Investing In a Rental Property: Where to Start?
Explore your options before making the leap to being a landlord
Many of us are interested in learning more about buying an investment property and renting it out. Having an investment property with a positive cash flow is a great hedge for the retirement years. But where to start?
While this can prove to be a good way to steadily build wealth, this
type of investment is a major commitment and is certainly not for
everyone. Making the leap to being a landlord requires careful
consideration. Understanding the risks involved, as well as collecting
sound information and advice are the keys to planning a successful
venture. Here are some things to bear in mind as you explore your options:
Research the local market:
Get
up-to-date information about your local rental and real estate markets
so you can make an accurate estimate of how much you can charge for
rent, as well as how much you should pay for the property. Your real
estate agent has expertise on local conditions and can provide solid
guidance in this area.
Make
sure you add up all the costs. In addition to expenses such as a
mortgage and taxes, the longer you plan to own the property, the more
you'll most likely need to invest in maintenance and repairs. For
maintenance, a rule of thumb is to set aside about two percent of the
home's value per year. A home equity line of credit is a good way to
have access to contingency funds should you need to pay for repairs,
gaps between tenants, or other expenses.
Don't
forget to factor in the cost of fire insurance, and for recreational
property potentially other types of insurance (against floods or
windstorms) depending on the location. Liability insurance for
landlords can cover risks such as malicious or accidental damage to your
property by a tenant, any legal liability should a tenant injure
themselves, and lost rental income should tenants move out without
paying.
Learn the tax implications:
Mortgage interest and many costs associated with
buying the property may be written off. Your accountant can provide
full details on the tax consequences of such an investment.
Know the law:
You should study up on the rental property laws
in your jurisdiction, including fair housing laws, to make sure you know
your rights and obligations and also those of your tenants.
Seek advice on financing:
There are unique aspects to financing rental
properties: lenders typically expect a down payment of at least 10-15%
if the mortgage is insured and 20% for a conventional mortgage. Another
option is to draw on the equity from another of your properties. In
qualifying for this mortgage, a maximum of 50 to 80% of rental income
may be used as "other income" in your mortgage application.
Many
investment property buyers use the equity in their primary residence
for a down payment. Options for doing this include a "cash-out"
refinance, a home equity loan or an equity line of credit.
A
mortgage broker can offer a range of unique products and professional
advice on the ins and outs of financing investment properties.
Ask yourself: Are you willing to be a landlord?
This can be time-consuming and for some it can be
hard to remain emotionally detached when they have to rigorously screen
tenants to make sure they're reliable, track down overdue rents and
field repair calls. You may decide to let a professional property management service
handle the nitty gritty of dealing with tenants. If you choose to rent
your property through a management company, expect them to take
anywhere from 10 to 15 percent of the rental income.
Take the long view.
Having a long-term investment strategy in place can help you ride out
any difficulties, such as a dip in the price of the property, periods
with no tenants, or having to pay for unforeseen maintenance. When it comes to rental properties, wealth is earned over time, not overnight
For informational purposes we have included within this blog the average rental prices for Brampton and Mississauga rentals.
Brampton And Mississauga Average Rental Prices
As of July/2021
Rental Type |
|
Brampton |
|
Mississauga |
One Bedroom Condo apartment |
|
$2000.00 plus |
|
$2000.00 plus |
Two Bedroom Condo Apartment |
|
$2200.00 plus |
|
$2400.00 plus |
Freehold Townhouse Whole House |
|
$2400.00 plus |
|
$2400.00 plus |
Semi-Detached |
|
$2300.00 plus |
|
$2300.00 plus |
Detached Whole |
|
$2500.00 plus |
|
$2500.00 plus |
Executive Detached |
|
$2700.00 plus |
|
2800.00 plus |