Do you have the time, energy, and available funds required to rent out a home successfully? If you’re thinking of becoming a landlord, here are some of the biggest factors you should consider.
DOES IT MAKE SENSE FROM A FINANCIAL PERSPECTIVE?
One of your biggest considerations will be your finances. For most investors, the safest best is to ensure that your property either cash flows (that your income from rent is higher than the expenses associated with maintaining it), or that you break even.
For the homes you’re thinking of purchasing, how much could you feasibly charge each month? A real estate agent with local expertise can help you understand the rental market in your area. Next, look at your potential carrying costs—including your mortgage payments, utilities, and property taxes, to name a few. Would renting out any of the properties you’re considering be financially viable?
CAN YOU WEATHER FINANCIAL STORMS?
If your property were vacant for several months, would you be able to pay the rent and carrying costs? What would happen to your finances if you had to cover three major repairs at the same time? Remember that necessary upgrades—such as HVAC system replacements—can sometimes cost thousands of dollars.
Being a responsible landlord is all about preparedness. From vacancies to delinquent tenants to malfunctioning home systems, it’s important to think through the potential worst-case scenarios.
Every landlord needs to decide whether they’ll manage their property, or hire a professional to do it for them. The former entails dealing with tenants, collecting rent cheques, ensuring that all of the bills are paid on time, and maintaining your property. These tasks can be time-consuming, so it’s important to assess your availability before making the decision to go it alone.
If you opt to hire a property manager (whether it’s a company or an independent contractor), be sure to factor this additional cost into your budget.
DO YOU KNOW THE LAW?
Before you decide to purchase a rental property, be sure you know the legal obligations you’ll be taking on. First and foremost, the home you’re renting out must always adhere to all city and provincial health and safety standards. Of course, your tenant will also have obligations toward you. These include (but aren’t limited to) paying rent on time, adhering to reasonable standards of cleanliness, and obeying the law on the premises.
For a full overview of the duties that you’ll owe to your tenants (and those they’ll owe to you), read the province’s Residential Tenancies Act.
What are your eventual plans for your rental property? Whether you’re hoping to move in yourself or sell it for a tidy profit, it’s important to consider your timeline. Keep in mind that once your tenant’s lease agreement ends, they’ll start renting month to month. As a result, terminating a tenancy can be slightly complicated.
While you can give a renter notice if you’re planning to move into the home they currently occupy, you can’t ask them to leave in order to sell it. What you can do is search for a buyer who’s willing to purchase it as a tenanted property.
When you get down to it, maintaining a rental property requires time, effort, and money. Fortunately, it can also be a rewarding and highly-profitable experience. If you’re ready to become a landlord, the right real estate agent can provide you with the guidance you need to get started on the right foot.