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You need time, money or expertise to own rental property

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Blog by Randy Miller | September 16th, 2014

As a growing segment of the Canadian population watch house prices rise consistently and view the stock market as being far more risky because of movements up and down, owning a rental property seems far more appealing. Some people set out to become a landlord and purchase an investment property, while others choose to retain and rent out their existing home.

With a plan in place and the help of professionals,  becoming a landlord can be a wise investment. For many, having a few rental properties is a good substitute for pension or savings toward retirement.

Thousands of Canadians rely on residential income properties, whether close to home or abroad, to help them feather their financial nests.

Done right, investors stand to reap big rewards over the long haul, industry experts say. But property investment can also come at a heavy price to those who aren’t prepared to learn the market and do the less-than glamorous work of a landlord.

If talk about housing bubbles gives you ulcers, or you aren’t willing to answer the phone at 2 a.m. when the tenants call to tell you the pipes have burst, then investing in real estate might not be right for you.

“It’s like any business that you want to enter. It’s all about time, money and expertise. If you don’t have the time, you at least have to have the expertise and you have to have the money to make it fly,” says Phil McDowell, a mortgage broker in Calgary.

For those who are considering investing in a rental property, there are a few basic rules to keep in mind in order to mitigate the risk of the deal turning sour, says Melanie Reuter, director of research for the Canadian branch of the Real Estate Investment Network (REIN), an investor advisory organization based in British Columbia. The key is to look for a community or region that shows clear signs of growth and economic sustainability.  GTA rental vacancy rates are low, as  steady influx of residents moves to Toronto. Here in Durham Region, vacancy rates are about 2.3 per cent.

Ms. Reuter says it is equally important for investors to have a clear idea of the true monthly costs, including mortgage, interest and property tax, as well as potential extras, such as repairs, on-going maintenance costs, condo fees, property management fees, etc. She recommends those considering property investment should also set aside an emergency fund to cover repairs and maintenance, or unexpected vacancies.

Many investors choose to save money by doing the management work themselves, but that comes with its own costs. Landlords should expect to put effort into finding good tenants, avoiding bad ones and fielding the overnight phone calls when something goes wrong.

“We’ve all heard stories of someone who had the tenant from hell,” says Jason Abbott, a financial planner and president of Wealthdesigns.ca Inc. in Toronto. A real-estate investment fund may be a better option for someone who wants to be involved in real estate without having to manage a property or assume all of the risk, Mr. Abbott says. The one downside is that it can be a lot harder than more traditional funds to access your money should you need it.  “Mr. Britton recommends his clients treat property investment as they would any business. That includes hiring a tax professional to help them report an income property, including expenses, revenues and asset appreciation. Not reporting an income property can land an investor in hot water with Canada Revenue Agency.

“If you choose not to report, you are taking the chance you won’t be found out. If you are, it is not going to be pretty,” Mr. Britton says.

Mortgage rules require investors to have a minimum down payment of 20 per cent and to have proof through tax returns of the their income and assets. In most cases, it is important to have secure employment to prove you can cover a portion of the mortgage at any time. “You should be able to demonstrate that you’ve got a reserve fund available to you should you have a major repair or if the tenant skips,” Mr. McDowell says.  Homeowners who are interested in an income-generating property, but don’t have 20 per cent to put down, may want to consider a basement or suite within their own home, he adds. A primary residence with a rental suite requires a 5-per-cent down payment.

A growing number of my clients are purchasing investment properties to secure their future. Purchasing an investment property is a business decision and not a rash or emotional purchase. I can help you avoid the pitfalls and mistakes when buying an investment property here in Whitby, Brooklin, Oshawa, Courtice or Bowmanville. The expansion of Highway 407 is madding Durham Region more accessible and it is boosting house prices and rental rates. The refurbishment of Darlington will create a demand for rentals, creating opportunity for investors. If you are ready to buy an investment property and become a successful investor, contact me for  a consultation.

Randy Miller


Re/Max Rouge River Realty Ltd., Brokerage

905-668-1800 or 905-427-1400