It’s no secret, rental property can generate passive income and help you reach financial freedom. It’s very attractive to people these days who have a little bit of extra money to put towards an investment. And investing in real estate is a good thing. Just look at Donald Trump – he made billions by investing in real estate development. Not the same thing as real estate property rental, but you get the point. People need to live somewhere – it’s a basic human need – and they will do without other things before they do without their home. So it’s a bit of a guarantee and safety.
When you buy your first home you’re just focusing on that, all your goals are towards getting into that home and nothing else.
But once you make your move, you settle in and start paying off your mortgage that’s when you start to wonder – what if I had another house that I can buy by putting a small down payment and using my current home as collateral so that I can rent out this new house to some (hopefully) good tenants and slowly over the time, not only make money, BUT have my mortgage paid off for me by someone else’s money. One day I can sell that and retired happily. Admittedly, it’s a very attractive idea!
But… and there is always a but, it’s not a walk in the park. There are many landlords who wish they knew some things prior to getting into rental properties. Do some searching on Google and you’ll see hundreds of posts of landlords complaining about how much work, effort, demand goes into making your rental property a profitable one.
So to summarize some of these main key points that every prospective landlord should know…
- The place has to meet zoning and fire code regulations. Meaning you can’t cram all these tenants into one house to try to maximize your profits. Find out from your local municipality about all the rules and regulations. Same thing goes for insurance. Find out before you embark on this. You wanna avoid a situation where your are getting penalty by the city because you didn’t make sure you meet regulations. Or that if something happens like a fire, your insurance doesn’t wanna cover because you had too many people living there and you didn’t tell them.
- Don’t count on keeping all the rent money. You are going to have to pay property taxes, maintenance expenses. Plus if your tenants are coming and going all the time, that’s lost income during the months you had to get the place ready for the next guy. Also you’ll have to report your rental income when you do your taxes.
- You may have to remodel the home to make it attractive to tenants. If you are trying to rent out parts of your house, you may have to create a separate entrance, or add a kitchen or an extra bathroom etc. What about parking. This may not be a big deal if you are renting a whole house to single family but if you’re renting out each floor to individual families then it matters.
- Carefully screen your tenants. Because you can’t just kick them out if they do something you don’t want them to do, like get pets, or have babies or are even late on their rent all the time, make too much noise, smoke, have people coming over, etc. There is something called Residential Tenancies Act here in Ontario and I’m sure in other places too that protects tenants and fights for their rights http://www.ontariotenants.ca/index.phtml . So you want to end up with good people on your hands NOT some amateurs. This is why doing some background checks is recommended. But be careful there too, many people fake their references. You have to be creative and smart.
- Can you do any handywork around the house? You better, because there will be many times when you’ll get a phone call: hey my toilet won’t flush, taps are leaking, fuses is burnt out. Yes most people should be able to fix that themselves BUT they don’t have to. So they’ll call you at whatever time of the day or night and ask. You have to respond in appropriate time and manner. Some people might want to outsource property management to professional, but then you’re paying them a fee. It’s a 50/50 situation. You decide.
- Managing a property is and can be like a part-time job. Don’t expect to just collect money and wash your hands off the place. You will have to visit from time to time to see how things are looking. Did they destroy the palace OR are the keeping it up. You may have to respond to problems unexpectedly. Murphy’s law states: anything that can go wrong, will go wrong. So you have to allow for that.
- Don’t forget to collect rent on time and don’t forgive those who are late. Many of us have been in a pinch, or things took an unexpected turn and now you’re out of money or running low this month. So you can’t pay rent. That can be understandable. BUT if you forgive your tenants and say just pay me when you can, this sets a bad precedent. You give them one finger, they take the whole hand. Sadly, this is true. People are creatures of habit, and they will learn they can always ask you for extensions. Don’t teach them this. Be polite but firm. Can’t pay rent? There is a penalty and deadline. If you can’t meet that, out the door. Seriously. There are other people who will pay on time. Why should you be a charity.
- Reward the good tenants. Yes that’s right. If they’re good, they keep the place nice and clean. You have no problems from them. Cherish them! Make them happy. It’s a small investment to give them free internet and/or cable. Or don’t raise their rent or something – they’re saving your money in the long term so you should understand that and appreciate that. A good tenant is the one you never hear from and the rent is paid on time, place is kept clean.
- Let a real estate agent help. They will often help you picking the right property, help you show property to potential tenants. This can be a huge time saver and gives you that second hand that you need. They can do credit checks, arrange viewings, etc. And of course when you’re first buying property to rent out, they can help you pick the right area. Why is this important? Because you want to buy property that’s in a relatively affordable, decent area where crime is low, amenities are close and people are not classy. This all gives you an insight into your potential tenants and how much you’ll be earning from rent.
Here is a helpful website with information about renting your home http://www.cmhc-schl.gc.ca/en/co/reho/index.cfm
Are you thinking of getting a rental property in Burlington, Ontario and surrounding areas? Do you need some help in figuring out what’s the best neighborhood to invest in? Talk to Lori VanDinther, an experience and trusted Burlington resident and real estate agent! She will work hard to share her knowledge and experience in buying rental properties in Burlington.
It’s a big task, don’t do it alone.