8 Tips for Buying Rental Property

So you’re thinking about investing in Real Estate. You’re getting closer to retirement and are looking for that cash flow during your non-working years. You’d like to see your income subsidized now to increase your savings account, emergency funds, child education or for any other reason.  Let’s face it, with the very low vacancy rates in Sault Ste. Marie, it really does seem like an attractive and easy way to make some extra cash, and potentially, lots of extra cash.

This article will help you decide whether or not you’re cut out to be a landlord and provide some helpful tips before moving forward on your investment.

Advantages of Owning Rental Property

Owning real estate certainly has its pros and cons. It can be very profitable. Real estate is a tangible asset that you control and everyone needs a place to live. You can make money with real estate in two basic ways—cash flow and appreciation:

  • Cash flow or income results when the rent you collect from a tenant exceeds your total expenses. Expenses for a rental property may include the mortgage payments, property taxes, insurance, maintenance, and repairs.
  • Appreciation is the increase in value that a property can experience over time.

How to Make Money on a Rental Property

You might buy a property in a good neighborhood that needs repair and you can fix it up to “flip it” for a profit or to rent out. Some people like to invest in multi-family properties that are already making money or one where they can live onsite in one of the units. Or you could buy a vacation home that you rent out on a weekly or monthly basis and use for yourself part of the year.

Once you pay off the mortgage on a rental property, it can be a nice source of extra income while you’re still working or during your retirement. So, how you structure a real estate investment depends on your resources, how long you intend to own the investment, and the features of the property that you buy.

Disadvantages of Owning Rental Property

The bottom line is that you have to be completely confident that you can make money no matter what the situation that arises on your rental property. If you can’t, you better be sure that you can cover those costs during a vacancy and through repairs.

It’s easy to underestimate the costs of repairs when you’re repairing a fixer-upper. It’s also hard to deal with tenants who call late at night with a clogged sewer system or who don’t pay their rent. Irate or irresponsible tenants can damage your property or have problems that they never report to you. Unexpected vacancies can drain all the profitability out of an investment, too. Being a landlord is tough business.

Therefore, buying a rental property or a fixer-upper is a business decision and you need to crunch the numbers for it very carefully. Here are some resources to help you do that at the end of the post. The bottom line is that you have to be completely confident that you can make money no matter if you have higher-than-expected vacancies or lower-than-expected rents and appreciation.

Here are 8 tips for buying rental property:

  1. Be sure your personal finances are in order.Never buy a rental property if you don’t have a healthy emergency fund. Remember that you’ll be responsible for mortgage payments and repairs even if there is no tenant.
  2. Get preapproved for an investment loan. Sit down with a mortgage lender or broker to find out if you can afford to make an investment before you spend a lot of time searching for a property.
  3. Research going rents. Ask real estate agents, property managers, or other renters in the area how much you can realistically expect to charge for rent.
  4. Buy properties in good locations. The quality of the neighborhood is important for keeping good tenants. Take a look at the proximity to employers, schools, parks, and public transportation. If you plan to manage a rental yourself, be sure that it’s fairly close to your home.
  5. Make purchase offers contingent upon inspections. Always pay to have professional inspections made so you can determine what repairs may be needed and if there’s evidence of pest damage.
  6. Get ample insurance. You need to have plenty of liability insurance to protect yourself in case someone is hurt while they’re living in or visiting your rental property.
  7. Know the rules. There are federal and state laws regarding rental property that you must not to violate. Learn and gain more information about the landlord-tenant laws in Ontario and the municipality.
  8. Consider the services of a property manager. Even though a property manager typically charges around ten to fifteen percent of the gross rent they collect, it’s often well worth it. If you want to circumvent all the hassles of managing a property, be sure to add the expense of a professional manager into your calculations before you decide to buy a property.

There’s no guarantee in Real Estate investments and rental incomes. But if you’re cut out for it, buying real estate can be a great way to diversify your investments and set you up for a very lucrative future.

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Joanne Kovich

Joanne Kovich

REALTORĀ®
CENTURY 21 Choice Realty Inc., Brokerage*
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