With above-average rents, a vacancy rate under 1% and a soaring demand in the Downtown Toronto condo rental market, many Torontonians consider buying an investment condo and letting it " pay itself off " from the rent money they will be collecting. While there is nothing wrong with such a perception as many landlords actually have considerable gains from the rental business, some people fear taking the step and becoming a landlord. Let's take a closer look at the most common concerns of becoming a landlord and how they can be successfully dealt with.
Start-up costs can run high
Becoming a Downtown Toronto landlord will require a substantial sum of money at the beginning. Even if you take on a mortgage to buy the condo, don't forget to factor in other costs such as various fees, taxes, upkeep, etc. Having a mortgage approval and knowing your budget will keep you on track. Look for properties that can generate a positive cash flow by knowing a realistic expected rental income to make sure your investment condo will be profitable from the start. Break down your finances to the smallest detail and lay out a financial plan that will not only include the mortgage costs, taxes, monthly maintenance fees, but also all the additional costs for repairs and a small fund for emergencies or vacancy periods. Real estate in the long run is most profitable from the appreciation of capital so remember that breaking even on annual costs isn’t always a bad thing. Long-term growth is a common goal of most of my investors.
A mortgage on a second property works differently
If your investment property is going to be the second property in your name, most likely, you will be required to pay 20% or more in down payment for a second home. Getting a pre-approval prior will narrow down properties that you can afford as well as help to calculate costs and interest rates to make sure the investment is a right fit.
Maintenance is your responsibility
Landlords in Downtown Toronto are responsible for their investment condo, and as owners, they bear all the maintenance costs. Maintenance costs in condos run much lower than costs associated with a rental home. Majority of maintenance in condos fall under the building and are covered by monthly maintenance fees. Anything on the interior such as cosmetic finishes like paint or flooring and care of appliances is something that a landlord can expect to deal with every few years.
Risky tenants should be avoided
Tenant rights in Toronto are well protected in general, so if your tenant turns out to be a bad tenant, you probably won't be able to evict them easily. You can count on a lot of back-and-forths between you and them and the Landlord and Tenant Board. Jumping through the administrative hoops can cost you time and money, especially if you are dealing with renters who have stopped paying rent. I always stress the importance of carefully screening tenants.
There are many working professionals that make great tenants and ones who treat their rental as their home. To find good and caring Toronto condo renters, you will need to go through the applications carefully. Screen tenant applications in detail and ask the candidates to provide documents such as an employment letter, current credit report, contact details of previous landlords as a reference, details about other people who might be living with them and pets.
When a tenancy ends, it may take some time until you find another tenant. The ugly truth about vacancy periods is that the tenants may be gone, but your responsibilities stay. With no rental income to compensate for the condo fees and the utilities, you will have to pay for those out of your pocket as long as the condo sits empty (which will probably not be for too long in the busy Downtown Toronto market).
To minimize vacancy periods, you will need to act fast when your tenant hands in their notice. They are obligated to do so at least 60 days upfront, so you will have some time to find a new one. Extensive and high-quality advertisement and working with a skilled real estate agent are the best way to go. Also make sure that no repairs are due and that the unit is clean and move-in ready when you start showing the place. Prepping a condo for rent is equally important as prepping a condo for sale. See some tips at Prepping a Toronto Condo.
While some of the challenges above can be worrisome, the long term benefits that come with a Toronto investment condo can be rewarding. Besides being one of the safest forms of investment with their steady appreciation rate seen over the years, rental units also represent a regular and significant income stream, especially in Toronto where one third of the population are renters.
For more information on Downtown Toronto condos, condo investments and condo listings, contact me here.