Plex in Quebec: Duplex, Triplex, Quadruplex | Mortgage Financing

RefinancePro.club

The Quebec Plex: A Unique Investment Vehicle

In Quebec, plex-type buildings (duplex, triplex, and quadruplex) constitute a distinctive real estate investment category. Quebec's housing stock, particularly in Montreal and mid-sized cities, includes a considerable number of these multi-unit properties, a legacy of 20th-century urbanization. For many investors, purchasing a plex as an owner-occupant represents the first step toward building a real estate portfolio, as it combines personal housing with rental income under advantageous financing conditions.

Owner-Occupant vs Non-Occupant: Two Financing Realities

The distinction between owner-occupant and non-occupant is fundamental in plex financing. The owner-occupant who lives in one of the units as their principal residence benefits from significantly more favourable financing conditions. For a duplex, the minimum down payment is only 5%, and for a triplex or quadruplex, it is 10%. In both cases, the borrower has access to CMHC, Sagen, or Canada Guaranty mortgage loan insurance, which opens the door to more lenders and potentially more competitive rates.

The non-occupant investor faces much higher requirements. The minimum down payment is 20% for any 1-to-4-unit property, with no mortgage loan insurance available. The pool of lenders willing to finance a non-owner-occupied rental property is more limited, and interest rates may be slightly higher. Some lenders add a rate premium of 0.10% to 0.25% for rental properties.

The Role of the Tribunal administratif du logement (TAL)

The Tribunal administratif du logement (TAL), formerly the Régie du logement, is the Quebec body that governs rental relationships and sets guidelines for rent increases. In Quebec, tenants have the right to contest any rent increase deemed excessive, and the TAL can set the rent according to its criteria. This regulation directly impacts plex values: a building with rents significantly below market may be less attractive in terms of immédiate income, but some investors see an opportunity for gradual improvement. Lenders, for their part, base their calculations on actual rents listed in leases rather than potential market rents, which can limit the available financing amount.

Plex Valuation: Comparison and Income Approaches

A plex's value is determined by two main methods. The comparison approach analyzes recent sales of similar plex properties in the same geographic area, considering the number of units, floor area, building condition, and location. The income approach calculates value based on net rental income and the capitalization rate applicable to the local market. For 2-to-4-unit residential plex properties, the comparison approach generally predominates, but both methods are often used together. The certified appraiser, a member of the Ordre des évaluateurs agréés du Québec (OEAQ), produces the appraisal report that the lender uses to déterminé the maximum financing amount.

Tax Considerations for Owner-Occupied Plex Owners

The owner-occupant of a plex benefits from mixed tax treatment. The portion occupied as a principal residence is exempt from capital gains tax on sale, under the principal residence exemption provided by the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)). The rental portion is, however, subject to capital gains tax and recapture of capital cost allowance (CCA) if claimed. Expenses related to the rental units (proportional mortgage interest, property taxes, insurance, maintenance, repairs) are deductible from rental income in the proportion corresponding to the rental area relative to the total building area.

Frequently Asked Questions

What is the minimum down payment to buy a plex in Quebec?

As an owner-occupant: 5% for a duplex and 10% for a triplex or quadruplex. As a non-occupant: minimum 20% regardless of plex type. The difference is significant: on a $600,000 plex, the down payment goes from $30,000 (5% occupant, duplex) to $120,000 (20% non-occupant).

How do lenders evaluate the value of a plex in Quebec?

Lenders primarily use two methods: the comparison approach (sales of similar plex properties in the area) and the income approach (multiplying normalized net income by a capitalization factor). For a 2-to-4-unit residential plex, the comparison approach generally predominates, but rental income strongly influences the value.

Does the TAL affect plex financing?

Yes, indirectly. The Tribunal administratif du logement (TAL) governs rent increases in Quebec. Below-market rents can limit projected income and reduce the property's value in the lender's eyes. Lenders base their calculations on actual rents listed in leases, not potential market rents.

Can I buy a plex with CMHC insured financing and then move out?

CMHC owner-occupant insurance requires you to occupy the unit as your principal residence. Moving out shortly after purchase could be considered misrepresentation. There is no precise minimum timeline imposed by CMHC, but lenders generally expect you to occupy the unit for at least one year. A legitimate change in circumstances (such as a job relocation) is accepted.

What are the tax advantages of an owner-occupied plex?

As an owner-occupant of a plex, you can deduct expenses proportional to the rental units: mortgage interest, property taxes, insurance, maintenance, and repairs, based on the percentage of rental area relative to total area. The unit you occupy remains your principal residence and is exempt from capital gains tax on sale, while the rental portion is subject to capital gains tax.