Wednesday, August 12, 2015

Do your homework before buying rental property

These days, every real estate article has people convinced to buy extra property to become mavens. Unfortunately, they don't always tell you the potential pitfalls. So here they are…. Don’t say I didn’t warn you.


Many people look at rental income without checking the history of the tenants. Many tenants have shoddy credit histories so it is important to check credit bureaus and get reference letters. Bad tenants can make your life a living hell by not paying you and it takes forever to kick them out. Quebec Rental Board laws favour tenants and even if they don't pay, you can't kick them out right away. You cannot rely on rental income to pay your mortgage and you cannot tell your bank that you can't pay your monthly mortgage payment because your tenant hasn't paid you. That excuse holds no weight. Also, if your tenants need minor renovations or have plumbing/electrical issues, you are responsible for taking care of the cost.

Rent increase:

Unless you can show you have done major renovations, you can only increase rents by approximately 2% per year. There are strict laws regarding this, so beware of this as well.

Capital Gains:

When you own a property that is not 100% owner-occupied, keep in mind that you will pay a capital gains tax when you sell it. It is best to speak to an accountant regarding how much you will pay, but factor this in before thinking you will flip a house for a quick profit without the government getting their cut.

Being a rental property owner can be very rewarding, but it is important to make sure you do your homework before making a large financial decision like buying a new home.