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Landlord Issues: Things to Consider Before Buying a Rental Property

Buying a Home in canada
Our Old House

When I bought my first house in late 2004 I did so intending to use the basement area in the new addition as a room rental.  The space was serviced by the furnace and forced air but also had a gas fireplace and a 3 piece bathroom.  The plan was to share kitchen and laundry facilities but otherwise co-habit the house leading a separate life from my tenant.  The house we ultimately sold was a 2 storey – I bought more than I needed (lesson learned) so I had lots of personal space to live in.  The “den” bedroom was gravy.

It was quite easy to get a student to rent the space for $400 on a monthly basis.  This money was put toward paying down my mortgage more quickly.  Little did I know there were numerous challenges I had no idea I would face.  Being a landlord is far from easy.  Here are some of the reasons why it can be so tough to be an on premise landlord.

1) Vacancy.  If you don’t have a tenant you are losing money.  You are still paying for the property so an empty unit is costing you money.

2) Tenant Quality.  Folks aren’t always easy to read, judge or truly know in a one off unit viewing.  I didn’t check references on my first tenant which resulted in a high maintenance person living in my home.

3) Akin to tenant quality is the ability to collect rent one time and in full.  My first tenant was tardy more than once.

4) Dealing with everything yourself saves money but it sure does take up a lot of time.  Your other option is to hire a property management company and that will eat into your dreams of extra cash flow.

5) Tenants have rights and can be incredibly difficult to evict.  There are laws and boards that deal with landlord / tenant disputes and the process of dispute resolution can last months.

6) Cash flow is required.  While landlord insurance can help protect damaged goods that the landlord owns on the property items such as appliances or even the furnace eventually need to be replaced.  You also need to pay the mortgage even when your property has no tenant.

7) Sharing a space, like I did, means that two people who do not know each other have to adapt to each other.  If you are like me and think there is a logical way to load a dishwasher you can almost guarantee your co-habitant will be oblivious to such logic.

8) To save money on home maintenance you will likely be looking at having a trailer, a hitch and a number of tools.  Hiring a repairman for every problem that arises on the property will lose you money fast.  You need to perform spring and fall home maintenance just like you would on your primary residence.

Given my past experience I don’t think that being a landlord is something the SPF’s are interested in doing again soon.  Yes, if things go right you will see some profit and perhaps pay off the mortgage a little quicker than your original amortization but a lot of issues can arise to thwart your real estate mogul dream.

What other challenges do would be landlords need to consider?

 

24 thoughts on “Landlord Issues: Things to Consider Before Buying a Rental Property

  1. I’m the same way, I know there’s money to be made, but it’s just not worth the aggravation to me. The one thing I’ve seen as a pretty common theme from other bloggers who have shared experiences is that you have to think differently about things that will get broken, wore out, or damaged. Many first time landlords probably figure things will ‘last’ at the same rate as the same thing in their own house, not understanding that renters are likely going to be harder on a house, on appliances, etc. Thus, many landlords seem surprised when things need to be fixed or replaced much earlier than they had thought. This can cut into cash flow and profitability as well.

  2. I’ve considered renting out our current home if and when we move. The only thing holding me back are some of the things you mentioned – the problems associated with bad tenants, maintenance, etc. I also have the experience of watching my father be part owner in a fourplex years ago, and just how much of a problem the tenants were, especially in a building like they had. I can remember him telling stories of really bad tenants who were drug users, leaving animal feces covering the aparment, etc. That right there was enough to scare my father out of it after a few years.

    1. Precisely Peter. A blogger many of us know, Sandy from Yes I am Cheap has a site called My Tenant From Hell. Check out the older articles and read about her experience with her rental property – it will make one think twice about bad tenants!

  3. I have the perfect tenants.

    They pay me rent on time, like clockwork.

    They never complain when the rent goes up each year.

    They never,ever make a mess.

    I never have to maintain or do any upkeep to my property and the property keeps going up in value.

    I only have to update my spreadsheets to keep track of the income.

    I love dividend stocks! ;)

  4. This is something that I’d personally like to get into but dont really have the cash right now. I feel like i’m not that far separated from renting that I’d be able to make far more reasonable assumptions. However, every time I talk to my dad about being a landlord, he says he doesnt want any part of it, mostly for reasons like these. I kind of wonder what the margins are like with a property management company

    1. After doing a quick search online I am seeing 8%-10& fee for full property management services – then add sales tax on top of that. What I am not sure about is whether the company is paid when the unit is vacant.

  5. I never realized there was landlord insurance; sweet!

    We haven’t become landlords yet but it’s something we’re looking forward to. Being able to have cash on hand and/or having a paid-for property really helps with a lot of the issues you discussed: you can be more picky with your tenant, you can hire a management company, you can hire out repairs, and it’s not the end of the world if the rent doesn’t come on time (but, if you found a good tenant, that shouldn’t be a problem).

    1. Every one of those “hire outs” eats profit. The point of investing is to maximize your return, at least from where I sit. I guess I am too much of a DIYer and generally dislike paying someone to do something I can do myself – especially if it improves our bottom line / net worth.

  6. I’ve always thought people who wanted to be landlords were a little bit crazy and that they overstated the benefits of it. I’m sure that under the right conditions there are those people that make out like bandits with, just like in anything.

    However, I don’t think it is for the faint of heart and I will continue to avoid it with a 10 foot pole for the remainder of my life but good luck to those that try!

  7. We have thought about getting into rental properties but just aren’t at the fund point yet to do so. If we do we would hire a property management team. We don’t have enough experience to handle tenants. We know it would cut into our profits but we don’t mind. We want things to be done right and we aren’t experts. We would still make profits just not as much.

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