for that year and taxed accordingly.

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For the repayments, can it just be what you’re contributing to your RRSP or does it have to be something above and beyond what you’re contributing to your RRSP?

• You can use your regular RRSP contributions for repayment, but you must designate them as HBP repayments on your income tax return. (Schedule 7 – RRSP and PRPP Contributions).
• If you don’t designate your contributions, they won’t count toward the repayment, and you will face taxes.
• You do not need to contribute extra beyond your usual RRSP contributions if you are already contributing enough to meet the repayment requirement. (For example, if you’re contributing $400 a month to RRSP, then you can designate the $334 towards your HBP and you’re good to go. If, however, you’re only contributing $200, then you’ll have to add another $134 to ensure you’re paying the HBP amount in full.)

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Additional Considerations:

• Multiple Participations: You can participate in the HBP more than once, provided your previous HBP balance is fully repaid by January 1 of the year in which you plan to make another withdrawal.
• Disabilities: The HBP can also be used to buy or build a home for a related person with a disability, or to help such a person buy or build a qualifying home.

Refinancing

Let’s pretend we’re buying a principal residence first. Then refinancing to pull equity & purchasing a rental. Here are some things to consider:

• Most lenders allow refinancing after 6 to 12 months of ownership.
• You need at least 20% equity in your home after refinancing (meaning your loan-to-value (LTV) ratio must be 80% or lower). A lower loan-to-value means you have more equity built and you owe less on the house. Most lenders typically allow refinancing up to 80% of your home’s value.
• The more your property appreciates or the more you pay down the mortgage, the sooner you can refinance.

Common Refinancing Strategies

Option 1: Quick Refinance (6-12 months)

• If your home significantly appreciates in value within the first year, some lenders may allow refinancing after just 6 months
• This strategy is best if you buy a property in a high growth area that appreciates quickly
• The risk is that you may have to pay higher interest rate on the loan or higher refinancing fees
• Reminder:
  • If interest rates are high, it may be better to wait longer before refinancing.
  • If rates drop, refinancing sooner could be beneficial.

Option 2: The Equity Growth Refinance (2-5 years)

• Wait 2-5 years to allow your home to gain value naturally while you continue to pay down the mortgage (and grow your equity).
• This is less risky than option 1 and you may get a better refinancing rate or qualify for better mortgage terms
• The risk is if home prices stagnate or drop
• Reminder:
  • If interest rates are high, it may be better to wait longer before refinancing.
  • If rates drop, refinancing sooner could be beneficial.

Option 3: The Aggressive Paydown & Appreciation Refinance (3-5 years)

• Make extra mortgage payments while your home appreciates.
• This strategy is the least risky of the 3
• Works best if you have higher income growth to fuel the extra payments to your mortgage.
• Reminder:
  • If interest rates are high, it may be better to wait longer before refinancing.
  • If rates drop, refinancing sooner could be beneficial.

Summary

Timeline	Refinancing Strategy	Equity Needed	Ideal If…
6-12 months	Quick refinance	20% minimum	Market surges & home appreciates fast
2-3 years	Equity growth	20-30%	Home gains value, and you build equity
3-5 years	Aggressive paydown & appreciation	30-40%	You want the best financing terms and lowest risk

Best option:
Waiting 2-3 years is a good balance—it gives your home time to appreciate while keeping financing costs reasonable.

Monthly Income Calcs on Rental Properties

Some things that I still have to research:

1. How to figure out average rental prices in an area I’m interested in
2. What’s a good ROI on the rental property? I’m shooting for 6%, though most people have mentioned 10%-12%

Things to take into consideration when determining how much you’re bringing in:

Income

LESS: Expenses

(not researched yet if these expenses can be written off or not)***

• Property Management Fees
• Mortgage
• Canada Mortgage and Housing Corporation (CMHC) insurance (if you haven’t paid the full 20% down)
• Capital Expenditure Repairs
• Vacancies (5%)
• Refinance costs (if you’ve refinanced your principal property to purchase this rental, ensure the increase in your mortgage payments as a result of the refinance is covered by tenant in your rental property)

& LESS: Expenses you can write off:

Federal Tax Deductions:

• Advertising: Costs for marketing your rental property, such as online listings or newspaper ads.
• Insurance: Premiums for insuring your property
• Interest and Bank Charges: Interest on money borrowed to purchase or improve your rental property, including mortgage interest.
• Professional Fees: Legal and accounting fees related to managing your rental property.
  • On this note, navigating tax benefits and obligations can be complex. It’s recommended to consult with a tax advisor or accountant familiar with your province’s rental property tax laws to maximize your benefits and ensure compliance. Especially since some municipalities require you to register for a Business License if you have a rental property with 4 or fewer units. Best to hire a CPA who specializes in real estate accounting in your particular area (municipality especially) to avoid potential fees.
• Repairs and Maintenance: Expenses for necessary repairs to keep the property in good condition.
• Property Taxes: Municipal property taxes paid on the rental property.
• Utilities: Costs for services like electricity, heat, water, and cable if you, as the landlord, pay them.
• Depreciation Expense
  • Capital Cost Allowance (CCA): You may be able to claim depreciation on your rental property and its contents over time, which can offset your rental income. However, claiming CCA can have future tax implications, especially when selling the property, as it may lead to a recapture of depreciation. It’s advisable to consult with a tax professional to determine if claiming CCA aligns with your long-term financial goals.
    • “And keep in mind that what the IRS giveth, the IRS taketh away. When you sell a rental property, it’s very likely that you’ll have to recapture the depreciation and pay taxes on it. The tax rate on this recaptured real estate depreciation is typically 25 percent (as of 2018). This creates a big incentive to keep real estate or to use other tax-savings strategies when selling, like a 1031 exchange. I’ll discuss the 1031 exchange later in Chapter 17, “The Trade-Up Plan.” – from “Retire Early with Real Estate”
      • The 1031 thing is for USA, unfortunately Canada doesn’t have an equivalent to forego recapture altogether but check again at the time you plan to sell, things may change.

For a comprehensive list and details on these deductions, refer to the CRA’s guide on rental expenses. Also look into anything that’s offered by your province and/or municipality.***

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Adjusted Timeline

If I’m making some decisions now:

• Pay off high-interest debt
• Save 6-12 months personal emergency fund in a high earning savings account
• Save for a 20% down payment on a principal residence condo:
  • Shooting for 20% down because it’s less risky, can refinance sooner, no CMHC, keeps housing cost to the recommended 35% budget & enables qualification for mortgage.
  • The drawback is that funds would grow faster if down payment was only 5% with the 15% in investments, getting me to the purchase of a rental property sooner. But it would also take my mortgage payments up to 60% of my income (what it is now at this stage in my career), which is super risky. I also may not qualify for a higher mortgage.
  • Side note: I know condos do not appreciate at a higher rate than houses and I know maintenance fees are sometimes astronomical, and condos are harder to sell later, but I’m hoping on never selling (it’ll be my forever home) and I’m hoping on being able to check the condo board financials thoroughly before I move in, to ensure there are no large spikes and maintenance fees grow at a reasonable rate, plus try and strike a balance between buying an old condo (so that I can have more room) versus a new condo (which offers less maintenance fees). I just prefer condos to houses because I don’t have to do yardwork, or shovel snow, etc. That being said, if it doesn’t fit into my finances when I’m ready to buy, I will be flexible with my decision.
• Max out my FHSA contributions every year
• Place the remainder in RRSP
• Once FHSA is maxed at 40k, place all my contributions in RRSP until 60k mark is hit there.
• Wait the 3 months RRSP holding period for HBP
• Look for possible condos, get into a purchase agreement
• Withdraw funds from FHSA & RRSP to make a 20% down payment on principal residence
• Close FHSA
• Ensure every month’s contribution to RRSP is $334 & designate amounts as HBP loan repayments, with the remainder as contributions to RRSP. No need to pay earlier, there’s no interest on it. And the additional amount put towards RRSP would reduce taxable income for the year).
• Wait 2-3 years, refinance to pull out equity & use as 20% down payment for a rental BUT before you do:
  • Make sure you’ve saved up to a maximum of 6 months of operating expenses for the rental (i.e., have cash reserves that you replenish) for emergencies like vacancies or major unforeseen repairs
  • Make sure you’re able to cover the increased monthly payment on your own mortgage as a result of the refinance (factor this into the rent that your tenant will pay to ensure the rental income covers that expense)
• What to do with the profits:
  • Save aggressively for another condo or wait until this property appreciates and refinance that property to purchase another one, but make sure to factor in the increase to this houses’ mortgage payments into the rent of the next one.
  • Or you can pay yourself
  • Or you can pay down the mortgage of your house faster
  • Or you can pay down the mortgage of rental property #1 faster

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*** List of Items Still to be Looked into:

1. The 1st set of expenses — can they be written off?
2. What do provinces/municipalities offer for write offs?
3. How many properties would you need to own to bring in a net profit of 5k a month?