By Chris Seepe

The financial situation of every rental property is as different as a fingerprint. Every operator applies their level of experience, understanding, operating sophistication and personal values of what’s most important to them in owning and operating a rental property.

Therefore, the numbers below can only very roughly approximate the breakdown of costs of owning and operating a rental property. Nevertheless, the overarching conclusion, regardless of what numbers you use, is that the net profit from a rental property is much less than tenants, media and the government believe, and it’s these same entities who collectively think residential landlords are rich and can afford to carry all the consequent losses caused by COVID-19.



Here’s a rough breakdown of where each investment dollar goes in a six- to 20-unit multi-residential investment property using an average of two six-plexes, one nine-plex, one 11-plex, and two 12-plexes in Oshawa, Ont., arguably levying the third-highest property tax of 444 municipalities in Ontario:

  • $1.00 rental income (no HST)
  • 18.8 cents – property tax
  • 2.2 cents – building insurance
  • 3.5 cents – electricity (common area only)
  • 3.4 cents – gas heating (included in rent)
  • 3.4 cents – water/sewer (included in rent)
  • 8.8 cents – repairs & maintenance
  • 3.1 cents – property management, janitorial, placement fees
  • 1.4 cents – professional fees
  • 44.6 cents – operating expenses
  • 39.8 cents – principal & interest (5-yr closed fixed, 25-year am, 75 per cent LTV, three per cent interest)

84.4 cents total costs

  • 15.6 cents – net profit before corporate taxes (cash flow)
  • 7.8 cents – corporate tax (50 per cent “passive” income)

7.8 cents – net profit after tax BEFORE capital costs (new roof, furnace, boiler, windows, etc.)

So, on $100,000 of gross income from an average nine-plex rental property, the owner takes home about $7,800 before paying for hopefully infrequent capital costs. Factor in capital costs such as replacing the windows every 30 years, say, $50,000. Keeping the numbers super-simple, that’s $1,667/year; boiler at 20 years and $20,000 = $1,000/year, roof 15 years and $10,000 = $667/year totaling $3,334/year capital costs – paid from the $7,800 annual take-home pay.

The above is overly simplistic and subject to many sophisticated cost-reduction management techniques and best practices to streamline those expenses and maximize return. It’s just a baseline value.

A new boiler may reduce gas consumption by 30 per cent, resulting in a notable equity increase: for example, a $2,000 gas savings might add $40,000 (at a five per cent cap rate).

Depreciation (capital cost allowance) will reduce the taxable income too but the money must all be paid back when the property is sold so it’s a tax deferral scheme, not a tax write-off.

A higher amortization period for financing will improve cash flow but you pay more interest over the term. You could pay off your mortgage quickly, which would substantially improve your cash flow (profit) but then all that equity is “dead” money, which is not working to help you create asset wealth.

I have been receiving insurance quotes for multiple buildings these past three months and every company has been quoting 11 to 15 per cent higher premiums than the previous year, despite not making any claims for more than five years, notable investments in improvements and no explanations from the companies explaining this industry-wide cash grab in a time of enormous financial upheaval.

Ontario’s electricity rates went up 55 per cent last November but the increase was hidden by a 31.7 per cent short-term rebate.

My local water/sewer costs went up about 40 per cent in the past five years. But rental income was “allowed” to increase about 17 per cent over the same five years.

I couldn’t find a quotable statistic on the number of investment properties that are financed but I remember hearing that perhaps 85 per cent of rental properties have some amount of a mortgage.

How much money is left over for a landlord to meet all their obligations in the midst of pandemic emergency measures?

Say a “modest” 10 per cent of tenants don’t pay their rent. Which companies and government agencies have offered relief or forgiveness on the above costs? What will deferral of interest payments accomplish if there’s no increase in rent? How long will most or all of the landlord’s income we live on go towards the forced extended loans and accumulated interest payments?

COVID-19 may be the catalyst but it wouldn’t be the culprit of a collapsing rental property industry. The attraction of leveraging real estate to create asset wealth is a powerful lure but the best advice may be to shed the “bonds” of interest-tyranny and reduce your dependency on lenders.

Many of our risks were artificially and unnecessarily created by ill-conceived, short-term, simple-minded legislation enforced by a fundamentally dis-“membered” Landlord and Tenant Board. In the rental housing industry, ignorance of the law may turn out to be the single greatest “excuse” for financial ruin.

19 COMMENTS

  1. Yes, it will have a huge impact on the rental property industry, and the impact will be negative. We had a conversation about this a few days ago, and we made the same points that are made in this article.

  2. This is basically consistent with the facts in the previous article I sent to REM a month or two ago stating that the Ontario government was being unfair to landlords. The Ontario government is responsible for rent legislation and for forcing private landlords to assume the government’s responsibility to supply shelter for those Canadians who are unemployed through no fault of their own. No-one is denying that there are many newly unemployed decent tenants who find themselves in unsustainable circumstances where rent is necessarily near the bottom of their list of priorities. It is not reasonable for the government of Ontario (or the federal government that supplies funds to the province) to download that responsibility on private landlords, eliminate the ability of landlords to remove non-paying tenants, and then simply not address the problem they have created for private landlords. In fairness the Ontario government has asked the federal government for funds to find a solution to this dilemma but Trudeau’s answer was that this was a provincial responsibility, not a federal one (this in spite of the fact the federal government is willing to provide rent supplements for commercial rents). I have approached the Ontario government, OREA, my local real estate board, and a number of larger landlord associations about applying some pressure to both the federal and provincial government to bring attention to this matter and to seek realistic solutions to it. So far other than a few polite non-committal letters in reply the request has been disregarded. The logical solution is for the federal government to supply funds to the provincial government to partially subsidize the rents of those who cannot pay. Other provinces have made an attempt to do this. Ontario has not. I asked both my local board and OREA to consider drawing a petition to be delivered to all Ontario realtors lobbying the Ontario government to apply a subsidy for private landlords. I never received an answer. Grumbling about this and making statements about it being unfair, while cathartic, will not supply a solution. I am going to invite all Ontario real estate boards and realtors to agree that we need to pressure OREA to compile a petition to be signed by all Ontario realtors and given to their local MPP’s to ask them to address this gross inequity. These landlords are our clients. We have a responsibility to help them address this matter. As individuals we have no power. As a group we have a substantial amount of influence. The worst case scenario would be a class action lawsuit from landlords against the Ontario government. It would be better if a more peaceful and non-confrontational solution could be found. While railing against this and venting on sites like this may make us feel better it does little to resolve the problem. We need to unite, take up our responsibility to support our clients who purchased these properties from us, and be part of the solution. If it became necessary to apply a class action lawsuit against the Ontario government then the matter of the inequities in the Landlord and Tenant Act needs to become part of that lawsuit.

  3. The Problem is government thinks it is easy to make villains out of Landlords and use public mistrust( created by politicians) to their advantage, this is very outdated thinking and also detrimental to government tax revenue, as most single or two property are not making profit out of it ( so no tax payments) and probably taking tax deductions on their other income as well!. Politicians and government need to understand that for any Business to thrive it has to be cost effective and profitable. Right now rental policies in Ontario are exactly opposite, with limited price increase and high cost ultimately will result in High rents charged which is bad for overall economy. If Rental owners are considered as other business and have ways to reduce cost or get tax benefits it will increase rental unit supply driving down Rental prices.

  4. Apartment Buildings are a long term investment, I’ve seen worst issues in the past like in 1981 Mortgage rates for Apartments went over 19%. There are Three Streams of Income from Apartment especially with long term and not to mention depreciation allowance against income. This is a buying opportunity for long term investment. Subscribe to my YouTube Channel, and watch my Video on Three Streams of Income: https://youtu.be/D9_s3q_JDMI

  5. Right on! Where are the proponents of Landlords’ Rights in our political system or the media? We watch Mr. Trudeau buying votes with our money every morning this past two months and telling tenants that the “nasty landlords” should carry them through this pandemic and onwards just like their “Mommy and Daddy” would. We’re in our 60’s, worked almost every day for our working years, raised a family, paid more than our fair share of taxes, and bought our rental with overtime and mortgaging the family home. For 30 yrs. we have done most of the maintenance and managed it ourselves because it is too expensive to hire someone. As a realtor, this was my retirement plan, questionable strategy now……I don’t want to carry someone else’s under-achievers!!!! Thank you Justin Trudeau and John Horgan!!!!

    • Well Said Judy, The NDP are buying renters votes with tax dollars , Barrett brought in rental controls but at least he allowed a 10% annual increase. If they government really want to increase housing they should go to the private owners and let industry supply rentals , instead of the so called non profits. Stay Safe

  6. Current rental legislation protects mainly bad tenants. Also a new Cannabis Act adds more problems to landlords.

  7. One factor that is slowly killing the rental market is the 50% tax on the passive income. Possibly most landlords don’t notice it as they have little profit.
    Instead of giving away money for new rental units, subsidized rents etc. Lessen the tax burden to draw in New landlords that will create new and improve existing units.
    Most landlords the goal is to have no profit, to avoid the tax. How long can a normal business do this?
    Another factor is the tribunal, takes way to long to get a non-paying tenant out.

  8. The risk is indeed large for landlords but the long term gain can offset some of that risk. However the LTB is a major stumbling block in the continuity of owning any rental unit. Agreed there was a time when landlords had the advantage but that ship has long sailed.
    If it takes 8-12 weeks to get a hearing with no sure guarantee of eviction not to mention how you can actually evict a LTB smart tenant -A $1000/ month rent l loss becomes a $6000-$7000 loss not counting utilities unpaid and cleanup that end up on landlord’s doorstep.
    Many landlords become frustrated by the chains that cost them huge losses with little or no recourse.
    How do you collect from the tenant who thumbs his nose at you or demands cash to move even when given all the proper notices.
    Change is definitely needed or landlords will move their investment money elsewhere !

    • What is the role of local police in full uniform actually when they attend at a unit with rent invoice in hand and demand payment? A retired paralegal who previously worked at police dept says rent collection is outside police mandate and could lose their badge, but wondering if after hours cops are permitted to earn extra income, in uniform, maybe tax free perhaps doing such jobs like directing private traffic jobs in off hours? Tenants who don’t know rules don’t know such things maybe? Anyone have experience with that process?

      Carolyne L

  9. I am a landlord as well as being an active realtor. This is a great article that is right on. The Govt needs to wake up and understand that tenants need to pay their own way. Tribunals need to know that this is a business and just like any business there need to be a profit at the end of the year. Landlords need a bit more clout when it come to delinquent tenants.

  10. Funny…we calculate a pre-tax profit of 35.6 cents per $1 in this model.

    Oh well I guess we are crazy in how we calculate profits.

    • The principal repayment on the mortgage is indeed not a tax deductible expense and the example would therefore have a higher net income. Not however that capital expenditures and repairs are not included in the example.

      • I think he included 13.3 cents per $1 for upkeep. That’s $3600 per year on a $2300/mth unit which seems reasonable over a 20 yr period.

        There seems to be this assumption you can fool fellow realtors the same way you fool tenants into allowing you to grab a 36% profit off their rent.

        This whining from over extended investments is so cyclical.

    • Unless you show how you calculated that, I can’t reply or comment. Also, rented condos and single family homes don’t fall under the same model since most owners of such properties pass on most operational costs to the tenant, which is not so simple in an apartment building with 4 or more units.

  11. There is indeed a very serious problem with Ontario’s rental housing industry, namely that tenants who do not pay their rent (whether or not they are actually able to do so) are rarely held to account and can get away for 2, 3 or more months without paying rent before moving on to another property and costing that landlord significant losses. The government needs to make it possible for landlords to garnish government payments and tax refunds in order to recover rent and damages that have been awarded through the Rental Housing Tribunal or Small Claims Court. Of course the time frame in which evictions can be obtained and enforced also needs to improve. Without these changes, it is my opinion that the stock of rental housing will decline as landlord decide to sell their properties and get into less risky investments where government policy does not constantly work against them.

  12. So true !
    Accurate breakdown of income and expenses .
    One of the best articles R.E.M. has published in a long time.

Leave a Reply