Understanding investment property
There are many reasons a homeowner may decide to rent their home – to set out on a travel adventure, move for an exciting new job opportunity or to rightsize for their current lifestyle.
Whatever the reason, if this applies to you, now is the time to shift your perspective about your home. It is no longer your home; it is your investment property, and you are now operating a business.
The choices you make now are not based on your personal preferences such as wall colour; but rather the marketability of the wall colour. Choosing attractive, durable flooring or cost-effective appliances with consideration for the type of tenant you wish to attract are all part of the balance of running your business.
Preparing your home can save you time and money securing quality tenants while easing the adjustment period. As homeowners, we tend to look past some deficiencies to which we’ve become blind; a new tenant expects to move into a fully functioning home. So, attach that loose baseboard and fix that leaky faucet before your tenant moves in. Remember that you set the standard for the property that will be returned to you.
Determining the market rental rate can frustrate first timers; the monthly expenses incurred do not reflect the market rate of your property. Simply put: the current rental value is determined by what a tenant is willing to pay, not your mortgage payment. If you have hired a professional property manager they will recommend a rate based on actual rents achieved, market conditions, competing properties and experience. If you are doing this research on your own begin by looking at comparable properties listed on reputable rental websites such as Rentfaster.ca. Take an aggregate of the listed properties and determine what is reasonable based on that information and be prepared to negotiate.
Now that you have determined the market rental rate, create a business plan, compile all the expenses related to your property and factor a bad debt/vacancy contingency of 10 per cent. Don’t forget a maintenance contingency for any repairs and upgrades based on the age and condition of your property. Speak with a professional tax accountant and explore all the tax benefits available to your investment business.
An investment property can be a great passive income business. While building equity in your asset, take care of your investment and your tenants or hire a professional property manager and reap the rewards for years to come.
Christa Temple is the owner of Blackthorn Oak Estates, a full-service property management and consulting firm.