Step 1 — Separate the two questions from the start
A financeable building isn’t automatically a good buy. The lender calculates qualification with its method. You have to decide whether the building still stands up once the expenses, the vacancy, and the repairs are paid. Two different questions, and both have to pass.
Step 2 — Demand the records before you make an offer
A listing sheet is not a file. Ask the seller or the seller’s broker for this, and refuse to run any numbers until it’s on the table:
- The signed lease for each unit, with the end date and the rent stated
- Rent renewal or rent increase notices from recent years
- The municipal and school tax bill
- The insurance policy and the premium paid
- Utility bills for whatever portions the owner pays
- Maintenance and repair invoices from recent years
- A list of vacant units and the projected rent for each
These records feed both readings: the lender’s and yours.
Step 3 — Go from advertised rent to real income
Get the leases, check the rent collected, and don’t blend an occupied unit with projected rent. Then subtract property taxes, insurance, the heating you pay, routine maintenance, and a vacancy allowance.
| Figure | Financing view | Owner’s view |
|---|---|---|
| Rent | Amount recognized under the lender’s method | Likely collections and possible arrears |
| Expenses | Items included in qualification | Every actual outflow, even if not counted |
| Repairs | May affect value or conditions | Cash and time required after purchase |
| Reserve | May be required for the file | Protection against vacancy and repairs |
Calculation methods and requirements change with property type, occupancy, lender, and mortgage insurance. A general percentage you read somewhere doesn’t become a certainty for your address.
Step 4 — Set your maximum price before the offer
Test the mortgage payment together with the taxes, insurance, and expenses you’ll carry. Add vacancy and foreseeable repairs. Then find the price where your margin gets too thin, even if a calculator shows you more capacity.
If you’ll live in one of the units, separate your housing cost from the rental return. If the building is fully rented, confirm your personal cash can absorb a rough month without you having to borrow.
Step 5 — Put your scenario through three bad months
A rental budget that only works when every tenant pays and nothing breaks isn’t a budget. Before setting your maximum price, rerun the figures with three plausible events and see what’s left in your accounts.
| Month tested | What changes | Decision to make |
|---|---|---|
| Unit turnover | Lost rent, cleaning, and reletting | Can the reserve cover the full payment? |
| Urgent repair | Immediate cash outflow with no added rent | Will new debt be needed to carry the property? |
| Repair and vacancy together | Two pressures in the same period | Does the purchase price still leave an acceptable margin? |
This test doesn’t reproduce the lender’s qualification method. It answers a different question: do you actually want to carry this building? If a single vacancy already forces you onto a personal line of credit, lower the price, raise the reserve, or rethink the purchase.
Step 6 — Tie the figures to the building’s real condition
Advertised rent doesn’t replace leases. And one year of expenses doesn’t always reveal the work someone kept postponing. Before setting your maximum price, connect the rental figures to the physical condition of the building and the bills you’ll pay after closing.
| Confirm | What you need to quantify | Professional involved |
|---|---|---|
| Leases, rent collected, and vacant units | Current income, projected rent, and turnover risk | Real estate broker or legal adviser, depending on the question |
| Taxes, insurance, utilities, and maintenance | Recurring costs paid by the owner | Mortgage broker for the financing scenario |
| Inspection findings and known work | Cash required, work sequence, and effect on the reserve | Inspector, contractor, or building professional |
If an inspection, a lease, or an expense changes the figures, I rerun the mortgage scenario. The legal review of leases, the building’s technical condition, and code compliance stay with the appropriate professionals.
Three mistakes that distort a building’s numbers
- Treating listed rent as income. Advertised rent is not collected rent. Signed leases and actual deposits are the only figures that count.
- Building a budget that assumes zero vacancy. A budget that only works when every tenant pays and nothing breaks isn’t a budget.
- Confusing qualification with profitability. A lender can finance a building that leaves you nothing each month. The second question is yours to settle.
Example: a duplex with $36,000 in rent
A duplex shows $36,000 of annual rent. The buyer confirms the leases first. Then he deducts taxes, insurance, common heating, maintenance, and a vacancy reserve. He also prices the work expected in the first two years.
The maximum price comes out of that prudent margin. After that, we recalculate the file under the lender’s method. The example confirms neither recognized income nor available financing.
What I analyze with you
Before we submit, I’ll name the assumptions that are still shaky: projected rent, unpriced repairs, a down payment with a fuzzy origin, a reserve that’s too thin. The lender and insurer stay responsible for their calculations and the final decision.
Frequently asked questions
Is all gross rent used?
Not necessarily. The percentage or method depends on the lender, the program, the property type, and the expenses considered.
How should a vacant unit be handled?
Show projected rent apart from rent already collected, and keep a prudent assumption in your own budget.
Why keep a reserve after closing?
Because an empty unit, a repair, or a reletting delay keeps costing you, financing in place or not.
Sources and review
CMHC — Income Property for two- to four-unit rentals, CMHC — Homeowner and small rental properties, and AMF — Buying a home. Reviewed August 16, 2026.