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I was told a long time ago that the best investment you can make is to buy dirt. Land is something they don’t make more of and there are few investments that offer a greater return than owning property. There are many different types of property ownership that make great investments. They can include but aren’t limited to; commercial, land development, residential flipping, and residential rentals. Each has its own set of requirements and risks. The most common investment type in Real Estate is residential rentals. It’s the least difficult to acquire, and easiest to get up and running. The one thing that comes up most often when discussing the options of residential rentals, is the fear of being a Landlord. While there are many things that can go wrong with a rental, if you set yourself up properly and have a good knowledge base, you can avoid many of the pitfalls that occur and create issues with new Landlords. There are both pros and cons to owning and managing a property if you choose to take on the responsibility of doing it on your own. We have outlined some of them below:
PROS
The Human Element
Helping people who need a place to live and providing them with a home that no matter how long or short they live there, will be a part of their memories forever.
Multiple Streams Of Income
Have your Tenants pay your mortgage balance down plus some costs, also you realize returns from any appreciation on the property.
Financial Flexibility
Ability to leverage your investment property for additional capital/acquisitions.
Financial Structures
Ability to utilize corporations or different accounting options to allow for favourable tax situations.
Longevity
With our population continually increasing, there will always be a market for your rental.
Property Management Companies
For a fee, you can offload most of your responsibilities and tasks for the property and have a professional manage it for you.
“The most common investment type in real estate is residential rentals” – James Mink
CONS
Tenants
While most Tenants are good to deal with, like anything, there are always bad apples in the bunch.
Landlord Rights
Ontario Landlord and Tenants rights heavily favour the Tenant. Ontario’s Landlord and Tenant Board is also backed up for 6-9 months before any decisions can be made on your issues.
Reduction In Purchasing Power
Most properties count towards your overall portfolio and will impact your qualification, so it can affect your future personal home(s) as well.
Income From Mortgage Pay Down
Many new Landlords forget that when your mortgage is paid down, it counts towards your overall income for the year and needs to be reported as such on your taxes.
The biggest concern for most new Landlords is dealing with Tenants. There are some people who just try to take advantage of every situation, however, most are good people. The majority of issues come when someone is worried about their basic needs (shelter in this case). It’s not personal, but a reflection of their stress and fear of losing their home. By treating people the way that you would want to be treated, you can avoid most issues with Tenants. Plus, if they feel that you are looking out for them, they will usually go above and beyond to ensure your investment is in good hands. There are certainly risks to consider with becoming a Landlord, but we feel the positive long-term position of owning a property outweighs any tedious issues throughout the journey.
