Have you always wanted to own a rental home? What you need to know!
By: Bill & Lia McNally, Realtors at iPro Realty Ltd., tel: (905) 873-6111
If you’re like many of our clients, you’ve dreamed of owning a rental home some day, becoming a landlord, and tapping into an extra income stream.
Indeed, the benefits can be generous- most often homes appreciate in value over the years, causing your net worth to rise. Meanwhile, the rent your tenant pays you will, in most cases, entirely cover the mortgage payments and expenses, and chip away at the principle. Equity in your rental home is like money in the bank, helping you with long term financial goals like supplementing your retirement savings or helping your kids get a head start in life.
At the same time, the process can seem intimidating. It needn’t be, if you have the right Realtor to walk you through the process step by step. Bill and Lia McNally, Realtors at iPro Realty, can help you from the conception of your idea to beyond closing.
The best part is that working with a Realtor to buy a home is usually free; it’s the seller who pays their commission!
Paying for your rental home:
Unless you’ve recently come into some serious money, say from an inheritance or bonus at work, the average home owner may be able to come up with the funds necessary to buy a rental home by borrowing against the equity in their principle home, provided there is enough available.
Talking to your banker or mortgage broker is the best way to find out whether coming up with the money for a down payment and closing expenses is feasible for you.
Access to Funds:
To make this investment work, you will need access to money for expenses. You can count on coughing up for repairs and upgrades (roof, furnace, appliances, etc.) and there may be times when your home is vacant between tenants or your tenant is behind in rent. Being able to cover your mortgage and expenses is crucial.
One strategy is to keep a savings account specifically for your rental home and deposit any rent money you receive that is over and above your mortgage and tax bills related to the home. Allowing excess funds to accumulate for this purpose is probably the least painful way to take care of expenses.
Another way to financially prepare is to have a credit line available, though you should always keep your bottom line in mind to make sure you are profitable, taking into account any interest you may have to pay to borrow money.
Familiarize yourself with what is required to be a landlord:
Not everyone is cut out for the job. To make this a successful venture you must be able to manage your finances well, and have the time and willingness to solve problems related to your tenants and home maintenance. Owning a rental home will also affect your tax situation.
Finding the right home:
This is where your experienced realtor comes in. He or she can help you find a suitable home and negotiate the purchase. There are many things you’ll want to consider when buying a rental property for instance: the cost of owning the home (age and condition), rental rates in the area, vacancy rates, parking, whether the area is appealing to renters (proximity to schools and transit) etc.
Learning about the Residential Tenancies Act:
The Residential Tenancies Act provides the rules and regulations you much be abide by in your dealings with tenants in the province of Ontario. Familiarizing yourself with the act before you start advertising to find a tenant is highly advisable and will help you avoid legal issues in the future. Follow this link to learn more: http://www.ltb.gov.on.ca/en/Key_Information/STEL02_111677.html
Finding the right tenants:
This step is absolutely crucial. You are probably familiar with horror stories relating to nightmare tenants. While these kinds of tenants do exist, you’ll be happy to know they’re the exception rather than the rule.
You may choose to find a tenant through the internet/newspaper classified ads or you may employ a realtor to help you. The usual rate for using a realtor is equal to one month’s rent.
Either you or your realtor will need to conduct credit and employment checks in addition to references checks from past landlords to ensure a responsible and respectful tenant. At the same time, you’ll want to make sure you aren’t violating the Human Rights Code by discriminating during the process. Follow the link below to learn more on this topic:
Do you think you’re ready to become a landlord? Questions? Call Bill McNally at (905) 873-6111. Bill is a high performing real estate sales agent helping client to buy and sell real estate in Halton Hills and surrounding areas. With Bill you can count on excellent advice when it comes to the home buying/selling/rental processes. His advice is free and comes without slick sales pitches, pressure or obligation! Visit his website at www.willsell.ca