For many of us that may be looking for a new way to generate some pretty simple revenue on the side, buying an investment property can seem like a no-brainer! For relatively little disruption to your current lifestyle, you can watch a rent payment appear in your bank account each month, almost like free money, right? Well...not quite. While it can seem as simple as that—and sometimes it even is!—there are quite a few different nuances to owning rental property, and pros and cons that come with each of them.
The Benefits of Owning Rental Property
Like I said, investing in rental property can be a fantastic, lucrative venture for anyone looking to generate some side income. Here are some of the pros:
Steady Monthly Income. So long as you have responsible tenants, you can reasonably expect a monthly rent payment as nice, additional income for you and your family. And in many normal circumstances, this income will require little work on your part! (Bonus!)
Additional Tax Deductions. As a landlord, you’ll be able to actually deduct some of your investment property expenses on your taxes—including mortgage interest, insurance, maintenance costs, property management expenses (if applicable), and even utilities!
The Cons of Owning Rental Property
Of course, being a rental property owner isn’t always free money without the legwork. Here are some of the cons to owning rental property:
Added Landlord Responsibilities. Just as tenants have a responsibility to pay their rent each month, landlords have a responsibility to take care of their property for their tenants. This means handling necessary repairs and upgrades that need to be done, like leaky faucets, broken toilets, et cetera. It also means actually dealing with tenants, who may sometimes be difficult, and even hounding them for rent, if necessary.
Additional Monthly Expenses. While you will be bringing in extra monthly revenue, there are also new monthly expenses you will need to pay. These include mortgage payments, utilities, and any maintenance expenses that may come up throughout the month.
Rent Income is Taxable. Rent may seem like free money, but you are actually required to pay taxes on it at the end of the year, just as every other income. However, as I mentioned above, there are some deductions you can make with your expenses that can offset these quite a bit.
Guide to Buying Rental Property
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Find Out What You Can Afford - Start by taking a look at your current financial situation and using a mortgage calculator to determine whether investing in a rental property makes sense for you right now. Consider the down payment you’ll need, as well as whether you have a cushion to fall back on in case of a lapse in tenants!
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Find a Knowledgeable, Local REALTOR® - Not every real estate agent is the same and if you are considering buying your first rental property, you’ll want one that will help to educate you and get you started. They should be able to guide you through the process and help protect you and your investment long-term so you can be as profitable as possible.
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Research Average Rents - According to the Canada Mortgage and Housing Corporation (CMHC), the average monthly rent in Saskatoon in fall 2019 was:
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$722 for a Bachelor
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$930 for a 1 Bedroom
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$1,129 for a 2 Bedroom
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$1,280 for a 3 Bedroom +
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Research Neighbourhoods - Statistically speaking, rental tenants are likely to pay slightly more for a property that is close to the amenities they need, such as schools, grocery stores, and gyms. Before you start your property search, begin by taking a look at the different neighbourhoods in Saskatoon and narrowing down where you’d like your potential investment property to be located.
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Find a Home - Working with your REALTOR®, start your search by defining what type of revenue property you are looking for. If you are looking to start small, condos and apartments are great first investment properties. If you are looking for something that offers potential for more than one rent payment each month, consider a home with a legal suite where you can rent out the main level and basement (or you and your family can move in upstairs so you only need to manage one mortgage). For more revenue potential, you may want to look at buying a multi-family unit, such as an apartment complex.
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Get Insurance - Once you have your investment property, you’ll want to protect it and yourself with landlord insurance. This will protect your building from any potential damages that might occur. This type of insurance will not protect your tenant’s belongings, though, so I recommend encouraging them to purchase their own tenant’s insurance when moving in.
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Decide Whether or Not to Hire a Property Manager - If you might be too busy to handle the ongoing demands of a landlord, you may consider hiring a property manager, especially if you are looking at owning a multiplex of any kind. They will be more dedicated to taking care of issues as they arise, so you can keep your current lifestyle as close to normal as possible.
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Educate Yourself on The Residential Tenancies Act & Regulations - To protect yourself as a landlord, it’s important to know the laws that both you and tenants must abide by. And knowing these laws is essential in protecting you against any discrepancies that may arise.
Buying a rental property isn’t as simple as just buying a house to rent out, finding a tenant, and collecting monthly rent. It can actually be quite a complex venture, but one that has the potential to be quite profitable if done well. Remember, people will always need a place to live and not everyone is able to buy a house!
Posted by Kent Braaten on
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