Why do you want an investment property? To make easy money right! Here are some things to consider when you are buying an investment proeprty.
Positive cash flow
How profitable will being a landlord really be? The landlord has to ask themselves if they want positive cash flow and figure out if the money earned will exceed the money spent on being a landlord. Consideration to the local rental rates especially to similar properties is required to properly ascertain potential gross income.
Will a reasonable rate minus the cost of leasing the unit be worth the while? Costs can include regular maintenance costs, condo fees, insurance, property taxes, mortgage payments cost of gas travelling to and from the leased unit and realtor fees. If after all this accounting is done for all the potential and likely cost and the numbers are in the black then you will have positive cash flow.
If the landlord is buying an investment property they must consider the consequences to personal income tax; if it’s a condo apartment, what rules may not allow for the rental of the unit or make living there more difficult for potential tenants (i.e. not pets allowed); if the landlord is a new home buyer, are they aware they will lose first home buyers benefits when buying their first home to live in; if buying a house to rent out, does the house meet zoning rules, municipal bylaws and health, fire and safety codes.
When buying an investment property the landlord needs to consider what tenants are looking for and what they will pay higher rents for. Do you buy a turnkey situation where the condo or house is already updated or do you get affixer-upper and do renovations which will save you money on the sticker price but will cost thousands to bring to standards? Depending on the landlords ability to do construction themselves or to get it cheaply done perhaps buying the turnkey property is more appealing.
How will you go about in getting a tenant? The landlord has to consider trying to find a tenant by themselves or through the use of a real estate sales person. If the landlord tries to rent for themselves they have to find ways of marketing their property so potential renters will find them. The landlord will have to qualify potential tenants, do negotiations and right legal documents by themselves. If the landlord is inexperienced they might make critical mistakes which can lead to big headaches, legal cost, time spent away from work etc…
Using a realtor does cost money for their service, but on the other hand they qualify potential tenants, market the property through the realtor network by using the MLS and at the local brokerage. They make arrangement for other realtors to show the unit to renters in the form of showings. And finally they help the landlord with the legal paper work and negotiations.
But wait! Do you need a written tenancy agreement? The quick answer is “no”. However, the proper answer should be “yes”. Look at it in this way. If a problem arises which leads to having to go to court, not having a written agreement becomes harder to prove who’s right and wrong. With a written lease clearly laid out, it should be very clear to all parties what their obligations were.
The tenancy agreement is therefore very important and hiring a realtor will aid in making an iron clad agreement as they would have the expertise to know what “rules” are allowed and which are not.
Who is responsible to maintain the unit? The landlord is responsible to maintain the unit and ensure it’s in a good state. This is true even if the tenant was aware of problems before they rented the unit.
To try and get around this some landlords put a clause stating it’s the tenant’s responsibility but the law does not see it that way. It’s still the landlord’s obligation.
But, the tenant is obliged to keep the unit clean and to a standard that most people consider ordinary cleanliness. Also, the tenant must pay for or repair damages to the unit caused by the tenant or their guests/other people living in the unit.
What about snow removal? The Act generally states the property must be kept such that it can be safely entered and exited. Failure to keep the property clear of snow might be a breach of the Act.
Garbage removal is a point of negotiation between the landlord and tenant. Once an agreement is reached it cannot be changed without the consent of both parties and if the change results in less service for the tenant than a rent reduction can happen.
Does the landlord have to renovate the unit? The answer is no. The law does not force the landlord to “update” living conditions such as replacing carpet or freshly painting the walls. The landlord is however responsible for keeping the unit safe and habitable therefore in certain circumstances, renovations might be necessary for safety reasons.
Entering the tenant’s unit
When can the landlord enter the tenant’s unit? The landlord may only enter the tenant’s unit under specific circumstances. Mostly the landlord will give the tenant 24 hours written notice, which will state the when and why they will enter. Exceptions to giving notice are in an emergency or if the tenant agrees to allow the landlord to enter the unit.
Can the tenant refuse to let the landlord in after giving notice? The Act allows the landlord this lawful right thus a refusal by the tenant can lead to the landlord giving them notice of termination and lead to the eventual eviction of the tenant.
If you can read through all of these questions and after answering them for yourself you are still positive about being a landlord then go for it. If you come away y thinking that seems like too much work which you might not be willing to commit to then there are other ways to making money in real estate which might be for you.
Getting rid of bad tenants
What happens if you lease to a bad tenant? There are rules to be followed and every circumstance is treated individually. If after trying to work with your tenants to correct the “bad” situation and the circumstance continues I would recommend that you contact the Landlords and Tenants board for advice on how to deal with the situation.
Buying an investment property can at times be very profitable and very easy if the right tenant is found. A real estate agent can help you to find the investment property (for free as the seller pays the agents), place an offer for it, negotiate and prepare all necessary paperwork and walk with you through the whole process. Realtors will also be able to help you to get qualified tenants reducing the risks of getting a bad apple, do the paper work and negotiate for a small but reasonable fee usually one half months’ rent.
Being a good landlord can also help you keep good tenants which means less headaches, less turnover and less time and money wasted. Remember if you treat people with well they probably will treat you the same way back.
By Todd Lee
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