Condominiums are the most attractively priced properties in Toronto and the GTA for people looking to take their first steps into the rental property market. But there are special considerations and pitfalls that you need to keep in mind when purchasing a condo as an income-generating property.
Before you buy: Check that you are allowed to rent to tenants
Each condominium property has a condominium board that sets specific rules and regulations for the property. Some may not allow long-term rental of the property, and almost all do not all short-term rentals (e.g. AirBnB) on the property. If there is any doubt about anything you are reading, contact a member of your condo board to clarify, ideally before purchasing the property.
Can you make your tenant adhere to condo rules?
While you are going over the document, ensure that the rules are reasonable enough that you can ask your tenant to follow them without violating their rights under the Residential Tenancies Act. Most rules aren’t egregious, but it is the owner and not the tenant that is responsible for ensuring that the rules are adhered to.
Do a price check on condo fees and historical increases
Setting your rental rate is one of the most important steps to ensure that your income property is actually generating income. Check how much condo fees go up each year and make sure they are built into your rental rate, in addition to any projected fee increases in the future. You can guess at this reasonably by looking at historical increases for the past few years, and some condominium agreements have fee increases built in to the agreement.
Get condominium and rental property insurance
While your insurance broker or agent is the best guide for this, you will need both condominium and rental insurance for your property. Condo insurance has additional items built in for damage to common areas, and rental insurance covers your use of the property as a rental property. On the plus side, condo insurance is typically less expensive than traditional home insurance.
Watch out for clashes between condo rules and the RTA
A common example of where you can run into problems is a tenant who decides to purchase a pet after they move into the unit. Many condos have strict no-pets policies. However, under the Residential Tenancies Act (RTA), you cannot evict the tenant for having a pet. The condo board is well within its rights in this situation to bring action against you, the property owner, and not the tenant. This is why you have to step up tenant screening for a condo property, and preferably have it done by a professional Toronto property management company such as Highgate. It is possible to find the right tenant that won’t bust condo rules on a whim, but you have to know what to look out for; most first-time rental property owners don’t.
Set an emergency fund aside for non-payment of rent
If your tenant isn’t paying rent, the condo board is still going to want its fees to be paid, and can register a lien against your property if they aren’t paid. To avoid this, make sure you set aside an emergency fund to cover things like condo fees, minor repairs in the unit, and so on. Again, a professional property management company can help you find the right tenants that will pay rent reliably and on time.