At the outset, becoming a landlord seems like a fabulous idea. You can create an additional income stream by renting a portion of your home or a separate rental property. It can help you pay your mortgage, save for a holiday or create a retirement corpus. Needless to say, becoming a landlord comes with its own set of responsibilities and drawbacks. So, it is necessary to be prepared so that there are no surprises along the way and you get the best returns on your rental property.
Being a landlord; Rewards
Regular monthly income: It is the most obvious perk of renting your home. The rent you collect, minus the expenses is your regular monthly income. If your rental property is in a good condition and you ensure regular maintenance, you will be able to save most of the rental income to yourself. You will get a steady, predictable monthly income with minimal expenditure. You can increase the rent every year (with some restrictions of course) and adjust for current market rates. This ensures that you always maintain a positive cash flow and get the best return on investment. Moreover, even a modest increase in rental income can have a significant positive impact on your property value.
Build up equity
If you can cover your mortgage payments with the rent you receive, and if your property value appreciates over time, you build up equity. A fully occupied and well-maintained rental property rarely depreciates. It can only happen in rare cases such as when the neighborhood erodes due to increased crime rates. In case you decide to sell the property, the equity is all yours and you can spend or invest it the way you like. You can further invest it in other properties or save the money in other financial instruments. Leveraging real estate assets (rental property): You can use your real estate assets to bargain for additional property investments. Unlike other forms of investments such as term deposits and mutual funds, you do not need to pay the entire investment amount yourself. You can use your rental property as collateral and get the mortgage you need.
By renting a part of your house or owning a rental property, you may be able to deduct certain expenses from your tax bill. Expenses such as mortgage and interest, insurance, repair and maintenance, property management fees, accounting costs, and utilities can bring down your tax bill significantly. This will certainly leave you with more money.
With a second source of income, you can establish financial security more quickly. You can place your rental income in any long-term saving plan or emergency fund. This will make sure you have sufficient fund when you need it and it may even help you retire early.
Real estate market risks
Like any other investment, the rental properties also carry risk. There is no guarantee that the value of your property will increase. When you buy a rental property, you need to ensure that the expected rental income should cover all the costs, or you may have to bear losses. If the property lies vacant for a long time or there are other financial issues, you may not be able to afford the mortgage. Also, when you are buying a rental property, you may not get the lowest rates and you will need to make a high down payment. So, it is important to account all these factors before making an investment.
A landlord needs to ensure that the property is in a good state always and all repair and maintenance tasks are carried out promptly. You also need to ensure that the property complies with all health and safety regulations. All this could mean that you need to make significant efforts and expenditure. Also, wear and tear on a rental property tends to be much higher, so you should be prepared to deal with this.
The Unruly tenants
The last thing you want is a not-so-desirable tenant, who is unruly or late on payments. While tenants are legally obligated to pay the rent, getting them to comply could be difficult. Evicting a problem tenant is much more difficult than you can think. It takes a lot of time money and effort. Thankfully, not all tenants are like this, but there is always a risk.
Possible rewards of renting your property may far outweigh the risks. Becoming a landlord may not make you rich overnight, but it does help create a steady income and build wealth over time. However, becoming landlords and one that is successful requires a lot of preparedness, due diligence and most of all time and passion, it’s certainly not for everyone.
Do Some Research
You should spend some time researching the rental market in your area before you take the plunge, take some time to research the apartment rental market in your area. Some of the things you want to research about is demand of rental units similar to your, current price ranges and type of amenities being offered by the other landlords . Another important thing you want to make sure is how long it takes to find a good tenants and what if any incentives you need to offer to get your place rented faster. This will give you a chance precisely assess your unit, consider any repairs or renovations and the value proposition of your home.
Make Required Repairs
Take a thorough walk through of your own property to carefully evaluate any pending repairs and required renovations. Also clean your property properly before you make it available for tenant showings. You would be amazed how well a crisp, clean and open space can do in terms of attracting quality potential tenants. While cosmetic changes and stylish modern upgrades may be optional, a clean place is not. Make sure the same applies to the surroundings of the unit; ensure the front yard, backyard lawn are clean and properly maintained.
Use Well Written Lease
While you may be tempted to use a lease document found on the internet to avoid a tedious process going through a lawyer, we highly recommend using a local lawyer. He can not only help you understand the provincial laws about landlords and tenants as well write a landlord-tenant agreement, which can protect you should something doesn't go well. This may cost you a small amount in the beginning but you would thank yourself in any eventuality where a poorly written contract not only will cost you substantially but also won't protect you from harm to you your property and personal discomfort going through the legal litigation process on a poor wicket.
Find The Right Tenant
There are a number of ways you can advertise your rental to generate interest from renters looking to find their next home. Some of these you want to look at are;
Try casting as wider a net as possible to ensure you get good amount of tenant leads. You may even want to consider contacting a property mgmt company if your rental is in a different city or you dont' have time to manage the process and your rental once it is rented.
Screen The Right Tenant
Becoming a landlord can be a rewarding venture as well as a fun one however to make this a pleasant experience, you must carefully screen all potential tenants. This includes; Asking interested renters to fill out rental application and to perform a thorough investigation based on this application. Confirm the applicant’s income and financial stability, ask for character references and perform a background check. Because you will be trusting this person with one of your most valuable assets, it is vital make sure tenant will pay rent on time and take good care of your property. When asking for personal references, remember that a person may be economically stable, but difficult to work with.
There is no doubt that being a landlord can be an exciting and rewarding endeavor. If you keep these five things in mind, your renting journey will most likely be a pleasant one. Remember your property and income are at stake, so take care of your investment and enjoy the ride!
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