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Rental Properties

Pros and Cons of being a Landlord

A few years ago, I decided rental properties would be a better retirement plan for me than RRSPs.

I learned a lot from other landlords and Realtors. They gave me good practical advice.

I saw a house for sale near my home. I thought it might be a good rental property.
Mistake - I was looking for a reason to buy it so I could choose my neighbours.
The owners were rowdy and had really neglected the house.
Mistake - That property was not a great choice because it needed a lot of work.
Mistake - It was vacant for 2 months for renovations.
Mistake - It was not ready during the peak rental season which meant a smaller, poorer selection of Tenants.

The good things about the house: Location.
It is convenient to my home.
It is close to transportation, schools, shopping and resonable distance to downtown and the University.
Construction: The basement was double plumbed.

I took the course offered by Landlords and Tenants. (one evening for $25.)

In the years since, I have acquired several other properties.
So far, my biggest regret is not getting more, sooner - before prices went up.

In the last few years, more and more of my clients are acquiring investment properties. I always make sure they know the bad as well as the good parts of being a landlord. I am more picky finding properties for them than I am for myself. I don't want them to have problems. I want to give them a head start - my experience and the names of people that have helped me with renovations and maintenance.
 
Here are the lessons I have learned so far:

Never take a tenant just because you feel sorry for him.

A good relationship with your tenants is really important for you. It makes sense. You don't want to manage your property in court.

When something needs fixing, look after it IMMEDIATELY.
If you don't care about the condition of the house, why should the tenant?
Again, you are preserving the relationship.
Plus if you don't fix it, they'll move out.
Then you're looking for a new tenant and probably losing income.

Right from the start; your first meeting, tell your tenants exactly what you expect. Be polite and cordial but don't pussyfoot around. If you say what you want you are more likely to get it. If you are vague, you are likely to be disappointed.

If you get frustrated or angry, you'll sour the relationship.

Don't put your heart into your rental property. This is not your family home, it's an investment.
Its unusual for tenants to look after your property as well as you would. Don't have unrealistic expectations and you won't be disappointed.

Don't get emotionally attached and hope for the best.

Be practical about renovations. You don't need fancy or expensive, just decent quality and medium grade.

Make it clear - you will check the property regularly. There are horror stories about wholesome looking couples renting houses to set up hydroponic marijuana growing operations.
The moisture eventually destroys the structure.
Insurance is cancelled because the damage was due to illegal activities.
The landlord ends up with a huge clean up bill.
Often the building has to be torn down leaving only the bare land.
Lot value is much less than the Landlorn is paying for.

 
PROFIT

Here's the theory:
If you put $30,000 down and you clear $250 per month you make $3000 per year. That is 10% of your investment. A good return these days.
Plus you can sell it later - after your tenants have paid the mortgage.

Real Life:

Before purchase an investment property, think about money.
Keep up to date on mortgage rates.
For example: If mortgages cost $6.00 per thousand:
Multiply either the mortgage amount or the price of the house by .006 ($100,000 would be $600 per month)
Add other expenses like the monthly cost of taxes and insurance and probable maintenance.
Will you be able to rent the property for that amount? More?

Here is a more sophisticated idea. It works but isn't the common man's idea of a revenue property. You may just break even or subsidize the property.
Say you purchase a property for $150,000 and put $100 per month into it. After 20 years you will have contributed $24,000 while your tenant has paid the rest.
The property may or may not have appreciated. History says you will sell it for at least as much as you paid for it. If you sell it for what you paid for it - $150,000 - you are making money.
Worst case scenario, after 20 years you sell it for anything over $24,000, you are still ahead.
Plus through the term of your ownership under the current rules, you can put the loss against your other income.

Please check with your accountant regarding tax advantages and disadvantages.
 
TAXES

Taxes are complicated. You should talk to your own accountant for specific current information.
Generally, you declare the rental income and put the interest, taxes, insurance, maintenance and possibly depreciation against it.
 
Choosing Tenants

Tenants aren't Buyers. You want your tenants to be Renters.
One of my first tenants had a lot of savings. Sounded great but he bought his own house 10 months later.
You want tenants that stay because it is expensive and time consuming to find a new client.
Getting tenants is a hassle. You have to recondition the house, create and pay for ads, check credit and references and work out the kinks of a new relationship. The bills do not stop when your house is vacant.

Checking out tenants:
Ask your Banker to help you with the credit checks.
Do call references. Dig a little.
Why are they moving?
Wouldn't you like to see their current home? That would sure give you a good idea of how they will treat your property.

Currently, I refuse smokers and pets. But my portfolio would be better rounded if I had properties suitable for both.
 
Maintenance and Upkeep

The big rule: Fix it right now. You will keep your tenants happy.
If you delay, they will think you don't respect them or care about your house. If you don't respect them, why should they respect you?

Even more important: Why should they look after the house if the owner doesn't?

Tradesmen: Maintaining a list of good reliable tradesmen and suppliers will save you time and money.
Ask friends and other landlords the names of reliable tradesmen.
When the property needs repairs or replacement, you will not have to waste time shopping around.
Your tenants will be happy their inconvenience is dealt with so quickly and efficiently.

 
The Lease

I have a decent lease in "Word" that has worked well for me.

Landlord and Tenants will sell you standard forms that comply with the Act.

 
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