Purchasing a Rental Property
Owning a home has long been a Canadian dream and on it's heels is the desire to own real estate as part of an investment portfolio. Some people own several homes and do well. They have been lucky with timing and with tenants. Other people have nothing but nightmares. So here are just some things to strongly consider before you consider a rental property.
- Talk to a REALTOR®, a mortgage broker and a real estate lawyer. They will be your strongest allies.
- Become familiar with the residential tenancies act. This is the law that you as a landlord must comply with. The tenants will know their rights, so know yours.
- Run the budget numbers and then run them again. Although there are exceptions, typically a down payment of 20% of the sale price of the investment property will be required. Closing costs such as land transfer tax and lawyers fees also need to be paid on closing day. Make sure you have a repair fund set aside and a reserve fund that will cover the mortgage and professional fees if your tenant(s) go bad and stop paying rent. If you aren't going to be in a positive cash flow situation then don't buy the property!
Questions to ask about potential investment properties:
- Verify the rental income paid by all tenants, all expenses regularly incurred and who pays for what. This should be in writing and verified by the tenants if it is currently occupied.
- Are you going to be assuming the current tenants or are you asking for "vacant possession"? If you are assuming current tenants verify that they are good tenants and have been good tenants with no late rental payments or other complaints. To be really thorough you can get a police history or talk to neighbours to get a sense of any problems. If you are asking for vacant possession (ie. an empty unit), can the current home owner deliver on this promise under the residential tenancies act? If closing day comes and the tenants have not vacated then what? This problem can be dealt with in the agreement of purchase and sale so again, talk to a REALTOR®
- If the property has 2 units or more are they all legal and registered with the municipality? When was the last fire inspection? Are there any outstanding work orders? (These are all things a good REALTOR® will help you with)
- When looking for new tenants have a thorough rental application ready for any potential tenants to fill out and do your due diligence! Ask for all landlord's names from the past 5 years as a reference and phone them! Ask them if they would rent to this person again given the opportunity. A credit check is a must, and some people will go as far as checking to see if there are any judgments registered against the applicant in court.
Excellent additional sources of information:
A home, whether it's your principal residence or a rental property is a big investment. Call me, text, or e-mail for a no obligation consultation to see if purchasing a rental property is right for you.