MyDaddyHomes Real Estate Update Feb-2008
Special Feature on Black
Canada
Edison Samuel
Salesperson
Investing in a Rental Property - Where to Start?
Explore your options before making the leap to being a
landlord.
Many of us are interested in
learning more about buying an investment property and renting it out. But
where to start? While this can prove to be a good way to steadily build
wealth, this type of investment is a major commitment and is certainly not for
everyone. Making the leap to being a landlord requires careful
consideration. Understanding the risks involved, as well as collecting
sound information and advice are the keys to planning a successful
venture. Here are some things to bear in mind as you explore your
options:
Research the local market.
Get up-to-date information about your
local rental and real estate markets so you can make an accurate estimate of
how much you can charge for rent, as well as how much you should pay for the
property. Your real estate agent has expertise on local conditions and
can provide solid guidance in this area.
Make sure you add up all the costs. In addition to
expenses such as a mortgage and taxes, the longer you plan to own the property,
the more you'll most likely need to invest in maintenance and repairs.
For maintenance, a rule of thumb is to set aside about two percent of the
home's value per year. A home equity line of credit is a good way to have
access to contingency funds should you need to pay for repairs, gaps between
tenants, or other expenses.
Don't forget to factor in the cost of fire insurance, and
for recreational property potentially other types of insurance (against floods
or windstorms) depending on the location. Liability insurance for
landlords can cover risks such as malicious or accidental damage to your
property by a tenant, any legal liability should a tenant injure themselves,
and lost rental income should tenants move out without paying.
Learn the tax implications.
Mortgage interest and many costs
associated with buying the property may be written off. Your accountant
can provide full details on the tax consequences of such an investment.
Know the law.
You should study up on the rental
property laws in your jurisdiction, including fair housing laws, to make sure
you know your rights and obligations and also those of your tenants.
Seek advice on financing.
There are unique aspects to financing
rental properties: lenders typically expect a down payment of at least 10-15%
if the mortgage is insured and 20% for a conventional mortgage. Another
option is to draw on the equity from another of your properties. In
qualifying for this mortgage, a maximum of 50 to 80% of rental income may be
used as "other income" in your mortgage application.
Many investment property buyers use the equity in their
primary residence for a down payment. Options for doing this include
a "cash-out" refinance, a home equity loan or an equity line of
credit.
A mortgage broker can offer a range of unique products and
professional advice on the ins and outs of financing investment
properties.
Ask yourself: are you willing to be a landlord?
This can be time-consuming and for some
it can be hard to remain emotionally detached when they have to rigorously
screen tenants to make sure they're reliable, track down overdue rents and
field repair calls. You may decide to let a professional property
management service handle the nitty gritty of dealing with tenants. If
you choose to rent your property through a management company, expect them to
take anywhere from 10 to 50 percent of the rental income.
Take the long view. Having a long-term investment
strategy in place can help you ride out any difficulties, such as a dip in the
price of the property, periods with no tenants, or having to pay for unforeseen
maintenance. When it comes to rental properties, wealth is earned over
time, not overnight.
Compliments Of Carlo Carpino
Mortgage consultant
A MyDaddhhomes Contributing Writer
Buying or Selling a Home visit www.MyDaddyhomes.com today.
Edison Samuel
Salesperson
Real Estate Centre Inc. Brokerage
2 County Court Blvd. #150
Brampton, ON. L6W 3W8
905-456-1177, 416-258-3079
Email: edisonsamuel@hotmail.com
Make the smart move, Contact Edison today