Do you dream of owning property? Perhaps multiple investment properties from which to earn a monthly stream of income?
But before you contact your real estate agent, consider what’s really involved. If you want to create an income immediately, you’ll need to rent your property.
If you’re thinking of purchasing an investment property to rent out to tenants, you will need to do some serious research.
Related: Student Rental Insurance Information
Becoming a Landlord
1. Start Up Capital
All potential landlords consider the cost of purchasing an investment property, but many overlook the costs to remodel. In other words, don’t expect start-up costs to end at the closing. If you buy a damaged or out-of-date home, you could spend a significant amount to make it “rentable.” Any damage to the foundation, plumbing, or wiring can cost thousands of dollars to repair. But even if you buy a property in good condition, you may still have to make changes to get it up to code.
2. Making Repairs
When it comes to being a landlord, two things in life are inevitable: death and repairs. Don’t even consider a property management business unless you’re sure that you can pay for repairs. Landlord and tenant laws require that you make serious repairs quickly. If you don’t, you could be held liable for additional damages.
Major problems aren’t the only issues you’ll have to account for. Some tenants will call you for everything. Be prepared to spend your free time changing light bulbs, replacing air filters, weeding yards, and spraying squeaky hinges.
3. Collecting Rent
You’ll have great tenants who pay the rent on time every month. You’ll have good tenants who slip up from time to time but always let you know ahead of time when to expect the rent. And then you’ll have the tenants that don’t pay and don’t call. As a landlord, you’re going to have to play bill collector from time to time.
Ask yourself if you’re comfortable confronting your tenants before you start renting. Keep in mind that you’ll have to make judgment calls as a landlord.
4. Managing Your Finances
Landlords need to look at property management as a rotating door. Tenants come in, stay their lease, and then go. While some tenants will renew a lease, most will move on to the next place when the lease is through and leave you with an empty apartment.
In down times, the apartment could sit empty for several months. To be a successful landlord, you’ll need to learn to manage your finances in times of feast and famine. Some months, you’ll have full occupancy, rent paid on time, and no repairs. Don’t assume that you will always have a tenant — according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada’s 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don’t forget to calculate potential costs, such as repairs and maintenance.
5. Renting out your home raises risks – Student Rental Insurance
Homeowners insurance typically covers owner-occupied, single-family residences. When your home doesn’t meet that definition because it’s being rented out regularly, it’s no longer covered. Student Rental Insurance typically covers the house itself, other structures on the property such as sheds, the owner’s possessions (but not the tenant’s possessions), lost rental income if the house is damaged and uninhabitable, and some liability protection for the owner in case of injury or a lawsuit.