There are risks involved with any new venture, and buying a second home to rent out is no different.

When planned and executed effectively, the rental venture can be a good investment that pays off in the long run. But there are many things to consider before deciding if this investment is right for you — from searching for properties, vetting potential renters, understanding tax allowances and restrictions, choosing the right lender, to figuring out if you’re handy enough to do repairs and upkeep on the house and property.

Feeling overwhelmed with this venture already? Read on to learn seven things you must consider before jumping on that rental house.

7 Things To Consider Before Buying A Home To Rent Out

When deciding if owning a rental property is right for you, carefully consider the following:

Consideration #1: Have You Run All the Numbers?

Your goal is to profit from your rental after everything else is paid for. Therefore, you need to run the numbers to decide how much you can charge for rent and know if you’re making a profitable decision.

An online mortgage calculator can help you see your monthly costs. Remember that rental properties carry a higher mortgage interest rate than primary residences. And don’t forget to add in the maintenance and repair costs. A $250,000 property typically costs $2500 to do upkeep and repairs yearly.

Another way to calculate an average repair and maintenance budget is the “$1 for each square foot method”. For example, if the house is 1500 square feet, using $1 per square foot, your yearly total would be $1500.

Consideration #2: Have You Spoken With Your Mortgage Lender Yet?

Mortgage rates are often higher for rental properties. Some lenders even have stipulations that force you to wait a certain period before renting the house, and others have clauses prohibiting the rental of an existing mortgaged home. Get the best financial advice by speaking with your lender about your specific situation and intentions.

Consideration #3: Have You Researched the Tax Advantages and Complex Filings?

You can try and learn it all, but you may miss out on benefits that only an expert knows. To get a better idea of tax advantages and filings, hire an experienced tax attorney or a good accountant. There are more tax breaks and benefits than just the basic deductions:

  • Property taxes
  • Insurance costs
  • Mortgage interest
  • Repairs and maintenance
Consideration #4: Can You Handle All the Responsibilities Of Being a Landlord and Property Manager?

Renting out a home is like operating a business that requires sacrificing extra time and attention you may not be willing to give. Learn your provincial and local by-laws regarding maintaining a safe and habitable living space for your tenants and ensure you know the law when it comes to:

  • Collecting delinquent rent
  • Serving eviction notices
  • Raising rent
  • Gaining access to the property

Not everyone has what it takes to become a successful landlord or property manager. Would you shy away from raising the rent to avoid conflict? Maybe you’re slightly overprotective of your property when you see it treated differently. However, making difficult choices is often necessary for your rental to be profitable.

Also, consider that breakdowns and repairs come with the territory. Tenants often expect an immediate response to any request or problem. DIY repairs can be a big money saver if you have the skills, tools, and time. However, if you can’t point out what a Phillips screwdriver is, you may consider hiring a caretaker or property manager. This expense deducts approximately 8-12% of profits from your tenant’s rent.

A property manager can take on a wide range of responsibilities like:

  • Yard maintenance
  • House showings
  • Collecting and depositing rent
  • Communicating with tenants
  • Repairs and house maintenance
Consideration #5: Do You Have a Trusted Realtor to Work With?

A trusted local realtor can help you navigate the house-hunting process and guide you through specifics like zoning laws, market conditions, and trends for home sales in the area. For example, most tenants prefer to be close to things like:

  • Schools
  • Playgrounds
  • Community centers
  • Transportation
  • Shopping
  • Parks

If you’re looking to attract a specific demographic, like college students, look for a property close to a college campus. Even if it’s 30-minutes by bus or train, as long as access to transportation is close, college renters won’t mind. Partner with a real estate agent to choose a rental property that best fits your criteria.

Consideration #6: Do You Know How to Choose the Right Tenants?

Use a thorough screening process to find good, reliable, and responsible tenants. Otherwise, you risk having difficult tenants who break the rules, damage the property, and cost you headaches and money. For your rental property to be a success, use the following guidelines when interviewing every prospect:

  • Ask for proof of stable employment
  • Request their tenant history
  • Speak with previous landlords
  • Do background checks on anyone over 18 that would be residing on the property
  • Factor in that your tenants’ earnings should be 3x the monthly rent
  • Do a credit check

Ready to Take the Next Step in Owning A Rental Property?

If you’ve decided that you’re up for the task of investing in a rental property, congratulations. Now we move on to the good stuff.

Start by partnering with a trusted, experienced realtor who can guide you through the process of owning a rental home. Joel Cooper can help you find the perfect property in a suitable location at the right price — this is key to your success.

Get meaningful results with a genuinely client-centered approach that’s second to none. Get in touch with Joel today.

Let’s Chat

Hi, I’m Joel, a real estate professional based in Toronto.

My approach is simple—I put you first. I believe in open communication, total transparency, and meaningful results. I’ll guide you through the real estate process, market values, and always keep the focus on you—and your needs.