Renting out your first property can be equal parts exciting and terrifying. Here are a few tips to help you move the needle more into “exciting” than “terrifying” territory.
1. Start small and work your way up
As with everything, it’s a good idea to start small. Purchasing a condo or a property outside of the Toronto downtown core will let you become a landlord without overextending yourself on your credit. If you have a larger budget, purchasing multiple inexpensive properties or a duplex as opposed to one, single-unit expensive property will keep you from putting all of your eggs in one basket. This protects you in the long-term from the income gap of a potential vacancy.
2. Get your finances in order
If you aren’t a professional accountant or a bookkeeper, you may want to engage the services of professionals in this field to do it for you. Ideally, you want to put aside a portion of your rental income for a repair/renovation fund should appliances break or other incidents happen at your rental property, in addition to using the rental income to pay the mortgage and property insurance.
You will also need to report the rental income to the CRA, so if a licensed accountant isn’t handling your tax returns yet, you’ll want to engage the services of one to get more juice from the squeeze. A professional accountant will tell you what you can and cannot write off on your taxes, which can save you hundreds or even thousands on your tax return. Visit the CPA Canada website to find a certified accountant in your area.
3. Join the Ontario Landlords Association
A number of changes have recently taken place to Ontario’s Residential Tenancies Act. As a result, some of the articles you have read, advice you have been given from friends, and so on may be incorrect. The Ontario Landlords Association is on top of all of these changes and is the best source for accurate information specifically tailored to rental properties in Ontario. It also has many resources for you, including support forums, templates for rental contracts, and much more for a negligible annual fee.
4. Ensure your rental property is insurable & legal
As part of the process, you’ll need to obtain insurance for your rental property. You’ll also need to make sure your rental property meets municipal bylaws – you can see the property standards bylaws for the City of Toronto on this page.
5. Screen tenants carefully
The recent changes to the Residential Tenancies Act make it even harder for landlords to evict problem tenants. As a result, a solid pre-screening before handing over the keys is now an absolute must. To screen tenants properly, you have to shut down any emotional response to someone’s story and look at the cold, hard numbers. Is their income enough to pay the rent? Do their previous landlord references check out, after you’ve Googled the name to make sure that the reference is actually a landlord? Do they have excellent credit after you’ve conducted a proper credit check?
Base your decision on the numbers rather than whether or not you like someone. Ask any of your friends who have rental properties, and you’ll quickly find a story about someone they rented to who they liked at first, but who scammed them out of rent, damaged the unit, and so on. Scammers can be charming, and regular people who pay their bills on time can be less charming but a much better choice for your first tenant.
6. Assemble a professional team
In addition to an accountant and potentially a bookkeeper, you’ll want to engage a lawyer specializing in real estate to read over and edit any rental contracts, especially in light of the recent changes to the Residential Tenancies Act.
If you are a busy professional with a full-time job, you may also want to research a property management company like Highgate to help you lighten the workload, and most importantly screen tenants properly. Renting to the wrong person can torpedo your rental income, and it is a common mistake that first-time landlords make. Highgate Property Investments is also a Realtor specializing in investment properties, so if you are looking for a profitable investment property, it’s a good idea to start your search with us.