Real Estate Agent in East York - Better Homes And Gardens Real Estate

@ HOME WITH KEVIN 037: Tips to ensure you get the most out of buying and owning a rental property

13 January 2018
Kevin Hartley

@Home with Kevin 2018 just may be the year to take advantage of East York’s hot rental market!  If you’re not planning to sell your home anytime soon, consider leveraging the equity in your home to buy an income property. I’ve got four thought starters to help ensure you make a profitable investment.

Frame of Mind: Before you dive in, what’s your frame of mind around an investment buy?  Are you seeking financial freedom?  Is this to occupy your retirement or spare time hours?  Is it to have an asset to pass on?  Will you be happy with neutral income and passive property value growth?  Or do you need immediate, positive monthly cash flow?  Maybe it’s a combination of these or other factors, but the financial needs and personal reasons why you want an income property deserve ample consideration and will guide your journey.

Calculate Income And Expenses:  Begin with a budget.  Work with your purchasing agent to explore neighbourhoods and housing styles to see what renters are currently paying.  This will provide a good idea of your potential rental income.  Then, compare this to the anticipated monthly mortgage payment you can afford to carry, taxes, utility costs (if not making these the tenant’s responsibility), maintenance and repairs.

Remember, when buying an investment property your financier will want 20-30% down, presumably coming from savings or liquidity in your current home, depending on many unique variables given your financial position and the property you wish to buy.  Also, the potential rental income can, in most cases, be used to calculate the value of the mortgage you will qualify for.

Precisely how much you will need is impossible to predict, but doing this exercise on paper can help to determine whether an area or specific purchase will be profitable.  Every scenario is different; so talk to your lender and be sure to disclose and clarify that you are making an investment property purchase.

Approach Rental Properties Like A Business:  Before talking to an investment savvy realtor, mortgage professional, tax accountant and lawyer (just some of the professionals I suggest you consult in advance of making a purchase), I feel it is vitally important for you to recognize you’re starting a small business and to consider your experience and available time accordingly.  Your income property will be your product, your tenant(s) will be your customer(s) and you, my friend, are more than just the landlord, you are the 24-7-365, on-duty and on-call shopkeeper.  Unless of course, you’ve hired a property manager, which can be a worthwhile expense that may still yield positive cash flow.

Many real estate investors are wisely advised to reduce personal exposure by establishing their portfolio as a limited liability or fully incorporated company.  This can help you deal with legal and financial matters that might arise as your investment grows in value, as you acquire more properties or should you encounter litigious tenants or vendors.  There can be tax advantages, including being able to write-off certain expenses such as renovations, contract work, repairs, property management, legal and real estate fees.

Sure, lots of people own lucrative income properties and manage them alone and without a business structure in place.  But, where I see people fail or grow frustrated is in underestimating the ongoing and sometimes labour intensive property maintenance, people and financial management tasks.  Failing to report income or fully understand the tax implications, and being overwhelmed by the complex legal obligations to tenants and the savvy communications needed to build and maintain a harmonious and mutually beneficial relationship, can be time-consuming and emotionally exasperating.

Year-Round Potential: Once you’ve wrapped your head around the small business nature of income property ownership, it’s most important that the numbers jive with your goals. Consider buying a solid, well-maintained property with the potential to generate income every day of the year.

Try not to get emotional about the property or the location. Of course, you want a property that is in good condition, is rentable, safe and in a good area for appreciated value and future resale.  But don’t get too hung up on finishes or features that are matters of personal taste.  With our hot East York rental market, there is almost certainly a tenant for every safe, comfortable and well-priced unit.  Remember, what a prospective tenant might find to be acceptable living-quarters is all a matter of life experience, perspective and lifestyle needs.

Consider listings around schools, colleges and large employers to see if there are any suitable homes for sale.  Plenty of renters have no car so parking, while convenient and value-added, need not be mandatory as long as transit is nearby —meaning a ten-minute walk or less.

While many will and do, I don’t suggest first-timer investors consider a vacation or short-term stay property until after they have some experience with a long-term rental property.  Of note: short-term stay units will soon face as yet unclear regulation here in Toronto, so be cautious.

To start off, your best investment will be a well-maintained property, occupied (or easily occupied) with long-term tenants.  Typically this is the most straightforward and stable situation to manage, and with tenants already in place you’ll have some time to benefit from ownership while learning the ropes of property and tenant management.

Thanks for reading. Questions or ideas for a future blog? Feel free to contact me here.

Kevin Hartley, Broker is an East York Toronto based real estate agent with iPro Realty Ltd. @Home is his lifestyle blog, an expression of his passion for home keeping though MAKING (Recipes), DOING (DIY), BEING (Health/Wellness) and DWELLING (Home Ownership, Sales & Maintenance).  Content not intended to solicit clients under contract.

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