Owning an income property or two is both a great way to make money and a real financial challenge.
It’s been an excellent source of income for people over the last decade or so, as real estate prices in Canada have soared. But making money from property is a lot of work, an ongoing expense and requires some financial know-how to, in the end, make it make sense.
Landlord Prep for Income Tax Season
Since it costs money to operate a rental property, being a landlord comes with numerous tax deductions, which you can use to offset your rental income.
In general, it’s a good idea to keep all your receipts and use an accountant to help you determine which are legitimate and whether to consider an expense a current expense (like paint or a new door lock) or a capital expense (a new furnace).
When you file your taxes, you have to fill out a special form: a T776 Statement of Real Estate Rentals. As well, if you are buying a new house or condo in order to rent it out, you might be eligible for an HST or PST rebate. In short, the tax side of being a landlord is complex. While you can find some information from Revenue Canada here you truly do need a tax professional helping you to make sure you fill things out property and get all the refunds and deductions possible.
Landlords Need to Know the Law
Every province has an act that governs relations between tenants and landlords — get to know the rules where you live to avoid conflict and, in extreme cases, court. These laws spell out the limits on how much rent you can charge, how much notice you have to give before raising rent, rules about security deposits and eviction rules and limitations. Here’s a quick list of the different provincial rules from the Canadian Mortgage and Housing Corporation.
As well, have a look at the Canadian Human Rights Code. This says a landlord cannot discriminate against a potential tenant based on race, sexual orientation and even being on social assistance. This means you must be cautious during the interview process and not ask personal questions about religion, plans to have more children and the like.
Going against these rules can land you in court or, at the very least, disrupt your relationship with your tenants.
Screen Tenants Carefully
The risk in becoming a landlord is losing money because of unpaid rent. It happens. But it happens less often to landlords who carefully screen potential tenants.
It begins with an interview process with some careful questions: how long the tenant expects to stay, how long they stayed at their last place. Just as important, a smart landlord noticing everything in an interview: how the person is dressed, the kind of car they drive, the kind of small comments they make about the place and money. Anything that raises a red flag about a person’s commitment to the rental, their reliability or their past should go into the decision to move ahead with the contract.
Before you sign on with any new tenant, it’s crucial to do a proper credit check.
And once you’ve found a reliable person, be sure they sign a lease. Standard lease agreements are readily available, including this version for Ontario.
Becoming a landlord is not unlike launching a small business. And like running a business, renting out property can lead to great profits, but there’s also a risk for losses if you’re not careful. Taking it seriously, knowing the risks and getting help when you need it will increase your chances of having a positive landlord experience.