Owning a rental property might seem like an easy way to bring in extra income. This is far from the truth. While being a landlord can offer you a second source of income, landlords are required to deal with many issues, including repairs and maintenance, troublesome tenants, and interpreting the law. There is a lot of research, work and time that you need to put into your rental property to be a successful landlord.
Here are 5 questions to ask yourself before becoming a landlord.
Choose The Right Rental Property
There are many different kinds of property available for a landlord to purchase. Condos, detached homes, semi-detached homes, and duplexes are all properties that you can rent out to tenants. A single condo rental unit might be cheaper than a house, but be prepared to account for maintenance fees of a few hundred dollars a month, depending on where in the country you are located. Densely populated cities tend to have higher prices and more condos. You might want to consider a duplex in a smaller town for better value. Duplexes also have multiple apartments that can help subsidize the cost of one unit not having a tenant. Make sure you assess your monthly budget and schedule to realistically determine if you’re able to manage multiple units in a duplex.
Have a Screening Process
There are a few ways to screen prospective tenants to ensure your rental property has tenants of good character and strong credit. Here are a few items to request from a tenant before signing a lease:
- Credit score, to assess a tenant’s ability to repay debt
- References, from past roommates and landlords to assess a tenant’s behaviour in rental units
- Proof of income, to see if a tenant is able to afford their monthly rent payments
- Tenant Insurance, to insure tenant belongings in the case of a damaging incident.
Make sure you follow the law in screening tenants. For example, it is illegal to discriminate against tenants based on their source of income, family members, and pets. Although you want to screen potential tenants to ensure they are a good fit for your needs, don’t make the mistake of overstepping this line as it can result in legal and financial trouble for you.
Use The Landlord Credit Bureau
The landlord credit bureau allows landlords, property managers, and tenants to record rent payments. These records are shared with Equifax one of Canada’s credit bureau companies and contribute to the improvement of the tenants credit. For some, this is a great way to build credit. For others, if they don’t pay their rent, it could be damaging to their credit score.
For landlords, this bureau is particularly helpful because, with permission, landlords can pull up credit history from prospective tenants to get an idea on how disciplined they are in paying their rent on time.
Buy The Right Insurance
Landlord Insurance isn’t the same as regular homeowners’ insurance. There are many opportunities for coverage, including covering a tenant refusing to pay rent, damages from floods, liability coverage, and more. Depending on the kind of property, location, and occupants, you will have specific needs for landlord insurance.
Be Prepared to Be More Than a Landlord
“Landlord” is an all-encompassing title. You are not simply a rent collector when you become a landlord. There are many roles you will need to take on to be a successful landlord, including:
Realtor
Although you can enlist the help of a real estate agent to find a rental property to buy, you will need to take on some of the responsibilities of a realtor yourself. You will need to conduct your own research on different neighbourhoods, types of property, and market prices for potential rental properties.
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Salesperson
You will need to take on the role of a salesperson when you search for prospective tenants for your unit. Like any salesperson, you’ll need to stage your space and make it look appealing to potential tenants, as well as to potential buyers if you are looking to sell your rental property.
Detective
Having a rental property is bound to bring about issues, whether it be with mechanical aspects of the house or issues with tenants. You may receive complaints from tenants that will require you to work as a detective, to interpret the landlord and tenant laws in your area correctly, to investigate faulty appliances or household features, etc. You will also act as a detective when looking for prospective tenants, as careful consideration should be used for each application received to ensure you find a good tenant.
Learn more about landlord insurance for home-owners.
Debt Collector
Landlords hope to have tenants that pay their rent with no issues, religiously on the first day of the month. However, this is not the case all the time. Life happens, and people struggle to pay their debts sometimes. This is no different for tenants. Ideally, a tenant will communicate with their landlord to figure out a payment plan. In other cases, tenants may cut communication with their landlord and simply refuse to pay rent, for whatever reason. In these instances, landlords need to act as debt collectors, by trying to initiate communication with their tenant, asking for rent, and exploring legal channels if their own collection efforts prove to be futile.
Negotiator
When looking for prospective tenants, you may find some of them will try to negotiate the rent amount. This is common, and nothing to be nervous about because as a landlord, you will pick up the skills of a negotiator. Make sure you conduct enough market research to justify your rent. And, use other aspects of the property to negotiate. For example, your tenant might argue the rent amount, but they might be content if you include internet in the rent.
Repairman
While it’s simple enough to look online for a repairman’s services in the event of a faulty pipe, clogged toilet, or insulation issue, paying for such services can be costly. Being a landlord comes with many unforeseen expenses; so, landlords need to be wise in choosing their battles. That is, choosing what issues need professional services, and what issues they can handle on their own. For example, issues with bed bugs cannot be sorted just by a landlord. These pests require professional extermination services, and landlords who attempt to deal with the issue themselves can actually risk getting bed bugs themselves. This is a scenario in which a landlord should not act as a repairman.
Check out how a HELOC or home equity loan can help you finance any home repair.
Another potential repair need could be a clogged toilet. Sure, a landlord could call a plumber to fix it, but a landlord could also take the initiative and research how to fix a clogged toilet themself. It could be as simple as purchasing a snake from a hardware store so that you don’t need to enlist the services of a plumber.
Supervisor/Watchdog
Landlords need to stay on their toes and always be observant of their rental property. While they are often not there 24/7, especially if the property is not owner-occupied, landlords should observe their surroundings when they are on the property. Is there any illegal activity taking place on the property? Has the garbage been collecting in the alley, or is it being put on the curb each week? Are there any mold issues that could result in health issues for tenants? These are a few of the many questions landlords must ask when assessing their property.
Rental Income and Taxes
Rental income is required to be reported to the Canada Revenue Agency. However, not all of it will be taxable. Landlords can deduct many expenses, including expenses for repairs, insurance, garbage removal fees, mortgage interest, and more. Landlords should also remember that selling an investment property has different tax rules than selling a primary residence. Landlords will need to pay capital gains tax on the profit made from selling a rental property.
Understand Eviction Rules
Eviction describes the legal process in which a landlord can regain possession of their unit. While eviction rules might vary from province to province, it’s important to stay updated on the laws surrounding eviction in rental properties to avoid legal trouble. For example, eviction of residential tenants has different laws than eviction for commercial tenants.
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It’s easy to make assumptions on what grounds are valid to evict a tenant. A landlord might think that a missed rental payment is enough grounds for eviction; however, this isn’t true. A landlord needs to start a lengthy process, with accurate forms and paperwork for the tenant to make an eviction valid, regardless of the tenant missing their rent. Landlords should research and follow eviction rules.
Final Thoughts
Being a landlord is not as simple as collecting extra monthly income. You’ll need to wear many hats and tackle frequent issues on your own while managing different personalities, landlord-tenant laws, repairs, and more. Make sure you’re prepared for the commitment of being a landlord before taking the plunge.
