How to start a rental property business in Canada

Published Monday 15 December 2025

Table of contents

• What is a rental property business?
• Startup costs and financing options
• Create your business plan and strategy
• Choose your business structure
• Attributes of successful rental properties
• How to acquire a rental property
• Set up your business legally
• Manage your rental property business
• Streamline your finances and grow your business
• FAQs on starting a rental property business

Key takeaways

• Secure adequate financing by exploring multiple funding options including traditional lenders, private money loans, and home equity, while consulting with financial advisors to understand the risks and find the best strategy for your situation.
• Choose the appropriate business structure (sole proprietorship, partnership, or corporation) before purchasing property to optimize liability protection, tax obligations, and financing options based on your personal financial situation and long-term goals.
• Focus on properties with strong fundamentals including desirable locations, quality schools, low vacancy rates, competitive rental rates, and good safety records to attract quality tenants and generate consistent income.
• Establish proper legal and financial foundations by registering your business, obtaining landlord insurance, setting up a dedicated business bank account, and implementing efficient bookkeeping systems to track income and expenses for tax compliance and business growth.

What is a rental property business?

A rental property business means you buy properties and rent to tenants for monthly income. This creates passive revenue streams for real estate investors.

Your rental business can start with one property or grow to include multiple units. You have two main management options: handle tenant relations and maintenance yourself, or hire a property management company to run daily operations.

You can invest in different types of rental property, for example:

• single-family homes
• multi-family homes
• luxury residential properties
• vacation homes for short-term rentals, which the Canadian government defines as properties rented for less than 90 consecutive days, such as on Airbnb and VRBO
• apartments
• commercial properties

Key benefits to starting your own rental property business:

• Monthly cash flow: Regular rental income from tenants
• Property appreciation: Real estate typically increases in value over time
• High demand: Strong rental market creates consistent tenant pool

Key challenges to starting a rental property business:

• High startup costs: Significant down payment or full purchase price required
• Tenant management: Rent collection, disputes, and potential evictions
• Ongoing expenses: Property maintenance and repair costs can be substantial

Startup costs and financing options

Starting a rental property business requires a significant upfront investment. Before you begin, understand the costs involved. These typically include the down payment, closing costs, and any immediate repairs or renovations. Having a clear financial picture will help you secure the right funding.

Financing your rental property is typically the biggest barrier to entry, requiring strong credit and substantial capital. Explore these funding options:

• Traditional lenders: Banks and credit unions review your credit score, income and down payment funds, and usually charge higher interest rates than on a primary residence
• Private money loans: These loans come from individuals or private companies rather than banks. The terms can be more flexible, but interest rates may be higher.
• Home equity: If you own a home, you might be able to use its equity through a home equity loan, line of credit (HELOC), or a cash-out refinance. This option carries risk, as you could lose your primary residence if you can't make the payments.

Speak with a financial advisor and your accountant to understand the risks and find the best financing strategy for your situation.

Create your business plan and strategy

Business planning helps you understand your financial requirements, strategy, and path to profitability before investing. A simple one-page plan covers the essentials for most rental property businesses.

Your plan should include cash flow projections, startup costs, and operational expenses. Use this business plan template to get started.

Here are the essential components for planning your business:

• Executive summary: Define your rental property goals and investment opportunity in two to three sentences
• Company overview: Describe your business structure and the type of rental you'll operate (for example, residential, commercial or short-term)
• Market analysis: Research the local rental market, including trends, vacancy rates, and potential risks like changing regulations or interest rates.
• Customer analysis: Define your ideal tenant. Consider their needs, income level, and what they value in a rental property.
• Financial plan: Outline your startup costs, projected income, and ongoing expenses. Include a cash flow forecast and break-even analysis to ensure profitability.

Choose your business structure

Business structure affects your liability protection, tax obligations, and financing options. Choose your legal structure before purchasing property to optimize these benefits.

You can buy property in your personal name or create a separate business entity. Your financing method may influence the best structure choice.

Common structures for a rental property business include:

• Sole proprietorship (or single owner): This is the simplest structure, where you own the property directly. All profits and losses are reported on your personal tax return; according to CPA Canada, you will need to report the income and expenses on your T1 Personal Tax Return using form T776. However, there is no liability protection, meaning your personal assets are at risk.
• Partnership (or joint ownership): Similar to a sole proprietorship but with two or more owners, income and expenses are passed through to the owners' personal tax returns, and personal assets remain unprotected. Additionally, the Canada Revenue Agency requires partnerships with over $2 million in combined revenue and expenses or over $5 million in assets to file a T5013 Partnership Information Return.
• Corporation: A corporation is a separate legal entity that provides limited liability protection for its owners. This structure offers more management flexibility but comes with more complex tax and compliance requirements. Check with your provincial or territorial government for specific rules.

Attributes of successful rental properties

Successful rental properties share specific characteristics that attract quality tenants and generate consistent income. Focus on these key attributes when evaluating potential investments:

• Location: Determines tenant quality and rental rates. Choose neighbourhoods that match your target tenant demographics and budget expectations.
• School quality: Properties in top-rated school districts command higher rents and attract stable family tenants. Research local school ratings before investing.
• Local amenities: Parks, public transport, shopping, and dining options increase property desirability. Match amenities to your target tenant needs for higher occupancy rates.
• Vacancy rates: High vacancy rates indicate weak rental demand and potential income gaps. Research local occupancy statistics to ensure steady cash flow.
• Rental rates: When doing your market research, check the current rental rates and recent trends in the neighborhood. It will help determine how feasible generating income on your property might be when you consider the rental rate on top of property taxes, maintenance fees, and mortgage repayments.
• Age of property: Consider how old the property you want to purchase is and if there is likely to be much maintenance or repair work. Newer properties are likely to need less work done to them.
• Safety: Look for areas with low and stable crime rates, as safer neighbourhoods tend to attract and retain good tenants.
• Taxes: You can use Realtor or your county's assessor website to find out the property taxes in the area. Consider these when working out the potential profitability of your rental property.
• Economy: Make a note of local industries, businesses in the area, and any new local infrastructure projects. These can indicate how the local economy is doing.

How to acquire a rental property

Property acquisition involves finding profitable rental properties that match your investment strategy and target tenant profile.

Here are some recommendations for finding your ideal properties:

• Use a realtor: Get local market expertise and access to available properties
• Join investor clubs: Network with experienced investors and learn market insights
• Focus on your niche: Match property type to your target tenant demographics

When you assess a property, consider the type of tenant you want to attract and choose a property that suits their needs. For example, if you want to attract higher-income tenants, focus on luxury properties with modern appliances and amenities.

Set up your business legally

Once you've chosen a structure, it's time to make your business official. Following the correct legal steps ensures you operate smoothly and stay compliant.

Register your business

If you formed a corporation or partnership, you'll need to register your business with the appropriate provincial or territorial government. A sole proprietorship operating under your own name typically doesn't require registration, but using a trade name does.

Register for taxes

Depending on your province and the type of rental, you may need to register with the Canada Revenue Agency (CRA) to collect and remit goods and services tax (GST) or harmonised sales tax (HST). For instance, CPA Canada clarifies that GST/HST must be collected on short-term rentals where a property is rented for less than 30 continuous days. Consult with an accountant to understand your specific tax obligations.

Establish a business bank account

A business bank account separates your rental income and expenses from personal finances. This simplifies tax preparation and provides clearer financial tracking for your investment performance. To remain compliant, the Canada Revenue Agency requires you to keep your records for six years from the end of the corresponding tax year.

Invest in landlord insurance

Standard home insurance doesn't cover rental properties. You'll need landlord insurance to protect your investment against property damage, liability claims, and lost rental income if the property becomes uninhabitable.

Manage your rental property business

With the property acquired and the business set up, your focus shifts to day-to-day operations. Effective management is key to attracting and retaining good tenants and maximizing your return on investment.

Develop your website and marketing

Marketing your rental property attracts quality tenants and reduces vacancy periods. Focus on these key elements:

• Professional photography: High-quality images showcase your property's best features
• Compelling listings: Highlight property benefits and amenities that matter to tenants
• Multiple platforms: List on Facebook Marketplace, Zumper, and other rental sites

For short-term rentals, platforms like Airbnb and VRBO are essential to attract tenants.

Choose your property management style

You have two main options for managing your property: do it yourself or hire a property management company. Self-management can save you money but requires significant time and effort for tasks like collecting rent, handling maintenance requests, and dealing with tenant issues. A property manager handles these tasks for you for a fee, which is typically a percentage of the monthly rent.

Streamline your finances and grow your business

A successful rental property business runs on efficient financial management. By automating your bookkeeping with accounting software, you can easily track income, manage expenses, and get a clear view of your cash flow. This frees you up to focus on providing a great experience for your tenants and finding your next investment opportunity.

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FAQs on starting a rental property business

Here are answers to some common questions about starting a rental property business.

What is the best business type for rental properties?

The best structure depends on your personal financial situation and long-term goals. Many real estate investors use a corporation because it separates your personal assets from business debts and lawsuits, but you should get professional advice on what works best for you. However, the best structure depends on your personal financial situation and long-term goals.

Which rental business is most profitable?

Profitability can vary widely by location and property type. Long-term residential rentals often provide stable, predictable income. Short-term vacation rentals can offer higher returns but come with more intensive management and market volatility. Commercial properties can also be lucrative but require larger initial investments.

What is the 2% rule in real estate?

The 2% rule is a guideline used to quickly screen potential investment properties. It suggests that the monthly rent should be at least 2% of the total purchase price. For example, a $200,000 property should ideally rent for at least $4,000 per month. It's a rule of thumb, not a strict requirement, and may not be achievable in all markets.