Many first-time homebuyers are getting creative when it comes to financing their purchase. One of the most effective ways to offset your monthly mortgage costs is to rent out an apartment in your home. Is this solution right for you? Here are five things to consider before becoming a landlord.
Do you have time for another job?
Being a landlord isn’t as easy as simply renting out your nanny suite and collecting checks. As a landlord, you’re responsible for finding and vetting tenants, getting your rental unit up to code and maintaining it (if your tenant’s toilet breaks on a holiday weekend, get ready to change your family’s plans), and dealing with any bumps along the way, from cheques that bounce, to hauling double the number of trash bags and recycling to the curb each week.
Many real estate investors hire property management companies to do the heavy lifting: as a DIY landlord, you’ll be the property management company… 24-7.
Can you afford to buy in a convenient location?
As with buying, the rental market is about location, location, location. If you are in the market for a house with an income-generating unit, you must consider the location from a tenant’s perspective, not just your own.
For instance, your personal priorities may be proximity to a good school and access to the highway you take to work, but to make your rental unit attractive to the widest array of renters, other location priorities would be: convenient access to public transit; shops and other conveniences within walking distance; proximity to the local college or university.
Do you live in an in-demand city?
The higher demand is for rental housing in your city or town, the better luck you’ll have in finding good tenants – and putting a sizeable dent in your mortgage each month.
A 2015 Rentseeker.com survey found that the rental housing market varies tremendously across Canada.
Check out how much the average one-bedroom apartment rents for on a monthly basis in these major Canadian cities
Rental vacancies on one-bedroom apartments vary dramatically, from 0.5% in Vancouver to 6.4% in Gatineau.
Research the rental market in your city, to get a sense of how much money you can make before you start your house hunt.
Do you have the temperament?
Besides the physical hours you’ll put into maintaining your rental property, you’ll also be investing emotional and mental energy. Can you bite your tongue when you see what a mess they are making in the kitchen of your lovingly renovated rental apartment? Are you willing to have awkward conversations about late rent cheques? Will you be able to start eviction proceedings if they continue to fall behind on their rent? Fantastic tenants are out there, so do your research to cut your odds of ending up with a lemon.
How will you finance home improvements?
Fixer-uppers provide the most bang for your real estate buck. As the credo goes, it’s always a safe bet to invest in the “worst house on the best street you can afford,” as your property’s value is practically guaranteed to rise as you fix it up.
Home improvements can be costly however, so be prepared to budget for them. Unlike a single-family dwelling however, you’ll be improving two (or more) residences: yours, plus your tenants’. Consider how you will finance these improvements – Genworth’s Purchase Plus Improvements Program helps qualified borrowers fund their home improvements, including the cost in one manageable mortgage.