What to Expect If You Want to Rent Your Home
Turning your home into a rental property can be a great way to generate passive income and build wealth, but it comes with its own set of challenges, and it’s important to understand what’s involved in order to make the right choice.
Becoming a Landlord
You’ll want to weigh the pros and cons of becoming a landlord and the responsibilities that come with the title. You’ll be able to produce income from your property, but it will likely not be classified as passive income as you’ll need to market your property, absorb the cost of repairs, and have to deal with tenants at all hours of the day. You’ll need to research how to handle basic landlord tasks such as drafting solid lease agreements, providing efficient rent collection, taking care of all the associated paperwork, and conducting regular upkeep and repairs. Expect to get to know the tax implications of owning a rental property too. For example, you may be able to deduct certain expenses from your taxable rental income but you’ll be taxed on this depreciation and expenses when you sell your house. Be sure to check the CRA website to review the details.
If you plan on renting your primary residence or getting a second mortgage, it’s especially important to have a strong pre-approval that takes into account key factors such as your income, credit score, debt, and savings or assets. Your income must be sufficient to service both mortgages. Providing a market letter from an appraiser can also bolster your mortgage application by demonstrating that the property can be rented out for a specified monthly amount. A knowledgeable mortgage agent can quickly assess whether your pre-approval meets the criteria of lenders and mortgage insurers such as CMHC.
The Process of Setting Up A Rental Property
To help you understand some of the processes of turning your property into a rental, here is a short overview of what you’ll need to do:
- Evaluate the current condition of your property, including its age, necessary repairs, and location.
- Determine the rental rate by researching other rental properties in the area, considering amenities, and the demand for rental properties.
- Make any necessary repairs and upgrades, such as painting, replacing old appliances, and repairing plumbing or electrical systems. Consider upgrading amenities like adding a washer and dryer, installing new lighting fixtures, or adding a security system.
- Market your property by creating a listing on popular rental websites, social media, or local classifieds. Be sure to include detailed descriptions, high-quality photos, and the rental rate.
- Screen potential renters by running background checks, checking their credit scores, and asking for references from previous landlords.
- Create a lease agreement that outlines important details, such as the rental rate, lease term, and security deposit. Have a lawyer review the lease agreement to ensure it is legally binding.
- Manage your rental property by collecting rent, handling repairs and maintenance requests, and dealing with any issues that arise. Consider hiring a property management company if you don’t have the time or experience to manage the property yourself.
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In conclusion, converting your property into a rental property can be a great way to generate income, but it requires proper planning, management, and taking inventory of the pros and cons that come with it. Make sure you are prepared for the responsibilities that come with being a landlord before converting your property into a rental.