With the Real Estate Market making a comeback, people are starting to think about the possibility of investing in rental property. Prices are still affordable and lending rates are extremely low. There is a buzz in the air that the rental market is going to be growing stronger in the years to come. But before you jump right in you need to know what you’re getting into.
Let me start by reiterating that I am not a mortgage or investment expert. I do, however, have a few years of being a landlord myself under my belt. I’ve also committed to watching and learning from other landlord’s successes and mistakes. Before we get into the financial conversation, I’ll share some answers with you to the most common questions and concerns that I hear from potential landlords.
Should I allow my tenants to have pets?
I have found personally that some of the best tenants had a pet and they had sometimes taken better care of my house than people with kids (seriously)!
How do I find and properly check out potential renters?
There are two common ways to go here. The first is to hire a property manager. A property manager will handle the initial meeting of potential tenants as well as any credit checks and applications. They can also act as the rental collection and hold a fund for minor repairs to your property. They also act as the go between for you and your tenant. Property Managers usually charge a monthly fee, but they are well worth it! If you are ok doing the work yourself, your second option is to use social media/craigslist. Just be prepared for 30 calls the first day from your Craigslist ad…its happened!
What about the maintenance?
Older homes may be a cost effective investment but they quite often also mean lots of maintenance and lots of calls from tenants with things like a leaky toilet!
If you are not available or handy you need to have a maintence person you can call up.
Who deals with the landscaping/gardening?
Don’t rent out a house you are emotionally attached to unless you plan to put the time and or money in to keep up the landscaping. 99% of tenants are not into landscaping and gardening. Lawn mowing is usually expected but if you have elaborate landscaping and no one tends to it for a year you may be disappointed with the outcome.
How do I maintain a good relationship with my tenants?
In this case, the Golden Rule definitely applies. Make sure you treat the tenants like you would want to be treated. Go that extra mile. Buy them some paint if they want to paint a room. Reimburse them right away if they replace a fixture. They are looking after a huge investment for you so you want to have a good relationship with them.
Now on to the nitty gritty…The Financials.
Unless you are a cash buyer ( no mortgage needed) you cannot expect instant cash flow. This is a long term investment. Do the math first and figure out if the rental income will cover your mortgage payments and costs. You may want a $200 cash flow each month, or you may be okay having to contribute to the mortgage payments each month.
I like examples, so here we go..
In Campbell River you have a lot of options for potential rental properties.
You could buy an older home in the downtown core for under $200,000 but be prepared for yearly costs for maintenance and repairs, updating appliances etc.
You can invest in a brand new home in the high $200’s and open yourself up to many different neighbourhoods. You’ve got a higher possibility of getting top rental income but now you have a shiny new house that may get a lot of wear and tear in a quick amount of time.
Let’s use an example of what I gravitate to, a basic 3 bedroom rancher. We’ll price it at $240,000 for this example. If you put a 10% down payment at 2.9% interest you would have monthly payments of approximately $1000 with the addition of property taxes at around $200 a month
Your rental income potential would be $1100-$1300 per month
Remember that this is a long term investment! Unless you get lucky and the market goes up 25% in 2 years, don’t expect to flip the house in a year and make money. If you look at it as a 10 year investment than that $240,000 house rented at $1250 a month (which covers that monthly mortgage payment) has helped pay down your mortgage to about $150,000. Statistically speaking the house is now potentially worth between $400,000-$450,000. You are now sitting on around $300,000 equity available to you!!! I’ll cover more about this in a future post about one of my favourite words, Leverage!
Here are some resources for you to look over:
BC residential tenancy branch link this is a must read before you even think about becoming a landlord! http://www.rto.gov.bc.ca/
As always, if you have more questions call or email me anytime. I love helping people become landlords!