before you become a landlord
Almost everyone knows a family member, colleague or friend who owns an income property. There’s a reason why so many people choose to invest in real estate and that is because it provides passive income and when executed properly can create financial independence. Being a landlord isn’t always a smooth ride, but with the right teams, plans and systems in place, you can really build something special for yourself and your family.
1. Becoming a landlord is like starting a new business
Many people fantasize about being a landlord and assume its straight forward: You buy a house, fill it with tenants, and boom, you’re makin’ money… well sadly, that’s often not the case. Although it is possible to get very lucky to find a great deal and awesome tenants for your first purchase, it’s unlikely. The best bet is to do your homework and create a strong plan before jumping into your first investment.
It’s important to know the market that you plan to invest in, you will need to become familiar with the trends in the cost to purchase real estate as well as the current market rents and even more specifically, know the trends for the exact neighborhood you’ll be buying in.
You will need to make sure you’ve found a great cash flowing asset which will attract quality tenants and hopefully appreciate in value over time.
It is important that while analyzing the opportunity of becoming a landlord, you don’t give up because the entire process seems complicated. With the right systems, and some good contacts around you, you can become a successful real estate investor.
2. Buy the right property to rent
There are many different opinions on what is the “right” investment. Some will say that cash flow is king while others say long term appreciation is the goal, while many also combine the two strategies. These factors are very important when deciding what kind of property to buy. It’s also important to decide what kind of workload you want to have. For example, student properties can earn you more gross income each month, but they will come with a lot more work than seniors or families for example. Plan your strategy to fit your wants and needs and your lifestyle, then execute before you begin to over analyze.
3. Learn your province’s rental rules
Different provinces have different rules when it comes to rentals, so be sure you’re familiar with the ones governing yours. When planning to become a landlord, the amount of information you have access to is overwhelming. Be sure when researching laws, that you’re looking province specific and even check city bylaws of your respective city to be sure. While many provinces have similar rules, your province may have different specifics and its important to start your investment journey on the right foot with the law.
You also need to use the right forms for issues like tenant damage, non-payment of rent and rent increases. You’ll find those on the website of your provincial rental-housing agency.
4. Screen potential tenants
We’ve all read stories of nightmare tenants who generate endless noise complaints, damage property and even stop paying rent.
To protect yourself, we recommend credit checks (available through agencies like Equifax and TransUnion) and asking for references from employers and past landlords. We also match landlord references to the credit check, which shows past addresses, to ensure the applicant is being truthful.
5. Cultivate the landlord-tenant relationship
Once you’ve found great tenants, you’ll want to hold on to them for as long as possible. In Ontario you can only increase the rent by 1.8% annually so having a long term tenant can sometimes mean you’re leaving money on the table. It is up to you to decide what’s more valuable to you, less headaches or more cash flow.
In some cases, a bad tenant can eat up most, if not all of your cash flow, or in a worst case scenario, give you a negative balance at the end of the month. On the bright side, when you finally evict them from the property, you have the opportunity to rent the unit at a market rental rate.
6. Be hands-on with managing your rental
You can save even more time by making sure you’re set up for success from day one. Build a network of professionals — electricians, plumbers, handymen. This way you can handle most routine problems, like a leaky faucet, with a simple phone call.
The simplest way to do this is by subscribing to a property management software that allows you to handle tenant maintenance requests, collect rents and store all data from your rentals.
7. Check your insurance coverage
If you’re renting an apartment within your home, your existing home insurance policy could provide adequate coverage. But if you’re renting a building that you don’t live in, you’ll need to ensure that you have the appropriate rental property insurance. An insurance advisor can help you get the protection you need.
While it’s not legal to require your tenants to purchase insurance, it’s important they know that they’re not covered by your policy. It’s a good practice to recommend they take out their own policy so their personal property is covered. This requirement can be included as a clause in your Ontario Standard Lease.