This article was written by Kristina Booi, and she’ll share her thoughts and experiences on what it takes to have a great experience as a landlord.
My family has had rental properties for as long as I can remember, and it has always been a dream of mine to purchase one of my own. Through automatic monthly savings, I was able to make this dream a reality in July 2020. It was the perfect time to buy a rental when life was a little bit less hectic due to the pandemic. My husband and I put in many hours to clean the house up and get it ready to be rented, but the work and investment have been worth it.
Yes, we’ve had surprises—like smoking in the house—but overall, it has been a positive experience. As friends and acquaintances heard that I was getting into the rental market, I heard horror story after horror story. Thankfully, this didn’t scare me off being a landlord as my family hasn’t had many bad experiences. Sometimes, bad experiences are unavoidable, but the following tips should help you have a great landlord experience.
Have a Rental Agreement
Once you have carefully chosen your tenants, review a Residential Tenancy Agreement with them. Ensure that you both sign it and that you both have a copy. You can search online for the agreement that pertains to your province and print out a PDF. This form may have different names outside of Ontario. If you can’t find this form for your province, try searching “Lease Agreement.” This agreement will outline the responsibilities of the landlord and the tenant and can help avoid potential problems, such as having other people move into the unit when the rental rate was negotiated based on who was to be living there originally.
Cleary State Responsibilities
Ensure the agreement outlines the responsibility of day-to-day property maintenance, such as removing snow and cutting the grass. It’s essential that you obtain signed confirmation from the tenant if they’re to be responsible for removing snow and ice. A signed agreement will help prove that you weren’t negligent in your duties as a landlord if there’s ever an injury due to negligence surrounding the build-up of snow and ice.
The agreement also needs to outline the responsibility of each bill. Understand that it’s the property owner’s responsibility to pay for the water and sewer bills. You can ask that your tenant pay for water and sewer if that’s the agreement that makes sense for you, but check with your city to see if there’s anything that you and the tenant have to do to arrange this, such as signing a form with them.
In the end, if the renter doesn’t pay the bill, the debt will be your responsibility, so my advice is to negotiate the rent based on you—the owner—paying for the water and sewer bill. That way, you’ll see quarterly what the usage is and will avoid the potential surprise of many months of bills adding up while the tenant lives there. The penalties on overdue water, sewer, and property tax bills can be excessive, and you don’t want your earnings unnecessarily eroded with compounding penalties.
Save Money for Your Income Tax Bill
If you own the rental in your personal name and you have an accountant, ask them what your marginal tax rate is and how that could change with the rental income. If you don’t have an accountant, there are calculators online that can help guide you. Search for “marginal tax rate Ontario calculator” or your applicable province as tax rates do differ provincially. Once you’ve figured out your marginal tax rate, that’s the percentage of your rent collected that you’ll want to save to pay your bill.
If you own the rental as a corporation, speak with your accountant about whether you intend to withdraw money from the corporation and what effect that will have during tax season.
It may also be helpful to know that if you owe more than $2,999 during tax season, the CRA will ask you to pay installments quarterly instead of receiving your total tax bill at the end of the year. If possible, it’s best to ensure that this doesn’t happen as you want to keep your money in your pocket as long as possible so that it can work for you and accrue interest or pay the expenses of the unit. If you think you may end up owing more than $2,999, consider making an RRSP contribution to decrease your bill to under $3,000.
Keep Records of Expenses
Keeping your expenses organized will help avoid stress later when trying to collect everything you need during tax season. Your future self will thank you for taking a few moments now to prevent a headache later. If you don’t have a filing cabinet, buy a file folder and make files for your expenses. Keep your file headings simple. Common expenses include insurance, mortgage interest and other bank fees, water and sewer, property taxes, accountant fees and property maintenance.
Take Your Mortgage Over 25 Years
This may seem like strange advice. We’ve always been told to pay off debt as soon as we can, right? Well, in this case, the interest paid for the mortgage is an expense, so it’s written off dollar for dollar against the income you’ll be taking in. Yes, you don’t want to unnecessarily erode your earnings, but in this case, it may be beneficial for you.
If you find that you have excess money available, rather than paying more on the mortgage, consider setting up a savings account for future investments. If you’re interested in purchasing another rental unit, you’ll be much further ahead by saving 20% for the down payment on a new unit and skipping the CMHC charges than if you paid off your existing mortgage faster.
Go the Extra Mile for Your Tenant
A tenant who likes you as a landlord is more likely to take care of your property or contact you when there’s property maintenance that should be done that doesn’t have a direct adverse effect on them, such as fixing water leaks in a timely fashion. When I had a realtor visit my property to give me a current valuation, I arranged a time with the tenant well ahead of time. I knew she was a clean person, but she mentioned that she wanted time to be able to clean further. As a thank you for cleaning up and allowing us into her home, I bought her a candle as a gift. I was glad that I went the extra mile as she certainly did and had even taken the time to shampoo the carpet! The house was deep-cleaned and looked fantastic for the realtor.
Spending money on a gift may seem like an unnecessary expense, but going the extra mile for your tenant is very likely to end up costing you less in the long run. They are less likely to move if they enjoy living in your unit. When you have less turnover, it’s not only less work for you to vet new tenants and show them the unit, but you’ll likely have to pay less for maintenance as well, such as having the unit painted and cleaned in-between tenants.
Review Your Insurance Annually
Review these items on your insurance annually:
- Building coverage limit – ensure that your replacement cost coverage is keeping up-to-date with current building rates per square foot in your area.
- Contents coverage – ensure the limit is adequate to replace the contents that you’d want replaced in the event of a loss.
- Rental income coverage – as your rent is likely to increase every year, make sure that your coverage continues to be adequate.
- Exclusions – ensure that you know what is excluded, such as service line coverage. As a property owner, you’re responsible for any issues with the portion of the supply line that is on (under) your property. This coverage can be added to most policies. Another common exclusion is vandalism done by tenants. This risk can be mitigated by properly vetting your tenants.
Following these tips will help ensure you have a great landlord experience, that your investment is good, and that you’re protecting your investment. To ensure your rental property has proper insurance coverage, contact one of our insurance professionals today.