With home prices reaching new heights in many of Canada’s biggest cities, homeowners are increasingly considering their rental income options as a means to manage their home affordability. It was a decision I made upon becoming a first-time home buyer – and if you think making your first home purchase is stressful enough, try doing it while learning the ropes as a landlord, too.
Now, I’ve got two years under my belt as a landlord, and I’ve learned a thing or two about gaining tenants – and losing them. While I’ve been an excellent (or so I think!) landlord, through no fault of my own, I’m on my third tenant in three years.
Your Landlord Contingency Plan
I depend on rental income to pay my mortgage (I’m working hard to be mortgage-free by 31), so it’s important for me to have a plan B in case that income disappears; you never know when your tenants will hand in their 60-days notice.
It’s important to start looking for new tenants immediately upon receiving notice; fortunately for me, I had two and a half months to find replacements when my current tenants stated they were leaving.
Know Your Rental Rights
As a landlord, it’s important to familiarize yourself with the law about renting a property. Many landlords make the mistake of assuming they have to provide 24 hours’ notice when showing their property. According to Section 26 of the Residential Tenancies Act, 2006, a landlord in Ontario may enter the rental unit without notice:
- if the landlord and the tenant have agreed the tenancy will be terminated or one of them has given notice of termination to the other, the landlord may enter the unit to show it to prospective tenants between 8 a.m. and 8 p.m. and, before entering, the landlord informs or makes a reasonable effort to inform the tenant of the landlord’s intention to enter. A landlord must make reasonable efforts, depending upon the facts and circumstances of each case, to give the tenant advance notice in order to permit the tenant to be prepared for entry into the unit by the landlord to show the unit to prospective tenants.
But let’s face it – tenants who are leaving usually aren’t overjoyed at the prospect of showings. As a landlord it’s important to work with your tenants to ensure showings will be the least disruptive.
You should make every effort to provide as much advance notice as possible for showings. This will give your current tenants plenty of time to tidy your place so it’s looking its best – there’s no easier way to scare away prospective tenants than a messy home.
I also find it’s helpful to speak with your tenants ahead of time to find a time that works best for showings. For example, if your tenants eat dinner at 6:30 p.m., by scheduling your showings at 7 p.m. you can avoid interrupting their meal.
But while it’s important to work with your tenants, you don’t want to give them too much leeway. As a landlord you have every right to show your property, even if your current tenant refuses to let you show it. Explain that the sooner your place is rented out, the sooner the showings will stop. This should help your tenants realize it’s in everyone’s best interest to rent out your place sooner.
Plan to Fill the Income Gap
In a perfect world, you’d always receive your rent on time and never lose a month’s income between tenants… but’s that’s not always how it happens.
Especially if you’re using your rental income to subsidize your mortgage or other large life expense, it’s vital to have a backup. Consider this: the first time I rented out my property, I was able to find tenants within two weeks. However, the second time it took me over a month. It’s so important to have an emergency fund in place. Although the size of your fund is dependent on your financial situation, most financial experts recommend six month’s-worth of living expenses.
My current tenants were always late with their rent, so I was well prepared in the event I wasn’t able to find new tenants right away. You shouldn’t overextend yourself with your home – I would still be able to carry my house without tenants. It’s also helpful to have secondary sources of income – I could always bump up my hours at my part-time job or take on more freelance work if I needed the extra money.
If you’re not as well prepared and find yourself in a financial bind, you can always lower your rent to attract a larger pool of tenants, although there’s no guarantee they’ll be any good.
Mortgage Freedom at 31 Still on Track
I really lucked out this time – I found my current tenants in just five days, and they plan to move in October 1st. Having the additional income means my dream of reaching mortgage freedom by age 31 is still on track. One of the most important lessons I’ve learned as a landlord is to work with your current tenants and have that backup plan handy; while rental income is a great way to pay down your mortgage sooner, depending on it with no backup plan is a dangerous game to play.
Sean Cooper is a personal finance freelance writer and blogger living in Toronto, Ontario. He is a first-time homebuyer and landlord who aspires to be mortgage-free by age 31. You follow him on Twitter @SeanCooperWrite and read his blogs and request his services on his personal website: http://www.seancooperwriter.com/