The stock market is an increasingly volatile place to invest your money, especially if you're planning for retirement. But people will always need to rent for various reasons, making rental properties an attractive investment for many Canadians. But before taking the plunge into rental property management, consider using the following questions as a litmus test to make sure it's the right choice for you.
1. Do you have enough money?
Many people who purchase rental properties think it's enough to have a down payment and closing costs to purchase their first rental property. But you should also budget for repairs, appliance replacements, and other incidentals. Remember that a significant portion of the rent cheques you'll be getting will have to fund the mortgage on the property, so having a couple of thousand in the bank or on a credit line as a contingency fund is solid business sense. You'll also need this contingency fund if your property is sitting vacant for a month or two; you shouldn't rely on other income to fund your rental property business. The current downpayment required for a rental property is 20% of the purchase price, which can be a significant amount of money depending on the size of your investment portfolio. You want to make sure that you aren't putting all your eggs in one basket so to speak.
2. Do you have the time to manage the property?
This is something you have to look at realistically. If your partner is home with the kids, they may not have time to deal with a tenant who needs a toilet replaced or a sink repaired. Property management companies can easily eat up the profits from a rental property, and are mostly equipped to handle multi-unit buildings rather than one or two homes. You can control the process yourself by building a relationship with a couple of local repair companies or handymen that you can rely on in a pinch.
Managing a rental property isn't just a walk in the park, it can be a lot of work, make sure to evaluate how much time you want to spend taking care of your investment!
3. Are you in a good location for a rental property?
Location is very important for your first rental property. Ideally, it should be in the same city as you so you can keep a close eye on it and be there for your tenants. You should also investigate vacancy rates before taking the plunge; if vacancy rates are high, you may not get as much out of your investment as you could. Luckily, Albertan real estate properties are generally a good investment since vacancy rates are dropping across the province.
4. Have you done your homework?
Vacancy rates are just part of the investigation you need to do before you purchase a rental property. What are monthly rents like in the community? Do they leave room for a profit when compared to the mortgage? See if you can drop in for a meeting of your local landlord's association to find out more about the market before you commit, and be sure to check out the website for the Alberta Landlord's Association for helpful guides on how to make sure the numbers work before you buy. It could save you tens of thousands of dollars over the life of the property to do this research before you buy.
5. Do you have the right partners?
While you may be running a sole proprietor business as a landlord, you'll need partners that can help you with the details. There are companies set up specifically to screen tenants for landlords to keep you from being saddled with a nightmare tenant. The upfront fee you pay to initially screen a tenant is worth every penny. You'll need a real estate lawyer to help you hammer out a rental contract, and to deal with any issues should they arise.
You'll also need insurance and a mortgage, both of which First Foundation can provide. As a company that houses both insurance and mortgage brokers under one roof, we can help you find a mortgage and insurance at great rates, and with offices in Calgary and Edmonton, we will be local to most areas that are desirable for rental properties. Best of all, you can get a preapproval for a mortgage that will leave you lots of time to shop around and do your research while knowing how much you have to work with.
Give us a call today to find out how we can help fund and insure your rental property dream.