Owning A Rental Property: What You Need To Know
Owning an income property can be sweet, allowing you to pay down your mortgage with accelerated payments, building equity with help from tenants. Or, you can take the money you receive and use it to improve your property, or -here's an idea, you can save the money!
If you are considering becoming a Landlord ask yourself this: What is your motivation? Do you want to create income to support yourself now or are you planning for the future? Do you want to subsidize your mortgage? Will it be a place for your ageing parents in future or perhaps adult children? Is this part of your investment portfolio?
If your motivation is to make money, you have to consider the costs of converting a basement or top floor into a rental suite. How long will it take for you to pay off the investment? For example, if it costs you $20,000 to renovate and your rental income will be $700 net, you will net $8400 per year. It will take you 2.5 years of occupancy and full payment before you start making money.
To make money to live on now, you may need to consider buying in an area where home prices are low yet rents seem to be high. You will make less money on your real estate but you may see a monthly income.
If you want to subsidize your mortgage payments, being as $500 rent pays $100,000 mortgage in most cases, you want to be sure that you can carry the mortgage when the suite is not generating income. Note that only a portion of your rental income can be used for mortgage qualification and conditions may apply-like retrofitting to fire code.
Some buyers want to buy a place that has more than two residential units so they can live in one apartment and rent out the others, and plan to move out of the property when they purchase a single family home a few years later, retaining the first property as an investment.
If your home is a property that had a nanny suite and you don't use the space and feel you want to capitalize by renting out, just make sure you understand the legality and fire codes for your municipality.
Consider this, should anything go wrong you will have to live with these tenants in your home. Not everyone is cut out for that.
Note that there is a difference between commercial and residential mortgage loans, and a multiplex may not qualify for a residential mortgage so be sure you understand what financing is available to you and what caveats you face.
One thing is for sure: you must familiarize yourself with your provincial Landlord Tenant rules, know your obligations as Landlord, know your rights, and know your tenant's rights. Just like any business, it's not easy, but it can be worth it!