Sunday, December 17, 2006

Should I become a landlord?

I've recently been looking into getting into the landlord business. The more I read, the more I'm told that multiple income streams is the key to financial independence. This has led to to spend some time looking into investment properties.

Here are the key things I'm looking for in an investment property:

1) Property must carry itself.
This is of course easier said that done, but given my available cashflow this is an absolute must.

2)Property carries for under $1,000/month.
Since there is always a risk that I wont be able to rent out my property, the carrying cost must be small so that I don't cripple myself financially with this transaction.

Nice Bonuses:

1) Area is likely to have long-term renters.

2) Home being purchased has already been rented.

Living in the GTA (Greater Toronto Area), these limits are quite difficult. A new 1BR condo will run me $175,000 +. This would carry in the $1300+ range. It would also be very difficult for these condos to carry themselves as rent on a 1BR condo is typically around $1000. So it would appear that I will have to go outside Toronto. But how far is reasonable? Peterborough? Barrie? Is the amount of driving that would be associated with these investments really worth it?

Over the next few months, I will keep you posted on how this is progressing.

For those of you out there who have experience as a landlord, I would appreciate any advice you may have.

40 Comments:

At 11:33 AM, Blogger JPostal said...

Obviously if you can put more money down on a property you will reduce your monthly costs. I would try find a mortgage that allows you to pay just the interest portion of the mortgage on months when you do not have a mortgage (ie. Vancitys Redfrog Mortgage or Manual Life's Manual Life One) If you can steal a property that will have a positive cash flow in another city you may want to look at getting a good property manager to look after your property for you (easier said than done from what I have heard). Don't rush into anything...be patient and wait for a property that fits your needs.
Good Luck.

Jon
beyoungandrich.blogspot.com

 
At 11:35 AM, Blogger JPostal said...

Sorry...that should read "try find a mortgage that allows you to pay just the interest portion of the mortgage on months when you do not have a renter..."

 
At 1:51 PM, Blogger Alastair said...

We're new landlords (there is a suite in our place) and this is our first house. Something that people tend to forget (our previous landlord namely) is that being a landlord is a job. You have clients and you want to keep them happy. If you're away on vacation and something goes wrong, you have to be prepared to fix it either by coming back early or by sitting on the phone trying to find a contractor.

I haven't dealt with a property manager, but I haven't heard great things about the experience. The margins on single-family dwellings are not very high, so hiring a property manager may zero out all profits. So saying that, you may want to find a place that is close enough that you can maintain the place yourself.

Check out how to value a rental property and start looking. You may be lucky and find something that makes financial sense. While American, this site offers some advice: http://www.johntreed.com/rateseminars.html

 
At 6:55 PM, Anonymous Anonymous said...

Be patient, think things over twice, three times or more, prepare for what can go wrong. A lot of investments go wrong because people think only about the cash flow and not the risk associated with it, at times the best financial decision is not to become a landlord.

If you decided you want to; here are a few things I learned: I prefer condos, townhomes instead of homes. A few reasons: HOA fees protect you, the unit, and do many of the things you or a manager would normaly perform.

If you are going to have a mortgage, don't think you 'might have a vacancy', 'KNOW' you are going to have one, and be prepare to pay everthing on your own for at least six months, if you cannot, you will be taking a big risk. I maintain a cash reserve for each unit, to cover taxes, maintenance and HOA fees, plus six months worth to cover HOA fees on my own, should the units remain vacant for a few months.

Do not rush into becoming a landlord, slow and steady is the key. Listen to your bank, if they are not comfortable lending you money for a property, take their advice, ask what you need to make it happen, then get it.

 
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