In the world of novice real estate investing, the “exit” is binary: you either own the property, or you sell it. You list it on the MLS, wait for an offer, pay your realtor, pay the CRA, and walk away with whatever is left.
But for the sophisticated investor, the exit is a spectrum.
I once worked with a client who wanted to retire from active management. He owned a 12-unit building that had appreciated by $2 million. A simple sale would have triggered a massive capital gains hit and immediate “recapture” of years of depreciation. Instead of a traditional sale, he used a Vendor Take Back (VTB) mortgage.
He didn’t just sell a building; he created a five-year private annuity for himself, deferred hundreds of thousands in taxes, and sold the property at a premium because he provided the financing.
This guide explores the high-level exit strategies that allow you to recoup capital, reduce risk, and pivot your portfolio without losing your shirt to the taxman.
1. The Vendor Take Back (VTB): Acting as the Bank
A Vendor Take Back mortgage is one of the most powerful—and underutilized—tools in the Canadian market. In a VTB, you (the seller) provide a portion of the financing to the buyer.
Instead of the buyer bringing 25% down, they might bring 15% and you “carry” a secondary mortgage for the remaining 10%.
Why this is a “Triple Win” for the Seller:
- The Price Premium: Buyers are almost always willing to pay a higher purchase price in exchange for easier financing. If you solve the buyer’s capital problem, they will solve your price problem.
- Ongoing Interest Income: You stop being a landlord (no more toilets and tenants) and start being the bank. You collect monthly interest on your equity, often at rates 2-3% higher than a GIC or Bond.
- The Capital Gains Reserve: This is the “secret sauce.” If you don’t receive the full proceeds of the sale in Year 1, the CRA allows you to spread the capital gains tax over up to five years. This can keep you in a lower tax bracket and allow your money to keep “working” for you while it’s tied up in the VTB.
If you’re considering using a VTB as an exit, book a strategy call to see how that impacts your next purchase.
2. Partial Equity Sales: Scaling Without Selling Out
You don’t have to sell 100% of an asset to “exit” your capital. One sophisticated move is to sell a 50% or 70% stake to a Joint Venture (JV) partner.
The Playbook:
You’ve bought a property, completed a successful BRRRR, and added significant value. Instead of selling to a stranger, you bring in a JV partner who provides the capital to “buy out” your initial investment.
- You pull 100% of your original down payment and renovation cash out.
- The partner gets a stabilized, high-performing asset.
- You retain a 30% or 50% equity stake and continue to share in future appreciation and cash flow.
This effectively turns an active, capital-heavy investment into a “passive” one, freeing up your cash to go do the next big deal.
3. The “Portfolio Premium”: Selling the System, Not the Stones
Individual houses are sold to families. Portfolios are sold to Institutional Investors.
When you have built a cluster of 10, 20, or 50 doors, you have something that is worth more than the sum of its parts. This is called the “Portfolio Premium.”
REITs and large private equity groups don’t want to spend time hunting for individual houses. They want “Yield.” If you can offer a package of stabilized, professionally managed, and cash-flowing units, they will often pay a 5-10% premium above the combined individual market values just for the efficiency of the transaction.
Key Tip: To capture this premium, your Property Management software and financial reporting must be impeccable. They are buying your data as much as your dirt.
4. The “Infinite Return” (The Non-Exit Exit)
In many ways, the ultimate exit strategy is never to sell.
In Canada, borrowed money is not taxable. If you sell a property for a $500,000 profit, you pay tax. If you refinance that property and pull out $500,000 in equity, you have the cash in your pocket, but you have triggered zero tax liability.
You continue to own the asset, the tenants continue to pay down the mortgage, and you can use that tax-free cash to buy your next three properties. This is how the wealthiest families in Canada build “Infinite Returns”—by never severing the connection to their appreciating assets.
5. Tax Triage: Managing Recapture and Capital Gains
Before you sign any deal, you must understand the “Tax Triage.”
- Recapture: If you have been claiming Capital Cost Allowance (CCA) to lower your taxes for the last decade, the government will “recaptured” that income in the year of sale at your full marginal tax rate. This can be a massive, unexpected bill.
- Adjusted Cost Base (ACB): Ensure you have tracked every single capital improvement (new roofs, windows, furnaces) over the years. These increase your ACB and lower your taxable capital gain upon exit.
Planning Your Next Move?
The best exit strategy is one that's planned before you even buy. Whether you're refinancing, selling, or bringing in a partner, let's look at your financing options to maximize your net take-home.
Book A Strategy CallFrequently Asked Questions
What happens if the buyer defaults on a VTB?
How is the 'Capital Gains Reserve' calculated?
Can I do a 1031 Exchange in Canada?
Should I refinance or sell if I need cash for a new project?
The Final Word
An exit is more than a signed contract—it is a strategic maneuver. By looking beyond the simple sale, you can protect your capital, minimize your taxes, and ensure your next investment is even bigger than the one you’re leaving behind.
Disclaimer: Real estate transactions and tax laws are complex. This guide is for educational purposes only. Always consult with a qualified real estate lawyer and tax professional before executing an exit strategy.
Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.
Written by
LendCity
Published
February 16, 2026
Reading Time
5 min read
1031 Exchange
A US tax provision allowing investors to defer capital gains taxes by reinvesting proceeds from a property sale into a like-kind replacement property within specific timeframes. Not available in Canada, but relevant for Canadians investing in US real estate.
Adjusted Cost Base
The original purchase price of a property plus qualifying capital improvements and acquisition costs, minus any CCA claimed. The adjusted cost base is subtracted from the sale price to determine the taxable capital gain.
Appreciation
The increase in a property's value over time, which builds equity and wealth for the owner through market growth or forced improvements.
BRRRR
Buy, Rehab, Rent, Refinance, Repeat - a real estate investment strategy where you purchase a property below market value, renovate it to increase value, rent it out, refinance to pull out your initial investment, and repeat the process with the recovered capital.
Capital Cost Allowance
The Canadian tax deduction that allows property owners to write off the depreciation of a building over time, reducing taxable rental income. CCA cannot be used to create a rental loss and must be recaptured upon sale of the property.
Capital Gains Tax
Tax owed on the profit from selling an investment property, calculated as the difference between the sale price and the adjusted cost base. In Canada, 50% of capital gains are included in taxable income, though recent changes have increased the inclusion rate for amounts over $250,000.
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
Depreciation
An accounting method that allocates the cost of a building over its useful life as a tax deduction. In US real estate, depreciation reduces taxable rental income. The Canadian equivalent is Capital Cost Allowance (CCA).
Down Payment
The upfront cash payment when purchasing a property. For 1-4 unit investment properties, minimum 20% down is required. 5+ unit multifamily can use CMHC MLI Select with lower down payments, and house hackers can put as little as 5% down on owner-occupied 2-4 plexes.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.
Hover over terms to see definitions, or visit our glossary for the full list.