Investing in a Rental Property
The average rent for Brampton and Mississauga homes have increased over the years and mortgage rates have remained very attractive. What does that mean? Well if you are thinking about buying a rental property now is the time to take a serious look at buying one. But before you call an agent to show you rental properties, please do due diligence and get the facts about being a landlord.
Know what you are getting into:
Buying an investment property and renting it out 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.
Budget in operating costs:
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.
Insurance costs:
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. The Ontario government has mandated that all municipalities make provisions to allow legal basement apartments. Brampton is presently conducting a study to determine how the city will be complying with the requirement from the provincial government.
Seek advice on financing:
There are unique aspects to financing rental properties: lenders typically expect a down payment of at least 20%. 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.
Are you capable of being 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 30 percent of the rental income.
