People make it sound so easy to be a real estate investor. You simply find a great property, rent it out, and you’re one step closer to being a millionaire.
Of course, the realities are a bit more complicated than this. Whether you’re renting out a suite in the basement of the home you live in or you have several multi-unit buildings, you have certain rights and responsibilities as a landlord. Knowing these can keep you out of hot water, so be sure to learn as much as you can before you take the plunge.
Avoiding Legal Battles
Most importantly, understanding your responsibilities is going to help you avoid legal trouble. For instance, you can’t just finish any basement and expect it to meet the legal requirements for a rental unit. There are certain building codes that have to be met, and if you rent out a unit that doesn’t meet those requirements, you could be faced with legal issues.
The same goes for any other thing your tenant could complain about, whether it’s something like the use of the backyard, parking in the driveway, or having long-term guests stay. All of these things should be stipulated in the lease agreement, and if you don’t follow them, the tenant could take you to court.
Need a quick and easy lease agreement? The Alberta Government has a Residential Leasing Agreement available online for free.
If you'd like to customize your legal leasing agreement, you can create and download a free residential lease agreement in minutes at this link.
Preparing for Mishaps
Problems are going to come up. The tenant’s toilet might get clogged; they could accidentally scratch the flooring or countertops, or they could cause the electricity to short out after plugging in all of their electronics. Most of the time, it’s on you to make the repairs, as their landlord. Knowing all of the things that you might need to repair could cause you to be more diligent about building up your emergency fund. You want to have cash on hand for these repairs.
Fortunately, there are many handyman service companies you can rely on. A handyman, or handyman service, usually charges clients an hourly rate, plus material costs, regardless of the task.
You are always responsible for making your full mortgage payments, even if your rental units are sitting empty or your tenant is late with their payments. This is hands down your most important responsibility and why you need to be prepared for the possibility of paying the full amount. Take the time to learn what rights you have when a tenant doesn’t pay, including eviction. Remember that eviction can take longer than you might think, and you may need to cover the payment for those months while this happens. That’s why choosing a good tenant is essential.
Preparing Your Taxes
As a real estate investor, your taxes get a lot more complicated. You’ve got some extra income, but you have extra expenses as well. You’ll want to know more about how rental income can affect your overall tax situation, and what types of receipts you should be saving to deduct as expenses at tax time. If you’re not careful, you could end up with a surprise tax bill at the end of the year. That's why it’s best to talk to a qualified tax professional about your personal situation.
You don’t want to have a strained relationship with your tenant, especially if you’re renting to someone in a unit within your primary residence. When you’re very clear on what your responsibilities are, you’re less likely to have to deal with complaints from the tenant. For example, your tenant is entitled to reasonable use of the home and property. If you’re constantly complaining about the noise coming from their apartment - assuming it’s a reasonable amount at a reasonable hour - and them inviting friends over for weekend barbecues - an acceptable use of the property - you’re in the wrong, and you’ll be causing a stressful environment.
Preparing to Expand Your Empire
The more you know about your rights and responsibilities, the more comfortable you will be buying your next property. After all, the first property is always the hardest one. You use it to learn the ropes, and then go on to bigger and better things. The more properties you have, the more income you can earn.
Becoming a landlord is hard work, but it’s worth the effort. We’re seeing more and more people look to buying brand-new homes as rental income because they know that they can demand top dollar for the units and won’t have to worry about things breaking down the way they would in older homes. If you’re interested in buying an investment property with Sterling, one of our knowledgable Area Managers can help you determine which property would be best for you.