A purpose built rental is a residential building constructed with the intention that its units be rented rather than sold individually. The building is generally owned and operated as a single asset by one owner, whether that is an individual, a company, a pension fund or a non-profit.

The practical consequence of that ownership structure is the thing worth holding onto. Because the whole building has one owner, there is no individual unit owner whose personal circumstances can end your tenancy, no unit being sold out from under a tenant, and no condominium corporation whose rules govern what happens inside the building.

Ontario's stock of these buildings is heavily weighted toward older construction, because relatively few were built for a long stretch and more have been built recently. That matters for the rent control question in section three, and it is the reason the phrase gets used imprecisely: an older purpose built building and a new one can be in completely different legal positions.

Worth saying plainly: purpose built is a description of how a building came to exist, not a guarantee of anything. It does not mean affordable, it does not mean rent controlled, and it does not mean well run. Those are separate questions with separate answers.

Ontario sets an annual rent increase guideline, which caps how much rent can be raised in most residential tenancies without the landlord applying for more. The guideline does not apply to everything.

The exemption. According to the Government of Ontario, the guideline does not apply to new buildings, additions to existing buildings, and most new basement apartments that were first occupied for residential purposes after 15 November 2018. For a new unit inside an existing house, the unit must have been completed after that date.

That single date reorganizes the whole question. A purpose built building completed recently may sit outside the cap entirely, while an older one sits inside it. A basement apartment created after that date may also sit outside it. The word purpose built tells you nothing about which side of the line a unit falls on.

Other exemptions exist too, including community housing, long-term care homes and commercial property, and the guideline also does not govern what rent is agreed when a new tenancy begins.

What still applies either way. Even where the guideline does not cap the amount, there are rules about how and when rent can be increased. A landlord must give written notice in the proper Landlord and Tenant Board form at least ninety days before an increase takes effect, and rent can generally only be increased where at least twelve months have passed since the last increase or since the tenancy began.

No percentages appear here. The guideline is set annually and a figure written today misleads within months. Get the current guideline, the current forms and the current rules from the Government of Ontario and the Landlord and Tenant Board directly, and get advice on a specific unit from a lawyer. Whether a particular unit is exempt depends on facts about that unit.

Buying a whole rental building is not the same activity as buying a condominium unit and renting it out, and the most expensive error in this area is treating it as though it were.

It is valued differently. Multi-residential property is generally valued on the income it produces rather than purely on comparable sales of similar buildings. That changes what you are analysing, and it means the quality of the financial information you are given matters as much as the condition of the building.

It is financed differently. Commercial and multi-residential lending works on different criteria from a residential mortgage, and there are insured programs aimed specifically at multi-unit residential property. What is available, on what terms and whether you qualify are questions for a mortgage professional who works in this area rather than a residential broker.

The existing tenancies come with it. Tenancies generally continue when a property changes hands, on their existing terms and at their existing rents. You are buying the rent roll you inherit, not the rent roll you would like. Where units are below market, assuming you can simply reset them is the error that ends careers in this business.

Due diligence is broader. Building condition, fire and life safety compliance, the municipal position including any licensing or standards orders, environmental matters, the leases themselves, arrears, and any proceedings before the Landlord and Tenant Board. This is lawyer, accountant and qualified inspector territory, in that order, and the professional fees are larger because the work is larger.

No figures appear here. Yields, cap rates, lending terms and returns vary by property, by market and by month, and a number written today is a liability. Build your own numbers from the actual statements for the actual property, verified by your accountant.

Very few individual investors buy an apartment building. Most start with a condominium unit, a house with a second suite, or a small multi-unit property, and the useful question is which of those actually suits you.

A second suite in a house. The question that decides everything is whether the unit is legal, which is not answered by the fact that it exists and has been rented. Legality affects insurance, financing and resale as well as compliance. Our guide to legal basement apartments in York Region sets out what has to be true. Note also that the 2018 date in section three can apply to newly created units.

A condominium unit. Check whether the corporation's rules restrict rentals at all, read the status certificate, and remember that the fee and the rules both affect what you can do. Our guide to condo fees covers what the monthly figure includes.

Our guide to buying a rental property in York Region goes through the whole decision in more detail.

Renting: when the building was first occupied; who the landlord actually is; exactly what is included; whether it is a condominium and what the corporation's rules say; and the current rules on notice and increases, taken from the Landlord and Tenant Board rather than from the listing.

Investing: the actual leases and the actual rent roll, including arrears; any proceedings before the Landlord and Tenant Board; the building condition from a qualified inspection; fire and life safety and property standards compliance; the municipal position including any licensing or outstanding orders; whether any unit is exempt from the guideline and why; the financial statements verified by your accountant; and what financing is genuinely available, from a mortgage professional who works in this asset class.

Both: get the legal questions answered by a lawyer before you sign anything, not after.

1. Assuming purpose built means rent controlled. The 15 November 2018 date decides that, not the building type.

2. Buying a building on the rents you think you could charge. Tenancies generally continue on their existing terms. You inherit the rent roll that exists.

3. Treating a multi-unit purchase like a residential one. Different valuation, different financing, different due diligence, different professionals.

4. Underestimating management. Price professional management honestly before assuming you will self-manage, and account for the compliance work as well as the maintenance.

5. Renting without asking when the building was first occupied. One question, and it determines whether your increases are capped.

6. Comparing the headline rent rather than the full monthly cost. Utilities, parking and locker change the comparison completely.

7. Taking the rules from the listing or the leasing office. The Landlord and Tenant Board publishes the forms and the rules. Read those.