It seems so easy – just buy a place, put an ad on Kijiji, get renters in and sit back to collect the cash each month. If only it was like that!

Being a landlord has financial benefits. But are you suited for it?

Becoming a landlord can have tremendous financial benefits, but it is not an investment suited for everyone.

Ask yourself these 10 questions. If you answer ‘YES’ to all of them, you are ready to take the plunge and increase your net worth.

1. Do you have the time to devote to this? Being a landlord is hands-on work with 24-hour responsibilities. Properties need attention and upkeep and problems rarely occur when you expect them to. If you don’t have time, but you have the money, consider hiring a property manager. You may pay upwards of 10% of your rental income for this service, but you will have less responsibilities. A property manager will find and screen tenants, show your home, deal with complaints and organize minor repairs. This peace of mind can mean a lot.

2. Do you have the right temperament? Tenants can sometimes be problematic and if they don’t pay rent on time, you must not get emotionally swayed by their creative excuses.

3. Is your spouse/partner on board with you? Being a landlord can be stressful – both financially and emotionally – make sure you are both excited about this venture.

4. Are you handy and do you enjoy doing home renovation projects? Minor problems such as a broken screen door or small toilet leak will arise but can easily be fixed by someone who is handy. Doing these jobs yourself can save you money. If you are not handy, make sure you get to know someone who is. You will likely be calling them at some point.

5. Do you plan to hold on to your investment for the long-term? Make sure your plans are to hold on to your propertly for at least 8 – 10 years. You may be able to turn a property sooner if the market is right, but don’t expect that to happen. In addition, holding on to your property until the mortgage is paid off will turn your monthly rent income into a passive stream of income for you.

6. Do you have trusted professionals to help you? You should build a solid team of professionals around you who can increase your chances of success and eliminate some stresses. Your rolodex needs to include a good real estate lawyer, a mortgage broker, a tax accountant and a Realtor who is experienced in real estate investing. A good Realtor can help you find a property capable of generating enough income to make your investment worthwhile.

7. Can you afford it? You should have a minimun down payment of 20%. Don’t forget that you must also have enough funds to cover the necessary closing costs (Real Estate Transaction Closing Costs). In addition to the funds you need to get started, you should also consider the fact that your capital will be tied up in the property until you sell. With your capital tied up, you may have to borrow more for your own purchases resulting in higher interest payments. All of this can offset some of the income you are making from your rental property.

8. Will you be in the black? Ideally you want your property to be cash-flow positive from the start. Some investors claim it is fine to lose some money every month because your tenants are paying off the mortgage, but that is a dangerous spot to be in especially if you have already stretched yourself financially to acquire the property. How will you handle an unexpected expense such as a major repair, increased condo fees or fluctuating mortgage rates? Start by asking your Realtor for advice on what you can rent a property for. They should be able to give you a fairly accurate number of what you can expect to get as monthly rent. Then do the necessary calculations to determine if the property you are considering is a sound investment.

9. Do you know the landlord and tenant laws in your province? The 3 most common landlord complaints filed with the Landlord and Tenant Board are non-payment of rent, persistent late payments and damages. If you stay in the game long enough, things will go wrong at some point so you must have what it takes to stay calm as well as the knowledge to help you navigate the legal system.

10. Do you know the tax laws? Rental income is taxable income even if most of it goes towards paying the rent, property taxes, etc. You should be prepared for the tax man at the end of the year. You also must know that you will have to pay capital gains on any profit you make on your property once you sell it. Of course, there are tax benefits for landlords as well. You are able to write off things like mortgage interest, property manager’s fees, costs of repairs, etc. Make sure you know what is eligible as a write-off so you can make the most of this benefit.

If you have dreams of becoming a landlord, this is a good list of things you need to have in check before moving forward. Take your time to assemble what you a missing. Once you have all the necessary items in place, you can start making your dreams a reality with your first income property.

All you landlords out there: are there any items missing from my list? Do you have any other tips for beginners?

If you are looking to buy a home, or are thinking of selling yours, I would be glad to represent you and help you negotiate the best deal. Please contact me at steve@stevewalsh.ca.

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