Owning a rental property can be a very profitable investment. It’s a way to build wealth over the long term, and can potentially provide regular income on a monthly basis. This all sounds great, right… but trust me, it’s not for everyone.
Start by asking yourself these 3 questions to determine if it may be right for YOU:
1. Do you have enough saved for the down payment?
Under Canada’s new mortgage rules, it’s best to have a down payment of at least 20 per cent to buy a rental property (1-4 units). There are circumstances which will allow you to put as little as 5% down, but I’ll save that juicy info for a future blog. *Remember- you can
use equity from your primary residence for this down payment.
2. How much income will the property generate?
You will need to do some research into the neighbourhood that you’re looking to buy in. What are similar properties currently renting for, and what is the vacancy rate in that area? To be safe, assume a four or five per cent vacancy rate into your financial projections, and don’t forget to calculate potential costs, such as repairs and maintenance in addition to the mortgage payment.
3. Can you be a successful landlord?
Being a landlord is a second job. It’s not as easy as putting an ad on Kijiji, picking the best tenant and cashing cheques. You or your property manager (which eats into your profits) must be available to deal with tenant issues and keep up with property maintenance. If you rent to the wrong tenant, you might have to deal with more serious problems like the non-payment of rent, or damage to your property. I don’t want to discourage you, because some months are great and you do only have to “cash the cheque”, but be aware that being a landlord is a JOB.
Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.