I can hear the cries of fallacy from Vancouver and Toronto already so please hear me out first. Any time I talk to people who have rental properties in Edmonton, the only complaint they have is finding good tenants. Yes there are many good tenants out there, they just seem to all be renting a place already. For the sake of simplicity in this post, I will refer to good renters as tenants and bad renters as...well, just plain renters. Tenants pay the rent on time, clean up after themselves and treat their rented dwelling as their home. Renters pay when they have the money, clean when the landlord is coming and treat their dwelling like a rented automobile ( Don't act like you've never bagged on a rental car before, everyone does it!).
Tenants do exist but they are indeed a rare commodity. Even if you do find a good renter it's only a matter of time before they move out again. You could find yourself without a tenant during slow housing markets and have an empty property and no income. Finding a good tenant is only one part of the rental property experience.
The Bad
Landlords supply shelter, and the tenants pay a sum of money in compensation, but what happens if they have a renter and they don't pay? Or what happens if a renter breaches the tenancy agreement by damaging property or performing illegal activities? The landlord has to give written notices which the renter has the right to counter with their own written notices and then both parties must have the courts involved. Sounds like a very long and expensive process to me. With property ownership comes maintenance, upkeep, insurance, property taxes, legal counsel and liability. You could pay a property management company to look after your rental property but it does take a big chunk out of your income. There is a lot of work to rental property and whoever calls it "passive income" has never had to get a furnace changed on a Sunday night on the coldest day of the year with tenants that have a baby...yikes! There may be a lot of negative points to renting property, but there are some good ones too.
The Good
If a landlord does find an excellent tenant who pays the rent on time, and takes care of the place, then having a rental property is a goldmine. The rent covers all the expenses and either pays the mortgage for the property or might just be money in the bank. If a landlord has more than one rental property, they might have enough rental income coming in to be self sufficient and not have to work. Their days could be spent golfing or perhaps take part in that mixed martial arts class they've always wanted to try.
Once you have a rental property, there are some very nice tax breaks that go with it. Any insurance, property tax, condo fees or utilities are tax deductible. Cha-ching. I also found out that any upkeep maintenance and labor performed by a contractor are tax deductible as well. Cha-ching. And unlike in the U.S, interest from a mortgage is not tax deductible in Canada...unless it's a rental property! CHA-CHING! Rental income is taxed at your current income level, but with all the tax breaks you get, you'll be getting a huge refund from the government.
As time goes by, the value of a rental property will also be increasing depending on the housing market of course. Unless you buy property in a swamp or close to a nuclear reactor the value will always go up. As the equity in your property goes up, the more credit you will have to buy more rental properties and thus slowly build up a rental empire and become a true lord of the land.
Will I ever be a landlord? Maybe, but the ratio of tenants to renters is a scary thought. What would you do in my situation?
10 comments:
I really think your concerns as a potential landlord are quite valid. There is certainly a concern for who you should allow to reside in a home that is in YOUR name. I think speaking to other real estate investors would be beneficial. They may have a great insight into how to find those great tenants and not renters. Real estate can be such a huge investment opportunity so it is worth looking into. I also think that going with what you are personally comfortable with. Even if the individual appears to be the optimum tenant, you could still face potential headaches. So if you are not interested in renting, you could always use the money for other profitable investing. There are pros and cons to everything I guess. Keep us posted :)
All landlords should require their tenant to purchase a renters insurance policy. By not doing so they risk the possibility of getting sued.
I'd rather own Boardwalk or Killam...
Thanks for share your great blog with us.
Finding a good tenant is the scary part of renting a property out, especially with the laws stacked against the landlord. We bought our condo with the location and rental potential in mind, but that being said, I'm kind of reluctant to actually have strangers in the home potentially damaging things... in any case, won't hit that decision for a couple years or more. We'd be fine here even with a baby or toddler.
Cheryl:
I'm pretty much torn but my gut feeling is to sell and stick with dividends; they pay the rent on time, every time and they don't wreck the joint.
CondoInsurance.com:
I agree, and if I were to rent it would be in the lease agreement.
Think Dividends: As would I. No headache, just dividends.
Rental Property: Thanks for stopping by.
Invest It Wisely:
My plan was to live there with my wife and potential child THEN look at a house. My plan was fast tracked by my wife...
Based on experience, forget the rental.
My wife and I rented out our condo for just over 2 years here in Ottawa and had nothing but issues. In the final six months, I had to rip up the entire cork flooring because of a water leak the tenants never told us about. They thought "it wasn't a big deal". $1,000 insurance deductible (for a $15,000 floor), many Tylenol and some anger management courses later, the mess was dealt with in about 3 weeks. We promptly sold the place about 1.5 years ago and haven't considered renting out (our old home or another place) since.
Instead, I've got a bunch of dividend-paying stocks for growing passive income. I think it's better to own REI.UN, HR.UN and Boardwalk (like Think Dividends does) than to be a landlord. That's just my experience, which ain't that good my friend :)
I'll be curious to know your decision and why. If you want a comprehensive list of things you can tax deduct (you might know most of them already), let me know. Been there with the taxes too.
Cheers,
Mark
Great Blog!
My wife and I have had a little Triplex for 12yrs. Its more than held its own with only a few minor tenant problems. I've done a lot of the work on it myself which as cost me a few evenings and Saturdays over the years. But we make a bit off it every year and its value as risen. Be sure to raise the rent every year the max value as that is will raise the property value. I don't have plans on buying another property..instead I've been buying REITs and dripping them mostly in our TFSA's and some in the RRSP's.
Cheers!
It is always very difficult to find a house owner and a good person to give rent for.Ti is always better to go through a helping hand having idea about it.
Finding things on-line has made life so easy that you can find everything on INTERNET. Toronto is a city of joy and very energetic.living here it will be a lot of fun. Apartments in Toronto are easily findable on on-line, it's a very interesting thing.
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