Remember! your monthly rental income should be 1% of your purchase price.
Many Ontario residents believe they can easily buy a positive cash flow rental property, where rental income covers not just the mortgage but also property taxes and maintenance.
However, the reality is that Ontario’s real estate market does not align with the 1% rule, making it nearly impossible to find a property that generates immediate positive cash flow.
But does that mean investing in Ontario real estate is a bad idea? Not at all! Let’s break down the misconceptions and highlight why rental properties in Ontario still make financial sense.
Why Positive Cash Flow Is Hard to Achieve in Ontario
The 1% rule states that a property should generate monthly rent equal to 1% of its purchase price to be considered a good cash flow investment. For example:
- A house priced at $800,000 should generate $8,000 per month in rent to meet the 1% rule.
- In most Ontario cities, rent falls far short of that. A typical $800K home might only generate $3,500–$4,500 in monthly rent.
Key Challenges to Positive Cash Flow
- High Property Prices – Ontario’s home prices are significantly higher than in other provinces, making it difficult to achieve high rental yields.
- Strict Rent Control – Rent increases are regulated, limiting landlords’ ability to adjust rents based on market conditions.
- Property Taxes & Maintenance Costs – Beyond the mortgage, landlords must budget for property taxes, insurance, maintenance, and vacancies, which further cut into cash flow.
Why Ontario Rental Properties Still Make Sense
While immediate cash flow might be tough, Ontario real estate still offers strong long-term investment potential due to:
- High Resale Value – Unlike some markets where property appreciation is slow, Ontario homes historically gain value over time, building equity for owners.
- Demand & Population Growth – Ontario has a growing population and housing shortages in many areas, keeping rental demand strong and vacancy rates low.
- Fast Turnaround for Selling – In most Ontario markets, properties sell quicker than in other parts of Canada, offering liquidity if you need to exit.
- Leveraging Equity for Future Investments – Even if your property isn’t generating cash flow today, increasing home values can provide access to home equity, which can be used for future investments.
Bottom Line: Think Long-Term
If you’re looking for instant cash flow, Ontario might not be the best fit. But if you want a long-term investment with strong appreciation and stable rental demand, Ontario real estate is still one of the safest and most profitable markets in Canada.
Instead of focusing solely on monthly cash flow, investors should look at the bigger picture: equity growth, demand, and long-term financial gains.
Interested in financing a rental property in Ontario?
Let’s chat and explore the best mortgage options to maximize your investment potential!