Three hypothetical investment case studies
A condo, a house hack with a legal basement and a value-add project, each with every assumption, the financing, a five-year view and a downside case.
The short answer: in these three hypothetical cases, none of the properties covers its own costs from rent at a 4.5% rate. Over five years, each gains if prices rise 2% a year. With flat prices, only the value-add case stays positive. In the downside, all three lose heavily. The difference between them is how much cash they need and how much can go wrong.
How these cases work
- Every figure is an assumption chosen to illustrate the math. None is a quote, a current rate or a client result.
- Mortgages use a 4.5% five-year fixed rate with semi-annual compounding, so payments do not change within the five years.
- Land transfer tax uses Ontario’s rates, with the first-time buyer refund only in Case B.
- Five-year views assume a sale at the end, with selling costs of 5% of the price (an assumption). Results are before income tax.
- Each case shows three outcomes: prices rising 2% a year, prices flat, and a downside.
For the formulas, see rental property numbers. For how to build a downside, see stress-test your investment.
Case A: a one-property condo investor in Mississauga
Hypothetical example
A two-bedroom condo apartment bought as a pure rental, first occupied after 15 November 2018, so rent increases are not capped by the guideline. For context, CMHC’s 2025 survey put the average GTA two-bedroom condo rent at $2,904.
Assumptions and financing
| Price | $600,000 |
| Down payment (20%) | $120,000 |
| Mortgage, 4.5% over 25 years | $480,000 ($2,657 a month) |
| Rent | $2,700 a month |
| Vacancy | 3% |
| Condo fee | $650 a month |
| Property tax / insurance | $3,600 / $500 a year |
| In-suite maintenance | 2% of rent |
| Property management / utilities paid by owner | $0 (self-managed) / none beyond the condo fee |
| Land transfer tax / other closing costs | $8,475 / $2,500 |
| Cash invested | $130,975 |
Year one
Gross rent $32,400, less $972 vacancy and $12,548 of operating costs, gives net operating income of $18,880. The cap rate is 3.15%, well below the 4.5% mortgage rate. After $31,880 of mortgage payments, cash flow is −$13,000 a year (−$1,083 a month).
Five years later
Rent grows 2% a year and costs 3% a year in the first two columns. The downside assumes rent 10% lower with no growth and two months vacant each year. It adds a 15% higher condo fee and a sale 10% below the purchase price.
| Five-year result, before tax | Prices +2% a year | Prices flat | Downside |
|---|---|---|---|
| Total cash flow | −$62,467 | −$62,467 | −$110,731 |
| Principal repaid | $58,577 | $58,577 | $58,577 |
| Sale price | $662,448 | $600,000 | $540,000 |
| Cash back on sale, after costs and mortgage | $207,903 | $148,577 | $91,577 |
| Gain or loss on $130,975 invested | +$14,462 | −$44,864 | −$150,129 |
Renewal risk: if the remaining $421,423 renewed at 6.5% over 20 years, the payment would rise from $2,657 to $3,121 a month.
What this case teaches: a low cap rate plus a condo fee makes cash flow deeply negative. The owner relies almost entirely on price growth. Even at 2% a year, the five-year gain is small for the cash at risk.
Case B: a first-time buyer’s house hack in Brampton
Hypothetical example
A first-time buyer buys a semi-detached house with a registered basement unit, lives upstairs and rents the basement. Because the owner lives there, the home qualifies for an insured mortgage with the minimum down payment.
Assumptions and financing
| Price | $850,000 |
| Minimum down payment (5% of $500,000 + 10% of $350,000) | $60,000 |
| Mortgage before insurance (92.94% of price) | $790,000 |
| CMHC premium at 4.00%, added to the mortgage | $31,600 |
| Total mortgage, 4.5% over 30 years (first-time buyer, insured) | $821,600 ($4,143 a month) |
| Property tax / insurance / maintenance / utilities | $5,800 / $2,200 / $3,000 / $4,200 a year |
| Basement rent | $1,900 a month |
| Land transfer tax $13,475, less $4,000 first-time refund | $9,475 |
| 8% Ontario tax on the premium, paid in cash | $2,528 |
| Legal, inspection and other closing costs | $3,000 |
| Cash invested | $75,003 |
Confirm the exact insurance premium for a 30-year amortization with your lender. Each lender also decides how much basement rent it counts toward qualifying.
Monthly housing cost
| Mortgage payment | $4,143 |
| Tax, insurance, maintenance and utilities | $1,267 |
| Total cost of the house | $5,409 |
| Less basement rent | −$1,900 |
| Owner’s net housing cost | $3,509 a month |
| With one month of basement vacancy a year | about $3,668 a month |
Five years later
The tenant’s rent pays about $114,000 of the house’s costs over five years at a flat $1,900. The mortgage falls to $748,480, so $73,120 of principal is repaid. Rental income is taxable, with a share of costs deductible.
| If sold after five years, before tax | Prices +2% a year | Prices flat | Downside: −10% |
|---|---|---|---|
| Sale price | $938,469 | $850,000 | $765,000 |
| Cash back on sale, after 5% costs and mortgage | $143,065 | $59,020 | −$21,730 |
| Compared with $75,003 invested | +$68,062 | −$15,983 | −$96,733 |
Downside notes: at a 10% lower price, the owner would have to bring about $21,730 to closing to sell. If the remaining balance renewed at 6.5% over 25 years, the payment would rise from $4,143 to $5,013 a month. A three-month basement vacancy would cost $5,700.
What this case teaches: the house hack needs the least cash and the tenant covers about a third of the house’s costs. But with 7% down, a modest price fall leaves no equity, so the owner must be able to stay put. It is a housing decision first and an investment second. Owner-occupied units also raise principal residence questions: see rental income tax.
Want a case like these built for a property you are considering?
Book an investment strategy callCase C: value-add with a new legal unit in Brampton
Hypothetical example
An investor buys a dated bungalow, renovates it, adds a registered basement unit, rents both units, then refinances to 80% of the new appraised value. The step-by-step process is in the value-add and BRRRR guide.
Assumptions and financing
| Price / down payment (20%) | $820,000 / $164,000 |
| Purchase mortgage, 4.5% over 25 years | $656,000 ($3,631 a month) |
| Land transfer tax $12,875 + closing costs $3,000 | $15,875 |
| Renovation and second unit, including permits and design | $110,000 |
| Carrying costs for 5 empty months | $23,237 |
| Appraised value after work | $1,000,000 |
| Refinance at 80%, 4.5% over 25 years | $800,000 ($4,428 a month) |
| Penalty, appraisal and legal on refinance | $7,000 |
| Rent after work: $3,100 + $2,000 | $5,100 a month |
| Vacancy / tax / insurance / maintenance / utilities | 3% / $6,000 / $2,600 / 5% of rent / $3,600 a year |
| Property management | $0 (self-managed) |
| Tax, insurance and utilities while empty | $1,017 a month |
| Cash in, less $143,012 back out on refinance | $170,100 left in |
Year one after refinance
Gross rent $61,200, less $1,836 vacancy and $15,260 of costs, gives net operating income of $44,104, a 4.41% cap rate on the appraised value. After $53,133 of mortgage payments, cash flow is −$9,029 a year (−$752 a month).
Five years later
Rent grows 2.5% a year and costs 3% a year in the first two columns. The downside assumes the appraisal came in at $920,000, the renovation ran 25% over and took eight months. That leaves $271,882 in the deal, with a $736,000 refinance. It then assumes no rent growth, one month vacant each year, and a sale at $874,000.
| Five-year result, before tax | Prices +2% a year | Prices flat | Downside |
|---|---|---|---|
| Cash left in after refinance | $170,100 | $170,100 | $271,882 |
| Total cash flow | −$34,648 | −$34,648 | −$44,931 |
| Principal repaid | $97,629 | $97,629 | $89,819 |
| Sale price | $1,104,081 | $1,000,000 | $874,000 |
| Cash back on sale, after costs and mortgage | $346,506 | $247,629 | $184,119 |
| Gain or loss on cash left in | +$141,758 | +$42,881 | −$132,693 |
What this case teaches: the renovation created most of the gain in the base cases, which is why it holds up even with flat prices. But it depends on three things going right at once: cost, schedule and appraisal. When they go wrong, far more cash stays trapped and the result turns sharply negative.
The three cases side by side
| A: condo | B: house hack | C: value-add | |
|---|---|---|---|
| Cash needed (net) | $130,975 | $75,003 | $170,100 |
| Monthly cash flow, year one | −$1,083 | n/a (owner lives there) | −$752 |
| Five-year result, prices +2% a year | +$14,462 | +$68,062 | +$141,758 |
| Five-year result, prices flat | −$44,864 | −$15,983 | +$42,881 |
| Five-year result, downside | −$150,129 | −$96,733 | −$132,693 |
| Main risk | Price stagnation and fees | Thin equity | Execution |
Case B’s figures compare sale proceeds with cash invested. They ignore the rent the owner would otherwise pay to live elsewhere, so they understate its value as housing.
What the three cases teach
- At these assumed prices and rates, monthly cash flow is negative in all three. Plan to fund it.
- Five years is short. Selling costs and a flat market can erase most of the principal repaid.
- The downside is always a large loss. Your reserve and holding power decide whether you ever realize it.
- Equity you create, through a legal unit or a well-priced renovation, is more dependable than equity you hope the market gives you.
- Taxes are not included and will reduce every positive result.
Ready to see where you stand? Use the first investment checklist, and read legal basement investments before buying any property with a second unit.
Questions about these case studies
Are these real deals?
No. All three are hypothetical examples built to show how the numbers work. Prices, rents, rates and costs are assumptions, not quotes, current rates or the results of any client. Your own property will differ.
Why do all three cases show negative cash flow?
Because at the assumed GTA prices, rents and a 4.5% rate, rent does not fully cover the mortgage plus costs at these down payments. That is common enough that you should expect to test for it. Positive cash flow usually needs a lower price, more cash down, a lower rate or more rent.
Why assume 5% selling costs?
To show that selling is expensive. It is an assumption covering brokerage commission plus HST, legal fees and other costs. Commission is negotiable, and your actual costs, including any mortgage prepayment penalty, will differ.
Do the five-year results include income tax?
No. They are before tax. Rental income is taxable each year, and a sale can trigger tax on the capital gain and recapture of any depreciation claimed. A principal residence is treated differently. Ask an accountant to add tax to your own projection.
Which strategy is best for a first investment?
There is no single best. A house hack usually needs the least cash and lets you learn as a landlord while living on site. A condo is simpler to manage but its fees and low rent-to-price ratio can mean deep negative cash flow. A value-add project can create equity but carries the most execution risk.
How did you pick 2% a year for the growth case?
As a moderate illustration, not a forecast. TRREB’s GTA average price more than doubled from 2013 to 2025, but the January to September 2026 average is about 14% below 2022. Run your own cases with zero growth and with a decline, as each case here does.
Can you run a case study on a property I am considering?
Yes. Book a call and send the listing. I will use real comparable rents and sales and a rate from your mortgage agent, then show you the base and downside cases.
Sources
- Ontario.ca: calculating land transfer tax and first-time homebuyer refunds
- CMHC: mortgage loan insurance premiums and purchase insurance eligibility (owner-occupied 1 to 4 units)
- Financial Consumer Agency of Canada: down payments
- CMHC: 2025 Rental Market Report (GTA condo two-bedroom average rent)
- Ontario.ca: rent increase guideline (post-2018 exemption)
- OSFI Guideline B-20 (80% conventional limit)
- TRREB Market Watch, September 2026 (historic annual average prices, January to September 2026 average)
- TRREB Market Watch, December 2025 (2025 annual average price)
Get a case study built on real numbers
Send me the property you are weighing. I will build the base case and the downside with real rents and sales, and tell you honestly what I see.