Is this the year you become a landlord?
By Lucas on Jan 16, 2017
With the recent mortgage rule changes requiring all insured mortgages to undergo a stress-test, it’s possible that many who were looking to get into the market this year may hold off and decide to rent for another year or so in order to save for a 20% downpayment. Basically, it’s a good time to be a landlord.
It’s difficult for most first-time buyers to come up with a 20% downpayment. Technically, they can buy with just 5% down, but then the Canada Mortgage and Housing Corporation (CMHC) requires it to be insured, which adds to the home price. Now, the stress-test is also applied, which will decrease the amount the buyer can borrow. The stress-test is supposed to ensure the borrower can still afford the mortgage even if interest rates go up.
So, maybe you can afford to take advantage of Toronto’s hot rental market. Here are a few tips for those who want to become a landlord:
1) Work with a real estate agent
It’s important to find the right property when you’re looking to generate rental income. Find an agent that works with investors and understands what you need. The location of your rental property needs to be highly desirable but also affordable for you and your prospective tenants.
Another benefit of working with an agent is they may have clients in search of the right rental property. If you cooperate with an agent when it comes to renting out your property, the commission is typically just half of first-month’s rent. It’s worth it to secure someone on a one-year lease.
2) Get your hands dirty
If you can paint and do minor installations yourself, don’t waste the money paying a contractor. No matter what the job is - big or small - a contractor will charge you a couple hundred dollars just for walking through the front door. If you decide to buy a new unit or preconstruction, then you likely won’t have to do any physical work at all.
3) Understand your taxes
If you’re not planning on living in the unit you just purchased, then you will be subject to more taxes, like the HST rebate won’t apply. Also, all the rental income has to be claimed for the tax year.
In addition to paying more tax, you also have all the regular costs of owning a property, like insurance, heat and hydro, water, your mortgage, condo fees (if applicable). The monthly rent you set should cover these things though.
4) Host an open house
Open houses aren’t just for the resale market. The rental market is so competitive right now that people are actually entering bidding wars for rental units. If you list your rental property on Kijiji, Craigslist, and MLS for a week and set a date for an open house, there is a very good chance you will find your tenant at the open house.
5) Don’t forget the credit check
If you’re working with an agent, they can do credit checks for you. The whole reason you’ve invested in a rental property is to make money, so it’s important that you rent it out to someone that can actually afford it and has a good history of paying bills.
6) Have an airtight lease
Some owners/landlords find standard leases online, which is not uncommon, but the smartest thing to do would be to get a custom lease from a lawyer. Yes, the lawyer likely has some cookie cutter templates that they use, but if you want anything specific included, they can include it properly so that you and the tenant are protected.
7) Set office hours
Once you have a tenant, establish office hours with them. You should already have post-dated cheques or an agreement to be paid electronically every month, so there’s no real reason for you to be in touch with your tenant unless they contact you. If you do need to access the unit, you legally need to provide written notice 48 hours before entering the unit. You only need 24 hours notice if showing a new potential tenant.
Your tenant may need to get in touch with you for a number of reasons, and they will do so at any time of the day unless you provide office hours. Even with office hours, you will still receive emails or phone calls from your tenant outside of them, but at least there’s an understanding of when you will reply. This establishes boundaries and helps support a healthy relationship between you and your tenant.
If you’re thinking of becoming a landlord this year, consider these tips to help ensure success!
