Buy a home and rent it out if you’re looking to create a new stream of income for yourself.
If you haven’t already guessed it by now, I’m a big believer in real estate – not only for personal reasons, but also from an investment perspective. I bought my first rental property in 2013 and another in 2018. I am aiming to buy another by the end of 2022.
Simply put, buying a rental property is a great investment strategy to earn steady, passive income which will grow the longer you own the property.
This said, buying a rental property is not a decision that should be made too quickly. You want to exercise extreme due diligence – not only with the property itself but also where.
Before you do anything, it’s a good idea to spend some time researching more about how to buy a home and rent it out. It sounds simple, but there is still alot to know.
Some of the things you should be looking at include the location of where you’d like to buy, what the property prices are there, any real estate trends, local laws and regulations along with economy, jobs and the demographics.
Since you may not be skilled in this type of research, this is where a REALTOR® comes in very helpful.
For me, none of my investment properties have been in Ontario because I feel the Landlord Tenant Board weighs too heavily in favour of the tenants. This can be a risky position if you’re the landlord and you find yourself with a bad tenant. My first rental property was a vacation rental in Florida – and the second is in Edmonton, Alberta, specifically for this reason.
Next, you’ll need to figure out an real estate investment strategy. Do you plan to rent to long-term tenants or are you going to buy a house to rent out on a short-term basis. Both of them come with pro’s and con’s.
While you have the benefit of a steady income with a long-term renter, you can’t necessarily charge as much. If you buy a short-term rental, you can charge more on a per day basis, but you may struggle with higher vacancy rates depending on where it is. This is a super important consideration before you go ahead to buy a home and rent it out.
By choosing your strategy, this may also impact where you choose to look before you buy a house and rent it out.
That brings me to my next point.
You need to select the right location to buy a house to rent. This will increase the demand for the property when you’re ready to rent it as well as the amount you may be able to rent it out for.
You could be wondering, “what does a good location look like?”
You’re going to want to understand if there is a strong demand for rentals in the area, confirm that there is the opportunity for positive cash flow after a mortgage, utilities, taxes etc., are considered. The laws/regulations are important especially for short-term rentals. You may have more flexibility in a house but a lot of condo buildings don’t allow AirBnB rentals. Safety, schools and proximity to amenities are also important considerations.
Once you know what you want to buy, how you want to rent it and where – now the fun can begin! It’s time to buy a house and rent it out!
In this day and age, finding investment properties is much easier than it used to be. Mashvisor is an example of a technology that makes this process better especially to help investors find info on the rental income they can expect along with the cap rate, rental rate, comps and more.
If you’ve narrowed down your property search, it will be time to do a more in-depth analysis of the property. Be sure you and your REALTOR® are comparing different investment properties. This should include data attached to compare and estimate how well they may be able to do once you’ve got it rented out.
Although you should’ve done this from the get go, if you haven’t already, now will also be the time to get your finances in order. Create a budget to outline all of your foreseeable costs along with the income to see if you want to go ahead and buy a house to rent out. Banks may also want to see this depending on how you’re going about financing.
Remember, everything in life is negotiable – especially when it comes to real estate. Keep in mind that the seller’s asking price is not usually what buyer’s will end up paying. In today’s current market, houses have often been selling for tens to hundreds of thousands OVER the asking price. But that is here in Ontario.
You may find a better deal out of the province which gets you a house to buy and rent out under list rather than over.
If you are buying in Ontario, keep in mind the current market conditions to factor into your budget.
After you’re successful in landing a house to buy, now you need to market it. This is a crucial step to create a pool of tenants you can select from You don’t just want to find one, you need to find a good one who will take care of your investment.
Beyond finding a tenant, you will also need to manage the property on an ongoing basis. If you don’t have the time or don’t live close by, you’ll want to secure a property management company to help. Be sure to think about this in advance as it will have an impact on your bottom line.
If one of your goals for 2022 is to buy a house to rent out, I hope you’ve found these tips to be helpful!
You may also be interested in this article, How To Finance a Rental Property with CMHC & MLI Select or this one, How to Use The Smith Manouevre To Invest in Real Estate.
Thinking that real estate investing and rental properties are the way to go, let’s talk!
If you’re not ready to talk just yet but would like to see what’s out there, feel free to start browsing properties on the market.
