Rental Properties – Is it for everyone?

A rental property can be a great enhancement to your financial portfolio.

After all, it is a very tangible asset that you can manage yourself and the world’s richest people all own real estate. While real estate has been increasing over time it is not fair, nor wise, to assume that real estate investment beyond your principal residence is for everyone. Is a rental property for you?

Before you decide to purchase an investment property first ask the following questions:

Real estate has cycles and not all real estate is the same.  A four plex should be more profitable than a single family home and condos in an elevated market are almost never profitable based on opportunity costs.

To own an investment property, you either need to be handy so that you can fix problems that your tenants report or you will need to hire a property manager.

Your peace for your tenant’s term depends on the kind of tenant that you allow to rent from you.  A good tenant will make your life a pleasure and your property will have a better chance to be profitable, while the wrong tenant will cause you nightmares and they can cause damage that will cost you a small fortune.  There are tried and tested things that you can do to assure yourself good tenants.

You will need a network of professionals that can assist you with the closing of your investment property, but also beyond that.  You will need the following professionals:

  • Mortgage Broker – One who specializes in investment properties and can make suggestions about ownership structures etc.
  • Real Estate Agent – An experienced realtor who understands investment properties.
  • A lawyer – To close the purchase, but also to assist you in potential future tenant disputes.
  • Accountant – Get a professional involved when it comes to taxes. After all, you are now running a business.
  • Contractor – A trusted professional for property repairs or renovations
  • Property Manager – In case you want someone else to manage the property and tenants for you.

Do you have enough resources to assist you in case of vacancy, property repairs etc.  You should not have to go into debt to fund deficits or costs associated with the property.

The geography of the property will determine the appreciation of the property and what kind of tenants you will get.  The further the property is from you, the more difficult it would be for you to manage the property.

What is the purpose for wanting to own an investment property?  Will you own the investment property or will you own it through a holding company?  To reverse the wrong strategy will be costly.

Ontario has a very clear tenant act and you cannot just simply evict a tenant or increase the rent whenever you wish to.  Research and know the law so that you can manage your tents effectively, fairly and you can be profitable.

Do you know what a healthy property investment portfolio should look like?  When do you you become too high a risk for banks to deal with?  When will a property truly be profitable?  Should you be purchasing a single family home or a 4 plex, etc.

Are you OK with coffee stains on the carpets, weeds growing in the front yard, rent cheques being paid too late and calls from your tenants at strange times of the day?  Some people are not and it can ruin the investment property experience.

It takes an entrepreneurial spirit to own an investment property, because owning an investment property means you own a business.  Ask the questions so that you are empowered before you start owning investment real estate.  We can help prepare you and we would love to have a conversation with you about your next property. Get in touch today!