Investing in real estate has traditionally been a great way to receive additional cash, especially if you’re thinking about renting it to out to someone. But making the decision to rent your place isn’t always an easy decision to make. In fact, a lot of new landlords may be feeling the pressures of being a landlord for the first time because—well—there just so much to consider!
From purchasing decisions, to understanding landlord-tenant laws right down to finding the right tenant, there are many moving parts to being a landlord. So we’ve stepped out a few of these considerations to help you along the way. You’ll find this useful if you’re thinking of purchasing a rental property (or if you’re a new landlord).
1. Appreciate The “Appreciation” Factor (But Be Cautious, Too)
First and foremost, Canadian real estate has historically performed well—especially if you’re buying in a major city or popular location. Like most real estate, your rental property is likely to appreciate over time. So be sure to think of your rental property as part of your long-term vision—which you likely already are.
There is a flipside to appreciation that isn’t as fantastic as anyone would like it to be. What’s that you ask? Don’t rely on appreciation alone.
Depending on the conditions of the real estate market, it may sometimes be difficult to sell real estate. Even more of a reason to think of your rental property as part of your big financial picture. Run the numbers and consider if your rental property is sustainable using your current income in the unlikely event you find it difficult to rent out (or sell off).
2. Research Your Potential Monthly Rental Income
Make the most out of your rental income. The key to remaining attractive in an already competitive rental market is doing the research to properly benchmark your property’s monthly rental potential. One report quotes popular rental finder, Padmapper and their 2018 monthly rental averages for a 1 bedroom across the country. So we’ve listed them below for your convenience:
Top 10 One Bedroom Average Rent Prices In Canada:
- Toronto, ON – $2,020
- Vancouver, BC – $2,000
- Burnaby, BC – $1,430
- Montreal, QC – $1,310
- Barrie, ON – $1,260
- Victoria, BC – $1,200
- Kelowna, BC – $1,130
- Ottawa, ON – $1,120
- Calgary, AB – $1,070
- Oshawa, ON – $1,070
Your potential monthly rental income will vary based on numerous factors that are often desired by tenants (things like location, transit accessibility, upgrades etc.). So be sure to do your research to understand what your competition looks like. And enjoy the benefit of your rental income!
3. Understand The Impact On Taxes
There are tax advantages and disadvantages when it comes to rental real estate. Firstly, understand that your new rental income is taxable. It wouldn’t matter if you’re renting out a room, a basement or an entire dwelling, you will need to report the income made to the CRA. That means that your net rental income will be added in your taxable income the year in which you rent your property.
What’s the implication of this? Your additional taxable income could make you subject to being placed in a higher tax bracket. Consequently, you would be needing to pay more taxes on every additional dollar earned. There are other things like Old Age Security that could be affected as a result of additional income as well. As always, we recommend that it’s best to speak to a tax professional to learn more about your particular situation.
For more resources and to learn more about rental income and tax implications, you can visit this Government of Canada website link.
4. Prepare For Unexpected Expenses
Maybe you’re worried about having a bad tenant who could add unnecessary wear and tear on your property. The reality is, life happens, regardless of if your tenant is “good” or “bad”. So it’s best to be prepared for unexpected expenses that occur as a result of someone just living in a unit. Things like appliance repairs, flooring and carpeting removal are not small expenses, but they do commonly require maintenance.
But the largest expense of them all is vacancy. That’s because switching between tenants can cost you too. And no money coming in will have you responsible to pay for any of the property payments right out of your own pocket. That’s why it’s so important to take your time to find the right tenant and understand the importance of having an emergency fund available to you as well.
5. Find The Right Tenant (And Know Them, Too)
Speaking of finding the right tenant! Having a quality tenant starts first by doing your due diligence to ensure they can afford to rent your property. This would make them good on paper.
Next, you’ll want to find someone who will respect your property as their own, as well. And once you do, ensure you keep them happy. Tenants expect responsiveness and fairness. And the key to their overall happiness is making sure your property is in good shape. Stay up to date with landlord-tenant laws, and you may also want to consider hiring a property manager if you’re worried you don’t have the time to manage your rental property. A lot of landlords consider this to be their “second business”.
It’s best practice to run credit checks and to call references. As we said earlier, it’s so much more important to find a quality tenant rather than just anyone who will fill a vacancy. Take your time to understand your applicant and make sure you’re comfortable with them renting your property. The more confident you are in your tenant, the more confident you are in your decision to have a rental property overall!