How to rent and save for a down payment when you’re just starting out

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There are many things to love about Canada, but the housing market isn’t one of them at the moment. I’ll be honest: House-hunting in some of Canada’s priciest markets, like Toronto and Vancouver, has turned into something of a Hunger Games-like quest. And even in many smaller cities – throughout southern Ontario, for example, and in Halifax – you’ll find fierce competition for housing.

Welcome back to the Newcomers’ Guide to Finances in Canada. If you haven’t signed up for the five-part course yet, you can do that here.

This newsletter will prepare you for what’s coming. We’ll talk about the ins and outs of renting – which is what most newcomers do at first – and a bit about buying your first home in Canada.

On a lighter note, my survive-and-thrive tip for this newsletter installment is: Always carry an extra bottle of windshield washer liquid when driving in winter. Scroll to the bottom to see why.

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Renting in Canada

It usually makes sense to rent in a new country for the first few years, until you’re sure about where you want to settle and you feel secure in your job. Besides, in an effort to cool the housing market, Canada’s federal government has implemented a temporary ban on most real estate purchases by non-Canadians (permanent residents are exempt, more details here).

Here’s what to know about renting.

How to look for a rental:

• A real estate agent. Relying on an agent has become more and more common in the most competitive rental markets. A pro can help you zero in on the right neighbourhoods, spot and jump on new rental listings quickly and make sure you have all your paperwork in order. Keep in mind, though, that agents tend to focus on pricier rentals. Also, while landlords usually pay an agent’s fee, some agents may also charge you for an upfront fee.
• Online rental listings. If you’re searching on your own, you’ll find listings on sites like: rentals.ca, condos.ca, rentfaster.ca and rentseeker.ca. Padmapper, Zumper, Craigslist and Kijiji are also good resources, especially if you have a tighter budget. There may also be more regional listings sites, like Louer.ca in Quebec.
• Facebook can also be your friend if you’re house-hunting. Sometimes there are large city-specific groups for landlords and prospective tenants (Toronto Home Zone is a big one in the Greater Toronto Area).
• Online roommate sites. There’s nothing like sharing the rent with others to slash your housing costs. But finding co-living companions is tricky when you’re new to the country and may not know many people. Luckily, there are websites, like roomies.ca, devoted to matching potential roommates. Facebook, Craigslist and Kijiji are also useful for finding housemates but use caution when meeting up with strangers.

Beware of rental scams

• In a red-hot rental market fraudsters are cooking up all kinds of elaborate scams. Here’s a list of common schemes to watch out for.

Types of rentals

Most rentals in Canada are apartments, though you’ll also find basements and entire multi-level houses up for rent. You should also be aware of a couple more distinctions:

• Rent-controlled units. Some provinces cap how much landlords are allowed to raise the rent, but those rules may only apply to certain rentals. For example, Ontario’s rent control guidelines only apply to older buildings. Typically landlords are allowed to increase the rent beyond rent-control guidelines when they turn over the apartment to a new tenant.
• Purpose-built rentals vs. the rest. There are two different kinds of apartment rentals. What Canadians call “apartment buildings’' are also known as purpose-built rentals (PBRs), which, as the name suggests, were built for the purpose of being rented out for the long term. These are often older buildings dating back to the 1980s or earlier. Run by professional property management companies, they usually lack amenities like fitness centres and party rooms but come with lower rents and more security of tenure. Condominiums are buildings consisting of several individually owned apartments, which may be rented out. Tenants in condo rentals and other non-PBRs are more likely to face no-fault evictions, when landlords want to free up the unit so they or an immediate family member can move in. Both individual and corporate landlords can also ask you to move out for extensive renovations. (And, let’s face it, some landlords get creative with the eviction rules if emptying the unit allows them to jack up the rent.) Beyond condos, non-PBRs generally also include basement apartments, apartments in houses that have been divided into multiple units, as well as entire houses that have been turned into rentals.

Rental rates

• Here’s a monthly report of average rents advertised by landlords in 35 cities across the country. Some markets are a lot more expensive than others.
• Sadly, rental bidding wars are a thing in the hottest markets, with prospective tenants offering more than the rate advertised by the landlord to edge out the competition.

What’s included in your rent?

• Water, heating, electricity, internet and other expenses may or may not be included. A parking space can also be extra.

Good to know: If the internet is on you, here’s Savvy New Canadians’ handy rundown of internet plans. And here’s another one for the best providers in rural Canada.

Renting and credit reports

• “Show me your credit report.” In the toughest rental markets, landlords ask to see your credit score and credit report as a matter of course. Even your future roommates may want to see your Canadian borrowing history.
• If you don’t have a credit history yet, as is the case with most newcomers, you can usually rely on a local guarantor, someone like a family member with good credit in Canada who agrees to pay your rent if you won’t. You can also provide bank statements showing enough money in the bank to pay for several months of rent.
• Beware of landlords asking you to actually pay many months of rent in advance because you don’t have a credit history. In Toronto the practice of asking newcomers to pay as much as one year’s worth of rent in advance is common. That’s illegal (here’s what landlords can ask for upfront).

Pro tip: Once you have a place, you can use your rent payments to help you build your credit score with services like Borrowel’s Rent Advantage, RentProof and Landlord Credit Bureau.

Your rights as a tenant

• Landlord-tenant rules. How often can your rent go up? What happens if the kitchen tap springs a leak? And what do you do if you have a disagreement with your landlord? Each province and territory has its own residential tenancy act, which regulates landlord-tenant relations. You’ll find a complete list of them here, but be sure to check the current version of your province or territory’s act.
• It could be different if you have roommates. If you’re moving in with one or more existing tenants, ask whether you’ll be added to the lease. If your agreement is with your roommates rather than with the landlord you may not be protected under the tenancy act.

Why you need tenant insurance

• Your landlord’s home insurance policy does not cover your stuff. Nor does it protect you from liability if, say, your dinner guest trips on your faux fur carpet and injures themselves. Tenant insurance (also called renter’s insurance) doesn’t cost much and is an absolute no-brainer.

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Buying a house in Canada

There’s a lot to know about buying a house in Canada. Here, I’ll talk about how to gauge what you can afford and where to start saving, or park your existing savings, for a down payment.

What can you afford to buy?

• Down payment. You’ll need to pay at least 5 per cent of the purchase price upfront in cash (although putting down that little is not advisable). For pricier homes you’ll have to put down more.
• Income. If you need a mortgage, banks will vet your finances based on the so-called “mortgage stress test.” This online tool simulates the math your lender will do.

Where to save money for a down payment

For longer-term savings, the Canadian government allows people to set money aside in special investment accounts that come with certain tax perks. (I’ll talk more about this in the fifth newsletter installment of this series, which is all about investing.) Some of these accounts can help you grow your savings faster to save for a down payment. I know the list below looks like acronym soup but bear with me:

• TFSA. With a tax-free savings account any interest or investment returns you money earns is exempt from tax. Watch for strict contribution limits and residency rules.
• RRSP/HBP. The registered retirement savings plan is meant to help Canadians save for retirement. But there is a program – called the home buyer’s plan – that allows you to take up to $35,000 out of your RRSP savings to buy or build your first home. Keep in mind the HBP is a loan to yourself and you’ll have to put that money back into your RRSP eventually.
• FHSA. The first home savings account is specifically meant to help you save for a down payment on your first home. You can contribute $8,000 a year and up to $40,000.

Should you rent or buy?

• For a financial and lifestyle comparison of renting vs. buying, check out Chapter 4 of my MoneySmart Bootcamp course on personal finance basics for Canadians.

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🍁 SURVIVE AND THRIVE TIP

When driving in Canada, always carry an extra bottle of windshield washer liquid in the winter months. Why? Let me quote a poignant book passage from Canadian author Melissa Leong, which perfectly captures my own experience with this issue:

“Near the end of a four-hour drive in a blizzard, the car ran out of windshield-washer fluid and the glass looked as if it had been painted with grey mud. Did I pull over because I couldn’t see? Nope. I drove on the highway with my head out the window, subjecting myself to a road facial, the sleet exfoliating off layers of skin.”

You get my point.

Dive deeper with Savvy New Canadians

Run by Enoch Omololu, a money expert and veterinarian who moved to Canada in 2011, the website Savvy New Canadians has become a destination for newcomers seeking personal finance information.

For more on renting and buying a home from Savvy New Canadians:

Types of Houses in Canada to Rent or Buy

Rental Credit Checks in Canada: What You Need To Know

How To Buy A House In Canada as a First-Time Home Buyer

The Tax-Free First Home Savings Account (FHSA) Explained

Keep going with Globe personal finance columnist Rob Carrick

Rob Carrick, the Globe’s personal finance columnist, has helped Canadians make sense of investing, the housing market, retirement planning and every money-related topic under the sun for more than 30 years. He is one of Canada’s best-known and most-trusted sources on anything that might affect your wallet.

You can read Rob’s latest articles here.

Sign up for Rob’s twice-weekly newsletter here.

Listen to Stress Test, the Globe’s personal finance podcast hosted by Rob and Globe personal finance editor Roma Luciw, here.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.