Economics | Rental vs Strata
Rental vs Strata: The Tenure Decision
Bill 44 set the unit count. The tenure choice is still the developer's. The decision turns on capital strategy, financing terms, and bonus-density opportunities — not just on the project IRR.
Key Takeaways
- ✓Strata returns capital fast through unit sales. Rental holds capital in the asset.
- ✓CMHC MLI Select is rental-only and changes the math significantly.
- ✓Vancouver's secured-rental bonus lifts six-unit lots to eight units — but locks tenure.
- ✓Switching tenure later is legal but practically complicated.
The Six Decision Factors
Builder cash position
Strata returns capital quickly through unit sales. Rental holds capital in the asset for years. Builders with capital constraints lean strata; builders or owners with long-term capital plans lean rental.
Bonus density (Vancouver)
Vancouver R1-1 grants a secured-rental bonus that lifts a six-unit lot to eight units at higher FSR. Pursuing the bonus locks the project into rental tenure under a long-term covenant.
CMHC MLI Select
Available only for rental construction. Project must meet at least one of three pillars (affordability, accessibility, energy). Lower premium and higher LTV materially change the rental pro forma.
Tax treatment
Strata sales trigger capital gains tax (or income tax if classified as inventory by CRA). Rental holds defer until sale of the building and produce ongoing rental income taxed differently. The choice has multi-year tax implications a CPA should model.
Strata corporation overhead
A strata multiplex carries ongoing strata corporation obligations even after sale. Insurance, depreciation reports, council meetings, and shared maintenance run forever. Smaller stratas (under 5 units) sometimes opt out of full corporation procedures under SPA exemptions.
Market conditions
Strata pre-sale velocity depends on local market. Rental absorption depends on rents at completion vs current market. Both are time-sensitive and decided closer to construction start.
The Strata Property Act Process
Stratification is governed by the Strata Property Act. The plan registers in the Land Title Office under the Land Title Act. The plan defines strata lots, common property, and limited common property. Bylaws are filed at the same time. After registration, the building is owned by individual strata lot owners; the strata corporation is automatically formed.
Small residential stratas (under five units) can elect simplified procedures under SPA Part 17, but most builders run the full corporation process for liability clarity. A BC notary or real estate lawyer typically charges a defined fee for the filing.
The Rental Path Under MLI Select
CMHC MLI Select requires the building to be operated as purpose-built rental for the duration of the insurance, with a covenant on title. The building must meet at least one of: an affordability test (proportion of units at defined affordable rents for defined periods), an accessibility test (units meeting CMHC accessibility criteria), or an energy efficiency test (BC Energy Step Code 4 or higher).
Hitting the energy pillar is the most accessible route for most BC small multiplex projects, since BC Energy Step Code is already approaching that level for new construction in many municipalities. Affordability requirements involve below-market rents that change project economics significantly.
Vancouver's Secured-Rental Bonus
The City of Vancouver R1-1 zone grants additional FSR and unit count to projects that commit to long-term rental tenure under a Section 219 covenant. A six-unit lot becomes an eight-unit lot. The covenant binds successive owners; the rental obligation persists on resale.
Pursuing the bonus is a decision to treat the building as a long-term hold. Selling the building (as a whole, not as strata) is permitted; subdividing into strata lots and selling individually is not.
Best For
- ✓ Owners with capital they intend to hold long-term in the asset.
- ✓ Builders pursuing CMHC MLI Select for the financing benefit.
- ✓ Vancouver lots seeking the secured-rental bonus to reach eight units.
Usually Fails When
- ✕ Builders who need capital recycled fast — strata is the path.
- ✕ Lots outside Vancouver where the secured-rental bonus does not apply.
- ✕ Owners assuming they can flip a covenanted rental building to strata at exit.
What To Verify Before Spending Money
- → CMHC MLI Select pillar eligibility for your project specifics.
- → Vancouver secured-rental covenant terms before committing to the bonus track.
- → Tax treatment with a CPA — strata sale vs rental hold differ materially.
Frequently Asked Questions
What is the Strata Property Act process?
Can I switch from rental to strata later?
What protects tenants in a rental SSMUH building?
Is rental always less profitable than strata?
Can I keep one unit for myself in a strata?
What about cooperative or fractional ownership?
Official Sources Referenced
Screen Your Lot for Missing Middle
Enter any BC address to see what Bill 44 SSMUH unit count, lot coverage, and FSR your parcel actually qualifies for.