Purchasing a property beyond your primary residence is often a milestone. It marks a shift from simply owning a home to intentionally building real estate assets that can support long-term - and even generational - wealth. Whether driven by lifestyle goals, financial strategy, or a mix of both, second-property ownership is becoming an increasingly popular move among Canadians planning ahead.
Even when it’s not part of a large portfolio, a second property can offer flexibility, income potential, and security. But not all second properties are treated the same. The distinction between a second home and an investment property matters more than many buyers realize, especially when it comes to financing, taxes, and long-term planning.
Understanding the difference before you buy can save you money, stress, and surprises down the road.
Two paths, two priorities
The terms “second home” and “investment property” are often used interchangeably, which leads to confusion. While both are technically investments, the way you intend to use the property immediately puts it into one category or the other. That single decision influences how lenders assess your mortgage, how much you need for a down payment, how the property is taxed, and how it’s managed over time.
At the core, it comes down to use: personal enjoyment versus income generation.
What qualifies as a second home
A second home is a property you occupy yourself for part of the year. Often called a vacation home, it can take many forms - a city condo, a lakeside cottage, a ski chalet, or even a small multi-unit property.
You’re allowed to rent out a second home, but to maintain its status, you must personally occupy it for at least 14 days per year or 10% of the days it’s rented, whichever is greater. As long as that requirement is met, lenders and insurers will treat it differently than a pure rental property.
What defines an investment property
An investment property is purchased primarily to generate rental income and is not owner-occupied. This can include condos, cottages, or residential buildings with up to four units. Properties larger than that fall into the commercial category.
Here, the focus is return on investment. Cash flow, appreciation, operating costs, and tenant demand take priority over personal use.
Key differences when buying
The early stages of purchasing either type of property will feel familiar. You’ll still need to pass Canada’s mortgage stress test, demonstrate reliable income, maintain strong credit, and meet lender debt-service ratios.
Where things diverge is the down payment and how lenders assess risk.
For second homes, down payment rules closely resemble those of a primary residence. Properties under $500,000 can qualify with as little as 5% down. Homes between $500,000 and $1 million require a blended down payment, and properties priced at $1 million or more require 20% down. If your down payment is under 20%, mortgage insurance is mandatory.
Investment properties require a minimum 20% down payment regardless of purchase price. While this increases upfront costs, it removes the need for mortgage insurance, which can lead to meaningful savings over time. In addition, many lenders will factor in future rental income - sometimes up to 100% - when qualifying you for the mortgage, which can make approval easier than expected.
Pros and cons to consider
Both options come with meaningful advantages, but neither is hands-off. The right choice depends on your financial position, risk tolerance, and long-term goals.
Second homes offer lifestyle value. You gain a permanent place in a location you love, with the option to earn supplemental rental income when you’re not using it. Entry costs can be lower, but you’re taking on an additional set of ownership expenses, from mortgage payments to maintenance and taxes. You also need to commit to occupying the property each year to maintain its classification.
Investment properties, on the other hand, are income-focused. They can provide consistent monthly cash flow, tax deductions, and long-term appreciation. Lenders may be more flexible due to projected rental income. However, you’re stepping into the role of landlord, with all the responsibilities that entails, and all rental income is taxable. The higher down payment is a barrier for some buyers, but it also reflects the property’s income-producing potential.
Choosing the right guidance
Whether you’re buying a second home for personal use or expanding into investment real estate, the strategy matters. Working with an experienced real estate team ensures you’re evaluating the right opportunities, structuring the purchase correctly, and planning for the long term.
If you’re ready to explore your options, The Zadegan Group is here to guide you through every step. With deep market knowledge and a strategic approach to residential real estate, our team helps clients make informed decisions that align with both lifestyle and financial goals - in Toronto and beyond.
