How Much Down Payment Do You Really Need for a Canadian Rental Property?

The down payment question is one of the first things new investors get wrong. They assume the rules for buying a home to live in apply to buying a rental property. They do not. The minimums are different, the insurance rules are different, and the closing costs in Ontario add a significant amount on top of whatever you plan to put down.

This post covers the actual rules, the real cost of getting into a rental property in Ontario, and how your down payment size changes your returns. You can model the trade-offs instantly using the Down Payment Scenario Comparison.

The Minimum Down Payment Rules for Rental Properties

For a property you will not live in, the rules are straightforward: you need a minimum of 20% down. There are no exceptions for investment properties under CMHC rules.

CMHC mortgage default insurance is not available for pure investment properties. This means you cannot buy a rental property with 5% or 10% down the way you can with an owner-occupied home. For a full walkthrough of how down payment size affects your cash flow and returns, see How to Analyze a Rental Property in Canada.

The one exception: if you buy a property with up to four units and live in one of them, you may qualify as an owner-occupied purchase and access lower down payment options. The rules here are specific and lender-dependent. A mortgage broker who specializes in investment properties is worth consulting before assuming you qualify.

What 20% Actually Means in Ontario

At 20% down, here is what the capital requirement looks like at different price points:

• $500,000 property: $100,000 down
• $650,000 property: $130,000 down
• $800,000 property: $160,000 down
• $1,000,000 property: $200,000 down

That is before closing costs, which in Ontario are substantial and often underestimated.

Closing Costs in Ontario: What to Budget

Ontario has some of the highest closing costs in Canada due to the provincial land transfer tax. If you are buying in Toronto, there is also a municipal land transfer tax on top of the provincial one.

For a $650,000 property:

• Ontario Land Transfer Tax: approximately $9,475
• Toronto Municipal Land Transfer Tax (if applicable): approximately $9,275, bringing the total to roughly $18,750 in Toronto
• Legal fees: approximately $1,500 to $2,500
• Title insurance: approximately $300 to $400
• Home inspection: approximately $500 to $700
• Mortgage appraisal: approximately $300 to $500
• Adjustments at closing: property tax and utility adjustments, typically $500 to $2,000

Outside Toronto, total closing costs on a $650,000 property run approximately $12,000 to $15,000. In Toronto, closer to $22,000 to $25,000.

Your real cash requirement to buy a $650,000 rental property in Hamilton is approximately $142,000 to $145,000. In Toronto, approximately $152,000 to $158,000.

How Down Payment Size Changes Your Returns

A larger down payment reduces your mortgage and improves monthly cash flow. But it also reduces your cash-on-cash return because you have more capital deployed for the same dollar of cash flow.

A smaller down payment increases leverage, which amplifies both returns and risk. Your cash-on-cash return may look stronger on paper, but your monthly cash flow is tighter and you have less buffer against vacancy or rate increases.

Use the Down Payment Scenario Comparison to see this trade-off across 20%, 25%, 30%, and 35% down on any property. The calculator shows mortgage amount, monthly payment, annual cash flow, and cash-on-cash return for each scenario side by side.

The 20% vs 25% vs 35% Decision

Here is how the numbers work on a $650,000 property renting for $3,800 per month, at 4.5% over 25 years, with $1,200 per month in operating expenses:

• 20% down ($130,000): Mortgage $520,000, payment ~$2,844/mo, cash flow -$576/mo, CoC roughly -4.4%
• 25% down ($162,500): Mortgage $487,500, payment ~$2,664/mo, cash flow -$396/mo, CoC roughly -2.9%
• 35% down ($227,500): Mortgage $422,500, payment ~$2,308/mo, cash flow -$40/mo, CoC roughly -0.2%

At 35% down, this deal is nearly cash flow neutral. The question is whether tying up an additional $97,500 beyond the 20% minimum is the best use of that capital, compared to deploying it elsewhere.

What Most Investors Get Wrong

The most common mistake is putting in the minimum 20% without modelling what happens at renewal. Your cash flow at 4.5% may be manageable. At 6.5%, it may not be.

Before committing to any down payment amount, run the renewal scenario. Use the Mortgage Renewal Impact Calculator to see what your payment looks like 5 years from now at rates 1%, 2%, and 3% higher than today. For the full renewal modeling workflow, see What Happens to Your Cash Flow at Renewal. Make sure the deal still works, or at least that you can absorb the difference, before you sign.