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Becoming a rental property landlord, whether a condo or a house, has highs and lows but can be a financially sound investment.
Need To Know Basics Before Buying A Rental Property
So you’re ready to buy your first rental property.
Maybe you’ve heard about all the money you can make by buying a property, finding a tenant, and letting the cash roll in.
Perhaps your parents had rental property, and you know the money can be made.
Or maybe you’d like to buy a house with a basement suite and have someone help pay your mortgage.
All these are great reasons to consider owning rental property.
Evaluate Your Current Living Situation
- Where are you living right now? Are you happy where you’re currently living?
- Do you want to live in the same building as your tenant by having a basement suite or one side of a duplex to rent out, or would you prefer to live in a dwelling away from your tenants?
- Are you living in a house or an apartment condo?
- Do you own your home, or are you renting?
- If you live in a house, what do you like about living in a home?
- If you’re living in an apartment condo, what about condo living appeals to you?
These questions are essential for two reasons.
First, if you’re unhappy with your current living arrangement, you must ask yourself why.
What don’t you like about where you live, and what would you prefer instead?
It could mean selling your current home and buying another house with a rental suite if you’re a homeowner.
However, renovating your existing home to include a rental unit so you can test the rental waters may also be an option.
Secondly, if you live in a house and are happy, you likely understand why a tenant would want to live there and what would make a home appealing to renters.
Things like having a yard for the kids or your dog to play in, a place to set up a BBQ and grill some steaks, and more room to park your and your friends’ vehicles when they visit. Maybe even a place to grow a garden and some flowers.
Identifying Your Ideal Tenant
Knowing these things will help you identify your ideal tenant and how you should advertise your rental property to attract these renters.
Your answers to these three questions will tell you the following;
- If you should consider buying a rental property that you’ll live in and share with your tenant
- If that rental property should be a house or a condo
- Who are your ideal tenants are.
Responsibilities and Costs of Owning a House
If you’re currently renting a house, then lucky you!
You’re probably experiencing many benefits of living in a house without many of the worries and responsibilities of maintenance for its upkeep.
If you own the house you’re living in, you know how much work it is to maintain a house and the added expenses that go with it.
Maintenance expenses include housing expenses like property taxes and utility bills such as heating, water, electrical, telephone, and cable.
Houses have furnaces, water heaters, roofs, yards; eaves trough to clean, and sidewalks to shovel in winter.
If you can’t do this maintenance work yourself, you’ll have to hire it out and pay for the labor and materials to do this work.
On top of this, houses also have foundations.
This can sometimes mean repairs to the foundation, interior walls, and flooring after mold or water is found in the basement.
In addition, it can also often mean having to change the grade (i.e., the slope of the ground) around the house to prevent future water drainage towards the house and foundation.
Remember that when this happens, you’re also losing rental money because the unit can’t be rented out while repairs are completed inside the suite.
I had to deal with both of these issues and expenses with my first rental property a few months after I bought it with my friend, and it was scary but we made it through.
We had so much flooding in our rental property that people were canoeing down the street out front! Now that’s water damage!
Benefits of Renting Out a Portion of the House You Live In
Besides the benefits of living in a house mentioned above, another upside is the potential to have a suite or separate unit as part of the house, which you can rent out.
By living in a part of the house, you’re there to watch over your house and ensure that the tenants are taking reasonably good care of it.
On the flip side, if the suite is a basement suite, you might need the extra room downstairs or not like having somebody live below your living space.
The other benefit to buying and renting out part of a house is that it will be considered your principal residence because you’ll be living there.
Also, it will be relatively easy for you to get a mortgage from the bank to buy the house (assuming your credit checks out OK and you have enough money for the down payment).
You’ll also be able to claim a tax deduction come tax time for a portion of the interest you pay on your mortgage.
This is done by estimating what percentage of your house is occupied by the rental suite & isn’t available for you to use.
Finally, you can get some help paying your utility bills each month by having the tenant pay some heat, water, and electricity bills.
If you aren’t living in the house or condo you want to purchase to rent out, it won’t be considered your principal residence, and because of this, you won’t qualify for a traditional CMHC mortgage.
Related: Paying Rent Am I Wasting Money?
To buy a property in this situation, you’ll need other financing places such as a home equity line of credit, an unsecured line of credit, a loan from a family member or friend, or access to cash to buy it outright.
More Rental Property Considerations
Houses often cost more than condos to buy. However, houses usually appreciate faster than condos.
It’s also usually easier to sell a house than a condo (all other things being considered equal) because there are usually fewer houses on the market in a given price point and neighborhood than condos.
There is also usually greater buyer demand for houses vs. condos, particularly in most Canadian cities today, where there is a glut of condos for sale compared to houses.
Another thing to consider is that because houses are usually larger than condos, buying a house with multiple units to rent out is possible, such as a duplex, triplex, or fourplex.
One landlord I know used to rent out bedrooms in a larger house because he collected more rent this way.
However, Renting bedrooms has its downsides, such as higher renter turnover, roommate conflicts, more wear and tear on the house (due to frequent moves), parking issues, and difficulty preparing a bedroom for another tenant when one moves out, and the other tenants remain.
Because of these drawbacks, he quickly decided to rent the house out to families or one renter even though he made less rent.
What About Renting Out A Condo?
I’m glad you asked! I’ve also done this with my husband and found some great benefits to renting out a condo versus a house.
First of all, a condo is usually easier to maintain.
There are no sidewalks to shovel, lawns to mow, weeds to control, or gutters to clean.
Condo buildings are usually well-lit and locked, so people living alone often feel more secure living in a condo than in a house.
Other pluses?
You don’t have to worry about the furnace conking out on you on a cold winter night because the heating in a condo building is usually done by large boiler units for which you’re not personally responsible.
If you want to go somewhere, lock up your unit and leave.
There are some drawbacks to condo living, though.
Space restrictions make it hard to entertain more than a couple of guests in a condo at a time.
And you need to ensure you’re not too noisy and disrupting the neighbors.
Some condos are noisier than others, depending on what materials are used for their construction.
Food odors wafting from other units can also annoy some people.
Certain pets may or may not be allowed, depending on the policy set by the condo board.
Parking is often limited (we had just one parking stall with our unit).
Storage is usually extremely limited, and storage of bicycles on patios may not be allowed.
Laundry facilities may be shared on each floor or by the entire building and may be coin-operated.
Ideally, it’s great to have in-suite laundry as tenants look for this.
But I Hate the Idea of Paying Condo Fees!
Condo fees can be a two-edged sword.
On the one hand, condo fees are great because they pool funds from all the owners to pay for maintenance.
These expenses can be costly fixing things such as roof repairs, boiler repairs, common areas & grounds maintenance, community pool, etc.
As a property owner, you don’t have to have a large emergency fund to repair a leaky roof or replace your furnace if it dies.
It also means you don’t have to buy lawnmowers, shovels, and snow blowers or mow or shovel yourself.
Condo Fees Paid Monthly
Monthly condo fees often cover heat, water, and sometimes cable expenses, so the condo owner only has to pay a small electrical bill each month in addition to their phone.
On the other hand, condo fees can be troublesome if owners feel they don’t have control over condo fee increases or if their condo reserve fund is inadequate to cover major expenses.
Beware of buying a condo that has unusually low condo fees!
This can be more common with new condos where the builder tries to keep the fees low to entice new buyers.
The downside is that a large condo reserve fund is never built up for new buyers.
This then puts each owner at risk for costly repairs if (or I should say when!) they occur.
My husband bought a condo that he lived in years ago and was happy to find out the fees were quite low.
However, when he got on the condo board, he discovered that the condo reserve fund was very low and inadequate to cover any major expenses.
If a major expense had occurred at the time, each condo owner would have been required to pay thousands of dollars out-of-pocket to have the necessary repairs made.
Very few owners had this kind of money to pay for such repairs.
Better Prepared to Make a Decision
Buying a house or condo for your first rental property depends on your preferences.
There’s a difference between wanting to own and maintain a house versus a condo for rental purposes.
You also need to decide if you want to live in a part of the dwelling you’re purchasing while renting out the remaining portion.
Or do you prefer to have your rental property separate from your home?
By looking at the pros and cons of purchasing a house versus a condo for your first rental property, you’ll be more confident and informed as you make this life-changing investment.
I’ve always considered becoming a rental property owner, so it’s nice to hear about experiences from others.
Contribution By: Leona Werezak is a freelance writer and nurse educator whose interests include real estate, personal finance, and nutritional health.
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Nice thoughts! I strongly believe that the big factor is the current living situation considering the finances.
Good article and tons of good information! I typically don’t talk or write about the option of a live-in rental but it’s a great idea for anyone that doesn’t have the ability to own two separate properties.
Matt – reinvestwise.com
Thanks. And yes Matt, I totally agree with you. I’ve also had students live with me too in my own personal space on a rental basis when I was single so that’s definitely another option. A live-in rental requires a person to be a LOT more flexible & comfortable sharing their personal space with others though.
If you are living alone, it would be a condo. condo is more convenience for a person that lives alone.
For me, if you are living alone, you must choose a condo as this is very convenient, and also the benefits and amenities.