“A man without land is nobody,” is a mantra that drives – and ultimately destroyed – Mordecai Richler’s character Duddy Kravitz in The Apprenticeship of Duddy Kravitz. Part of Duddy’s problem was he went about things his own way, following only his own advice.
Real estate can be a sound investment, and there are a lot of resources out there to help you determine if it’s a good move for you, and how to help ensure it pays off in the long run.
Check your Personal Finances First
First off, talk to your accountant and/or financial advisor to find out if you’re in a position to invest in something as pricey and long-term as real estate. You’ll need to have money available for a down payment or outright purchase, a sufficient credit rating to qualify for a mortgage if you don’t pay in full, and cash or credit for operating costs – even if you’re hoping to buy some vacant land in the boonies to sit on until values rise when development encroaches, you’ll have to pay property tax at the very least.
And if you’re not already working with an accountant or financial advisor, finding one (or both) should be one of your first steps before venturing into the investment world.
Join a Real Estate Investors Club
Unlike Duddy, you don’t have to do this alone. There are a number of organizations that provide networking and educational resources to members who are active in real estate investments.
One of the biggest and most-well known in Canada is The Real Estate Investment Network. Founded by Don R. Campbell, author of the best-seller, Real Estate Investing in Canada, the groups has 2,700 members across the country who can participate in monthly seminars, and tap into the groups network of insurance and mortgage brokers, or credit check services (see “Rent to Own” below).
There’s a $200 initiation fee and monthly dues are $199, but you have to commit to a minimum 17-month membership, so you’re looking at a nearly $4,000 investment. Then again, with average house prices in a market like Toronto at nearly $500,000, it’s a relatively small investment before you invest a massive chunk of your savings.
Another Canadian option is the Professional Real Estate Investors Group of Canada.
Start off Easy: Rent to Own
One obvious way to finance investment properties is to rent them out. The first house my wife and I bought was a duplex. We lived upstairs and rented out the lower unit. It was a perfect situation for us: we were able to buy a house in a great neighbourhood, we didn’t have kids at the time so the two-bedroom apartment was more than enough space, and the rental income helped keep our mortgage payments manageable.
Of course going from tenants to landlords in one move did require a pretty steep learning curve. We quickly discovered that one of us would have to claim the rental income on our taxes, but were also we entitled to a number of deductions, including a portion of the mortgage interest (in our case, 50 percent since half the property was rented), the same percentage of the property tax, any costs to advertise vacancies, and the price of any maintenance or renovation work you do on the rental unit(s).
The rules around the landlord-tenant relationship and responsibilities vary by province. In Ontario, it’s regulated by the Landlord and Tenant Board, which has a useful website with FAQs, forms, and other helpful information. For example, barring an emergency, you can’t allow yourself into the apartment without a tenants permission; you must give them three months notice of a rent increase, and the amount you can increase the rent each year is strictly regulated; and there are strict guidelines on when and how you can evict a tenant.
Here are a few other tips we were taught and picked up along the way to becoming seasoned landlords:
- An individual landlord can’t run a credit check on potential tenants. Instead, ask tenants to provide a printout of their current credit report.
- Ask for post-dated cheques so you don’t have to track down the tenants at the beginning of every month.
- Get the tenants to pay the utility bills. They’re less likely to crank the furnace or A/C with the windows wide-open if they’re footing the bill and, if they don’t pay, the utility company will go after them instead of you.
- Keep all your receipts for anything you spend relating to the home. An accountant can help you determine whether the cost of landscaping or painting the exterior of the entire home are legitimate deductions, and their fees are tax-deductible.