Now that you have decided to become a landlord, it’s time to do some homework so that you start off on the right foot. As they say, “Well begun is half done” Becoming a successful landlord involves a series of steps, each of which needs to be meticulously planned. Right from choosing the right property to financing the right tenant for your rental property, learning the rules of tenancy and then finally, creating a tenancy agreement, There is a lot that you will need to do to ensure success as a landlord. You will have to do a lot of research and learning before you can put up your house or apartment for rent.
1: Know Your Objective
Understanding your end goal is the first step towards purchasing your rental property. If you consider rental property investment to support your retirement goals, it should be based on realistic expectations, your financial capabilities, chosen investment strategy, and the answers to the following five questions:
1. When do you plan to retire and how much money will you need in retirement?
2. What are your retirement income sources?
3. What is your budget for purchasing rental properties
4. Are you looking to diversify your investment to reduce risk, maximize returns, or lower taxes?
The above questions will help you keep sight of your end goal as you begin to choose an investment strategy that works fits your needs, while considering your first potential rental property investment.
2: Talk to Other Landlords
Talking to a mentor who are invested in same area or types of homes that you are interested in can make all of the difference. You get to know more about a sneak peek in to the future you as a landlord have to deal with. This can be about renters and their needs, local rental market trends, a bad experience they may have had and what you could do to avoid that at the beginning itself! When you speak with other landlords, it is important that you keep their “investment bias” in mind. With this in mind, you can begin to find investors with similar goals along with extensive resources.
3: Save for Down Payment
It’s important to consider how much money to save for a down payment. Ideally, you’ll want to have and it can depend on the mortgage rules in your province or federal rules. In Canada rental properties require at least 20 down payment saved before. Some of the things that can help you save your rental property down payment in a timely fashion are:
4: Estimate Property Expenses
Before you purchase a rental property, it is important that you know all about the potential monthly, and unexpected, expenses that the property will experience. These potential expenses include:
5. Choose the right property
This is probably the most important decision you make that can have huge impact on your future outcome. As a potential landlord, your choice of property can make all the difference between a profitable and a loss-making rental business. The right property could give you a steady stream of tenants and a good rental income, whereas a poor choice could leave you struggling with the accounts with huge mortgage to pay off your pocket. While there is no one strategy that works for all landlords and all locations, that ever rental property type you decide eventually make sure that is backed up per your strategy. Many landlords like to invest in to rental property apartments and condos, while others prefer a single family homes or houses for rent to implement their thought out strategy.
6. Go With Property With Simple Construction
Choose a property with design and construction that is likely to appeal to most people, particularly the ones you are looking house to rent to. If the design is too fancy or jazzy, it may not appeal to a lot of people the reason is simple, most people like homes where they can see themselves with something with neutral shades and simple designs. Do not let your own personal preferences affect your choice. The more customized design and colors you rental property has, lesser it's chances to get tenants who can picture themselves in the home to rent it faster. Look for something that everyone will like. So, simple the construction the better it is. It gives the tenants a chance to style the house the way they like. So, simple the construction the better it is. It gives the tenants a chance to style the house the way they like.
Also don't overlook consulting a property inspector before purchase the rental property to ensure all major hidden issues are known and considered prior to the property purchases. You don't want to be in a situation where you bought the property based on it's visible condition and cosmetic looks only to find out that you need to get the foundation, plumbing or electrical system redone later. Those expenses could eat up all your yearly rental income of your house for rent in some cases!
7. Do your research
It is extremely important to spend some time learning about how to choose locations and rental properties, value them and evaluate the specific rental market you are in. Remember, the success of your rental business depends on your due diligence and buying the right property in the right location. These are the key decision points. Try to learn about what attracts tenants, what makes them move in or move out and how the rental market looks in the long run in context of your desired rental property location, budget as well as property type.
8. Find the Right Location
When looking for the right rental property, consider an area with plenty of amenities such as malls, restaurants, parks and schools, low property taxes, growing job market, and low crime rates. It is not necessary to look for a property in the most posh neighborhood of the city. In fact, neighborhoods with solid working class often make a great choice that yield consistently great returns on your investment dollars. Also no matter how good the neighborhood is, tenants will not want the house for rent that is not ready and prepared for renting. So, don't choose a rental property that looks visibly needing ton of upfront investment to bring it to rental condition, off course unless you got it at steep market discount.
9. Buy at the right price
As Buying at the right price now will not only ensure steady income over time, it will also help withstand future fluctuations in property value. A good starting point is to benchmark rental prices for similar units in the area and then weigh it against the mortgage, taxes, and utilities you will be paying. You need to have enough margins to pay all expenses and still have some profit left. Once you have calculated this margin, you can analyze every property against this amount. Higher the margin, the better it is.
Any discount that you may get at this stage can make a huge difference to your ROI. So, try to get as much a bargain as you can. You may be tempted to buy a much cheaper house that needs maintenance thinking that you will get the repairs and renovation done. However, never do this unless you are sure that the effort and investment is worth it. Remember, repair and maintenance can turn out very expensive and the costs may eat into every penny you have saved in the first place.
10. Assess local rental regulations
Rental properties are required to meet a set of regulations set forth by local authorities. These regulations may vary across cities and provinces. Make sure the property you are eyeing complies with the rental requirements. Look for any potential safety and maintenance issues. In major Canadian cities such as Calgary you do need special permit and ensure compliance with specific bylaws if you want to rent out basement suites. If rental property you bought has a basement but does not comply to the required bylaws, you can expect to spend great deal of money to bring the property in compliance before you can rent out the basement suite.
11. Look for something closer to home
It is easier to manage your rental property if it is closer to your place of residence. If you live to far away, you may not be able to resolve issues quickly or even keep an eye. There is no one-size-fits-all strategy that can help you find a great rental investment, but there are steps you can take to ensure that you make a sound investment. Basically, it’s about doing a lot of research and evaluating properties from all angles before making a choice.
12. Avoid renting to Friends and Family!
One of the most common pitfalls for landlords is renting to someone from their own friends and family. In most cases they do that believing their rent and property is protected because they know them intimately. However when these renters starts paying rent late or don't follow the tenancy terms, it's hard for the landlords to enforce these rules without either having to jeopardize your friendship or relationship or being taken advantage of. This is a very bad place to be in! So stay away from renting to people in your close social circle unless you can really sacrifice that.
In conclusion, 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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LEASEWELL is a premier property services company in Calgary. We help landlords with all aspects of their rental property so you can focus on things that matter most for you. while we do the heavy lifting for you. Let us help you find great tenants and keep your rental in top shape to maximize return on your property investment. For more please visit our website www.leasewell.ca or contact us