With the high costs associated with owning property in Toronto many homeowners are considering either buying property to rent out, or renting out part of their own homes. But does this make financial sense and if so, what should the landlord consider before making that choice? While there can be no crystal ball, here are some of the recommendations that I regularly give my clients:
Know your Tenants.
Your real estate agent undertakes the credit and background checks but there is no harm in spending a little of your own time looking into your prospective tenant also. This can be an hour on your computer or in-person meet up.
– Speak to past landlords, not just the current or most recent who may have good reason to get rid of them. You don’t want to be another landlord’s ticket to freedom from a bad tenant!
– Check them out on social media…YouTube, Facebook. See if they have an animal when they say they don’t, or if they have wild parties. A quick look should suffice.
– Consider interviewing them in their current accommodation to see how they live.
Cash Flow Blues.
Eric T. Wagner writing in Forbes magazine a few years ago gave the number one reason that small businesses fail is because of cash flow. Not what I was expecting but the observation struck me because I realise how vital cash flow is for new landlords in particular.
- Make sure that you will be cashflow positive before you make the final decision to become a landlord. Ask yourself what happens if the property is unoccupied for a time or if interest fees go up. Go through the figures with your financial advisor, a fellow landlord or a finance savvy friend. Make sure they ask you the tough questions, this is not the time for sugar-coating.
– The tenant pays utilities but are there common areas of the building that you are responsible for? Are these bills fixed; are they payable in regular intervals or annually?
– Consider tax issues for you. Will this venture see you taxed at a higher rate? What will the mortgage payment be? Don’t ignore the obvious questions such as will the rent payment cover the mortgage, property taxes and maintenance fees?
So you have your property, you and your bank have done all the checks that you can think of on your tenant but six months in you have a problem. What, if anything, can you do? Quite a bit as it happens, but you can deal with it best if you know your options before a stressful situation occurs.
- You need to understand The residential Tenancies Act http://www.mah.gov.on.ca/page137.aspx Keep this link in the Bookmarks section of your computer. Read through it occasionally to become familiar with it and also to check for amendments.
- At the first sign of a problem try to amicably resolve the situation first. Things happen – people lose their jobs or have to move because of divorce, illness, job change. It may be a temporary issue.
- Act on problems right away if you can’t resolve the issue. The longer it goes on the more chance that it will escalate. Whatever you do don’t ignore it.
Just thinking about maintenance issues can be exhausting when it is the home that you live in yourself, so taking on the additional responsibility of maintenance on a rental property can be daunting. What are your options?
- Consider hiring a property manager. Though a cost to be factored in, ask yourself “do I want to be dealing with a leak at 11pm at night?”
- If you do want to take on the task yourself gather a reliable list of tradespeople on your speed dial. Make sure that they will come out at unsocial hours if necessary. Beg and borrow recommendations if you have any gaps on your list.
Other things to consider:
- Can I raise the rent if I need to? There are guidelines for this: http://www.sjto.gov.on.ca/ltb/faqs/
- Canada Mortgage and Housing guidelines cover many other issues to consider:https://www.cmhc-schl.gc.ca/en/co/reho/yogureho/fola/index.cfm