If you are thinking about becoming a landlord in Toronto there are many things you need to consider before making any decisions. The real estate market in the GTA is showing signs it is about to slowdown, especially with the Bank of Canada raising the prime interest rate it will become more expensive to take out a mortgage. With residential mortgage rates on the rise, if you need to take out a loan to finance the purchase of an investment property you will rent out, then you have to budget for that. Working on the premise you have the financing portion of the transaction worked out there are some additional things you will need to think about prior to moving ahead with the plan to become a landlord.
Dealing with Tennant Related Challenges
One of the biggest items you will need to address when trying to become a landlord is how will you address tenant related challenges? It is late in the evening and a tenant calls you to say their toilet is backing up, who will fix your blocked drain? Will you do it yourself or hire a plumber to do the work? This is just one of the many questions that have to be addressed when determining whether purchasing an investment property makes good fiscal sense for you. Aside from determining who will fix your blocked drain is who will handle tenant screening, collection of rent, and evictions? You could hire a property management company to handle those tasks, however, the challenge with that is those firms charge a fee that could range from 10%-20% of the total rent you charge which eats up most if not all of the passive income the property is generating.
Finding the Right Investment Property
After you have worked through the logistics of the investment property you will need to start looking for options. We mentioned earlier that the real estate market in the GTA is going to cool off soon which should help you identify some good bargains. While you could construct an entirely new investment property it would require a substantial amount of time. Since this is most likely your first time trying to be a landlord it would be smart to purchase a property, preferably one that already has a tenant in place. The challenge with purchasing an investment property that already has a tenant in place is the amount of rent being charged may not be as high as what you hoped but it will give you a “feel” of being a landlord with a well-established tenant. Once the lease has expired (leases are generally year to year in Ontario) you can increase the rent to whatever the market will bear. There are many benefits associated with being a landlord you just need to be sure you have enough time available to address all of the challenges that come with the title of “landlord”. If you have the right approach you can earn a considerable amount of income from this venture.