Quebec Apartment Investing:

A Case Study: Stable Rents vs. Turnover Upside in a Regulated Market

In the world of multifamily investing, Quebec is a unique and complex playing field. With some of Canada’s strongest tenant protections and rent control measures governed by the Tribunal administratif du logement (TAL), the strategies that work in other provinces don’t always apply here. Investors must not only underwrite financials but also deeply understand tenant dynamics, turnover patterns, and the legal framework that limits rent increases on occupied units. Let’s look at two very different 16-unit apartment buildings in Quebec and explore which presents the better investment opportunity.

Building A: Larger Apartments, Long-Term Tenants, Below-Market Rents

The first building is a classic low-rise 16-unit constructed in the 1960s. Each unit is a spacious 5½ with family-sized layouts, hardwood floors, balconies, and parking. The property is in excellent condition, with recent upgrades to the roof, windows, and boiler system. On paper, the building offers stability. Most tenants have been in place for 10 to 20 years, and vacancy is near zero. But there’s a major catch: the rents are on average 40% below market, around $950 per month, compared to $1,600–$1,700 for similar units in the area.

The asset is priced at a 5% cap rate, reflecting its current income. Net operating income (NOI) is approximately $182,400 annually, based on average rents of $950 across 16 units. At a $3.65 million purchase price, this may look low-return to some investors.

However, this building represents a classic value-add opportunity, not in the short term, but over a 5–10 year horizon. Because Quebec law only allows modest rent increases while tenants remain in place (based on an annual formula that accounts for taxes, inflation, and amortized capital improvements), your ability to raise rents is minimal unless you achieve tenant turnover.

If even four tenants move out a year, and you renovate and re-rent those units at $1,650 per month, you’re unlocking $700 per unit in monthly gain, or $8,400 annually per unit. Across 4 units, that’s an extra $33,600 in NOI per year. Over time, the compounding effect of unit turnover can drive significant value appreciation and cash flow growth. Of course, this requires patient capital and an investor who understands that the return is trapped in the building and must be slowly unlocked.

Building B: Smaller Units, Higher Turnover, Market-Level Rents

Now consider a second 16-unit building. This property is made up entirely of 3½ units, smaller, more compact apartments ideal for students, young professionals, or couples without children. It’s located in a similar part of town but caters to a different demographic. Rents average $1,300 per unit, already close to market level for 3½s in that area.

The tenant base is more transient, with average stay durations under two years. The higher turnover means more management intensity and greater costs for cleaning, repainting, and re-leasing. But it also means you can frequently reset rents to market. And because each turnover creates a new lease, the TAL allows landlords to set the new rent freely, provided they disclose the previous rent to the new tenant (Section G of the standard lease) and can justify any increase if challenged.

This building trades at a 6% cap rate, producing $249,600 in NOI annually on a $4.16 million purchase price. On a cash-on-cash basis, it delivers better short-term returns and cleaner cash flow, assuming management can handle the pace of turnover. However, the long-term upside is more limited. Rents are already near ceiling, and units are smaller, meaning the per-unit revenue potential is structurally lower. If market rents grow slowly or vacancy increases, there’s little buffer or hidden value.

Which is the Better Investment?

The answer depends on your strategy:

• If you're looking for stronger immediate cash flow, fewer surprises, and a more liquid asset in the short term, Building B is a better fit. Its higher cap rate and market-level rents reduce execution risk.

• If you're playing the long game, and you have a team or strategy to manage turnover and renovate units as they vacate, Building A offers greater upside. Even with a lower cap rate today, the embedded rent gap represents a large unrealized gain. If you're able to turn over 25–50% of the units over a 5 to 7 year period, the cash flow will rise significantly, and so will the building’s value.

Legal Considerations in Quebec

Under Quebec law:

• You cannot raise rents substantially on occupied units without tenant turnover.

• Renovations allow modest increases (based on amortization tables), but the TAL severely restricts landlords from increasing rents to market without vacancy.

• Even when a unit turns over, the new tenant can apply to the TAL within 10 days to have the rent set — even if the previous rent was disclosed. The tribunal will use the prior rent as a baseline and consider whether the increase is justified by renovations or improvements.

This makes tenant turnover your only reliable lever for unlocking value in under-rented units.

In a province like Quebec, where the government tightly controls rent increases and tenant protections are robust, your investment thesis must align with the legal environment. Stability and below-market rents (Building A) can look like a trap — but they may be a goldmine in disguise for long-term investors. On the other hand, market-rent buildings with higher turnover (Building B) offer simplicity and income now, but less hidden value. Ultimately, success depends on your capital horizon, risk appetite, and ability to manage turnover and renovations under a strict regulatory regime.

Source: Tribunal administratif du logement – Rent Increases

You can access the Civil Code of Québec online (English and French) through the LégisQuébec website: 🔗 Civil Code of Québec (LégisQuébec). Search for Articles 1892 to 2000, which cover residential leases, rent increases, and lease renewal rights.