1. Is it a money-maker?
If you’re looking to buy a rental property, first ask yourself two questions: How much will it cost me? And what will it rent for? Get a realistic assessment of current rental rates and don’t skimp when estimating expenses. They include the mortgage, maintenance, insurance and taxes. If you find expenses will consume all your rental income, forget it. “I wouldn’t settle for a property where I’m just paying down the mortgage,” says David Southen, who owns over 100 rental units in Ontario. “I need to get paid now.”
2. Get your legal issues in order
Too many small landlords consider themselves passive investors rather than business owners, says Harry Fine, president of Landlord Solutions paralegal service in Toronto. “You need to understand the law, and it can be very complex,” Fine says. Prospective landlords must take the time to understand all their legal obligations, ensure the property is legal to rent and prepare a solid lease. A good place to start is by joining an association such as the Landlord’s Self-Help Centre in Ontario.
3. Find the right tenants
First the good news. Advertising for tenants is getting cheaper. Southen says he’s stopped paying for newspaper ads and now uses Kijiji.com exclusively. But three checks are still crucial for every potential tenant: a credit report, employment verification and a call to previous landlords. Ideally, you should avoid calling current landlords, as they might stretch the truth to rid themselves of a difficult renter. “Anyone who is not making all three checks is out of their mind,” says Southen.
4. Keep your tenants happy
Southen budgets $800 a year in routine maintenance for every unit he owns. And when something breaks, he sends someone to repair it ASAP. “You need to be responsive, because if a good tenant moves out, it costs you a lot of time and money to replace them.” Cutting down on tenant turnover is his secret weapon for a successful career as a landlord. Whenever a unit becomes vacant, he always re-paints and often re-carpets. “If you keep the place maintained, you will get a better quality of tenant.”
5. Take prompt action on bad tenants
For small landlords with one or two units, a single bad tenant can be devastating. Fine says a quick and aggressive response is necessary to limit the damage if a tenant stops paying rent or damages the property. “You can’t wait three months and hope the problem goes away,” he says. While tenancy law varies across Canada, some savvy tenants know how to game the system for extended rent-free stays. This can mean substantial extra expenses for landlords, as well as lost income.