Definition
When a borrower owns or purchases rental properties, lenders do not count gross rental income in GDS/TDS ratios — they apply a discount factor to account for vacancies, management fees, and maintenance costs.
Methods by lender type:
- **A-lenders (CMHC/Sagen insured)**: add-offset at 50% or 80% depending on the lender. Some use the 'rental offset' method (net rental income subtracted from rental mortgage expenses rather than added to income). - **B-lenders**: more flexible, may accept actual income from T1 declarations, Schedule E. - **CMHC (owner-occupied 1-4 unit building)**: 50% of gross rental income from unoccupied units added to qualifying income.
For an investor with multiple properties, the choice of lender and calculation method can vary borrowing capacity significantly. Mortgage brokers specializing in real estate investment know the lenders offering the most favorable methods.
Note: rental income not reported to tax authorities is never accepted by A-lenders and exposes the borrower to legal risks.