Having a rental property can be a great investment. Imagine what you could do with the extra income once the property’s mortgage is paid off. If you’re dreaming of vacations, a new car, or sending your kids off to university without having to take out student loans, you should consider becoming a landlord. Here’s what you need to know before you start.
Obtaining a mortgage is going to look a little different for a rental property. If you live in the home and are renting out a room, your minimum downpayment is generally 5%. If you do not live on the property, the minimum downpayment is typically 20%. Additionally, when it comes to debt ratios, income properties are calculated differently. Applying rental income isn’t as simple as choosing a monthly payment since that payment isn’t really guaranteed. The best way to navigate this part is by working with a mortgage professional who is familiar with income properties.
Another aspect to be mindful of is insurance. In some cases, CMHC insurance is required regardless of down payment. And even if you don’t have to pay CMHC, you will need landlord’s insurance. You will need protection against injury claims and property damage. It is important to research different insurance companies to find a policy that works with your budget and your expectations.
Extra income, possible tax advantages, and a tangible investment are all great benefits of owning a rental property. On the flip-side, you won’t be able to enjoy these advantages without dealing with these realities:
- Maintenance. It is now your job to fix any issues that arise within the property.
- Tenants. All landlords hope for good tenants that are respectful, communicative, and pay their rent on time. Unfortunately this isn’t always the case. Prepare for the possibility that your tenants may skip out on rent, damage the property or cause other issues.
- Liability. Your home needs to be up to municipal and government codes or else you are liable.
- Landlord Tenant Act. As a landlord you have certain responsibilities to your tenants and your income property. Make sure you are familiar with these expectations before you put your home up for rent.
Renting out a property can be one of the most financially rewarding investments you ever make. Ensure that you know exactly what you’re getting into before committing to a rental property. For potential landlords in Calgary and surrounding areas, contact our mortgage experts at Source Mortgage for advice on how to get started!