condo rental business

[tahta]

I am planning to buy condo as an investment and rent it out. What are pros and cons for condo rental business? Goverment regulations? Any information or advise would be very much appreciated.

[najibs]

Biggest con IMO is that you don't REALLY know who is moving in until they're in there. You don't know how well your place will be taken care of, and the worst thing that can happen is them falling behind on their payments, and then you have to cough up the money to pay for the mortgage.

[tahta]

Is it possible to "outsource" this kind of headache to some real estate agent?

[TheDude79]

Sure, any property management business will gladly take your business (and a significant share of the monthly rent). That doesn't guarantee that the renter will pay their rent or not damage your condo, or that the value of your condo will increase.

[SupsD]

I had a real estate agent find a tenant for my place. (took 1 month's rent as commission). He did a credit / background check and handed me a few names as potential renters. I took his first suggestions and it has been great so far.

I inspect my condo once every 3 months and the tenant has been great for 2 years. Condo still looks brand new and well taken care of. You just have to work hard to communicate with the tenant and to look after your place even though you don't live in it. A friendly (and clean) tenant goes a long way in making your life easier. (I got lucky with this tenant).

[ali1800]

I am planning to buy condo as an investment and rent it out. What are pros and cons for condo rental business? Goverment regulations? Any information or advise would be very much appreciated.

I don't think this is the best time to buy a condo for rental purposes .... at least not the best time to blindly buy. A few years ago you could buy anything in the city and it would have given you a good return. I don't think this is the case anymore.

For example a co-worker of mine bought a 2 bedroom condo about 1.5 years ago. Condo maintenance fees have gone up bought she can't increase the rent as rent prices have not gone up accordingly!

I believe you'll be extremely lucky just to break even. Prices /sq. ft. are approaching $450 on average on new or just new condos and about $.45 condo fees /sq ft or higher. Utilities are usually be paid by the tenant if they are not included in the condo fees. You need to do a lot of number crunching before you commit yourself to a condo. It's not liquid like a stock where you can just dump it without much hassle and cost. And don't forget about location, location...

Let us know how it goes.

[tahta]

Thanks for the replies, guys, so basically I need to ask my current agent or find a new one to do some background and security checks for potential renters. Seems like a good idea!

Basically, what I am thinking is to get 1 bedroom in Young and Finch area, with 20 percent downpayment to avoid high CMHC insurance fees. I did my homework and it looks like mortgage+maintance+tax will be close to $1300/monthly, which pretty much is the average rent price for 1 bedroom in Young and Finch area. As long as I can find a good tenant, condo will pay for itself and in the long run rise in price by at least 10 percent in next 12 month.

Does anyone have good experience renting out condos in Young and Finch area?

[eejikes]

As long as I can find a good tenant, condo will pay for itself and in the long run rise in price by at least 10 percent in next 12 month.

Does anyone have good experience renting out condos in Young and Finch area?

A few observations 12 months doesnt seem like very long term to me and also what guarantee do you have of a 10% increase in value?

[faken]

Although real estate provides you some tax breaks, you need to consider that you may pay higher income taxes if you're sacrificing contributions RRSP's that are tax deuctible..

Also doesn't renting real estate produce income that is taxable?

And it's key that you rent out to people that you know will pay the rent on time..

[tahta]

A few observations 12 months doesnt seem like very long term to me and also what guarantee do you have of a 10% increase in value?
Well, of course there is no such guarantee, but looking at last year increase of 15-20 percent and taking current situation with interest rates going down in March(almost guaranteed at this point) I guess we can assume that there going to be some increase in properties value, less than last year, but still significant enough.

[tahta]

Although real estate provides you some tax breaks, you need to consider that you may pay higher income taxes if you're sacrificing contributions RRSP's that are tax deuctible..

Also doesn't renting real estate produce income that is taxable?

And it's key that you rent out to people that you know will pay the rent on time..

good point. I need to talk to my accountant about that.

[CSK'sMom]

Realistically can you carry all the expenses for the rental along with your own expenses for a period of at least 6 months? If you can't then think really hard and long about this. It can take about 6 months (give or take) to get a non-paying tenant out through the legal channels. Don't count on getting away with a 20% down payment either, typically banks require a higher down payment for rental properties. While on the tax implications don't forget that there will be capital gains payable when you sell...

[jefguth]

3 words...

Tenant Protection Act....

[tahta]

Don't count on getting away with a 20% down payment either, typically banks require a higher down payment for rental properties.
Please elaborate? I cannot recall any questions from banking officer(during pre-approval process) whether I am going to live there by myself?

[BillyParadise]

Another word - vacancies. Vacancies will kill you in condos - there's thousands available and they all look the same. What reason, other than a lower price, does a potential tenant have to live in your shoebox as opposed to the 30 others available in your building?

My GF and I own 2 duplexes and 3 triplexes between us, mostly in downtown Toronto. No condos. There are so many condos, but only so many houses. Not everybody wants to live in a shoebox, so we rarely have any vacancies. Better living conditions = better choice of tenants, better rents, and better returns.

Another poster said that it was almost impossible to get a condo to be cashflow positive. He's right, unless you are putting down 30%, which negates much of the leverage advantage of real estate investing.

Find a dump, fix it up to a standard that you'd be comfortable living in yourself, and reap the rewards. Rule #1 - the investment must be cashflow positive within 3 months. Rule #2 - dont count on the market going up. Sometimes it goes down. Been to Miami or Las Vegas lately?

Successful real estate investing requires you to roll up your sleeves and get a little dirty. Hands-off condo investing sounds great, but nobody can predict the future. While you think the market will go up another 10%, history shows that real estate appreciates about 2% above inflation on average. So that's 4% in today's climate, or less than the 5% you'll have to pay your broker to sell the place.

Dont count on selling the place in a year. Count on keeping it. Forever.

[BillyParadise]

Don't count on getting away with a 20% down payment either, typically banks require a higher down payment for rental properties. While on the tax implications don't forget that there will be capital gains payable when you sell...

a) wrong. http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2007/10/cmhcs-groundbre.html

b) capital gains are good. (well, better than capital losses). It means you made money. I'd rather pay capital gains than make money by working - the rate is significantly lower.

[Germack]

You buy a Condo for standard of life , not for investment purposes. If you want to invest in RE buying a condo and renting it out is one of the worst things you can do. It will essentially loose money or breakeven for years while you have the headache of maintaining it.

If you really want to invest in real estate buy a duplex or triplex, rent it out and live in one of the units.

They key in real estate is to find a property for a price that allow you to make a positive cash flow (Rent less expenses less mortage) Your expenses will be approximately 35-40% of your rental income. The biggest mistake people make in RE is underestimating their expenses.

In my opinion it is a very bad time to buy real estate right now. I believe the market is totally overvalued and we will see a correction soon.

[CSK'sMom]

a) wrong. http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2007/10/cmhcs-groundbre.html

b) capital gains are good. (well, better than capital losses). It means you made money. I'd rather pay capital gains than make money by working - the rate is significantly lower.

Maybe you should read your own link Billy. That is a CMHC product that the article admits very, very few lendors are participating in. It also has pretty strict guidelines and what can be steep premiums. ;)