Buying a place to rent out

[Wookie]

Well - the other thread got me thinking that I should probably post something to get some replies.

In about two weeks I'm going to actively start shopping for a place to buy.

This place is going to be rented out for 1 - 2 years after which I'll need somewhere to live. I guess my options would be
1. Start living in property
2. Sell property and buy something else
3. Keep renting property and find something else

With open 3 it'll obviously depend on cash flow issues and what the banks/lenders will allow me to do at the time.

I intend on using the rental income to pay down the mortgage and using some of my own income as well since I'm living free of charge in the meantime.

So - I'm open to suggestions, advice, criticisms etc.

I know there are some landlords here so any advice would be great.

I'm looking for something between $290,000 - $400,000. With that amount I think I'm mostly looking at condo's.

I'm not putting 25% down. It's not being financed as a rental property (the income from the rent isn't being used to get me my mortgage). I've just applied for a personal mortgage based on my salary and what I have as a DP and then will be using my situation to help pay it off a bit.

It'd be great to rent it out to cover my monthly payments.

Do renters pay your condo fees?

[Tron_fdc]

Essentially, you will need to get a decent deal on a place in order to cover your costs. It's a good time to buy right now, as there are a lot of listings (7000+) so getting a good price on a home shouldn't be too much of a problem.

Once you settle on a place do the math....figure out what your mortgage cost + taxes + insurance is, and then look at the rental comparables in that area to see if you can cover everything...or in other words can you charge enough rent to cover your expenses. I didn't relly factor in other expenses (power, water, etc) as those are generally paid by your renter.

Renters don't pay your condo fees directly...they would be paying you rent per month, and its up to you to charge enough rent to cover those fees.

[photon]

We just bought a detached house for $308k.. with a bit of work we can suite the downstairs and will be able to rent the upstairs for at least $1200 and the downstairs for at least $800, which would cover the mortgage, taxes, etc.. get a bit more for the rent and it'll cash flow fairly nicely. It'd be a non-conforming suite though, which always runs the risks of the city taking it out.

But that way you could move into the upstairs and keep renting the downstairs to supplement your mortgage. Though not everyone wants to have neighbours downstairs.

You could also get a duplex, live in one side and rent the other, though that might be hard to get under $400k without going to the far edges of the city or even out.

So the places are out there to buy right now that make sense.

[Wookie]

Originally Posted by Tron_fdc

Essentially, you will need to get a decent deal on a place in order to cover your costs. It's a good time to buy right now, as there are a lot of listings (7000+) so getting a good price on a home shouldn't be too much of a problem.

Once you settle on a place do the math....figure out what your mortgage cost + taxes + insurance is, and then look at the rental comparables in that area to see if you can cover everything...or in other words can you charge enough rent to cover your expenses. I didn't really factor in other expenses (power, water, etc) as those are generally paid by your renter.

Renters don't pay your condo fees directly...they would be paying you rent per month, and its up to you to charge enough rent to cover those fees.

See that's where I'm running into confusion, do I need to cover my costs? Obviously to some extent, however, I'm living free and will continue for the short term. What I'm hoping is that in the time I am living for free I can pay down the mortgage a bit faster to make the cash flow work if it doesn't cover the costs (that said, it'd be awesome to have positive or break even NCF).

Any idea what insurance costs are? As well what appeals the most to renters? Close to c-train, schools, downtown? I guess it all factors in.

Oh I know they don't pay the condo fees directly.. Just wondered if you can charge rent - then say "condo fees are $220.00, that covers all your heat, water etc. so I you've gotta write me a cheque for that every month"


Thanks

[Wookie]

Originally Posted by photon

We just bought a detached house for $308k.. with a bit of work we can suite the downstairs and will be able to rent the upstairs for at least $1200 and the downstairs for at least $800, which would cover the mortgage, taxes, etc.. get a bit more for the rent and it'll cash flow fairly nicely. It'd be a non-conforming suite though, which always runs the risks of the city taking it out.

But that way you could move into the upstairs and keep renting the downstairs to supplement your mortgage. Though not everyone wants to have neighbours downstairs.

You could also get a duplex, live in one side and rent the other, though that might be hard to get under $400k without going to the far edges of the city or even out.

So the places are out there to buy right now that make sense.

At my current level of income and knowledge I don't think I'm capable of doing any additions or improvements other than painting the place.

My reasoning behind this is more to get into the market have the mortgage subsidized by renters for a bit and then move in. However, come move in time I can re-assess things and do something different. Like what you've just suggested fix a place up, get some more rent etc.

Yeah I don't think I'm going to be able to afford a duplex the 400K is the top of the budget.

The work you're doing or did to suite the place - was it pretty expensive? Did you do it yourself?

Thanks fella's

[ken0042]

Well, as for being able to do the work yourself, we all had to learn sometime. The best way to learn is to be "the man" with respect to your buddies doing home renos. That's how I learned, made it known that not only was I offering to help, but I really wanted to help. Then not only do you learn, but you have a friend who now owes you a favour. Within my circle of friends we are always trying to pay it forward. I have friends who 3 years ago didn't own a hammer and couldn't tell me the difference between a phillips and a robertson- now they are building projects on their own.

Or swap services. You say you can paint- do you say that because it doesn't look hard or because you have done it and find it easy? If its the latter, make sure you offer to help your friends who aren't good at it, but are good at other things. For example, I suck at mudding drywall. My neighbour hates electrical. But we are both good at what each other isn't. I'm wiring his garage next week for him, and he's going to mud my drywall for me.

[Tron_fdc]

Originally Posted by Wookie

See that's where I'm running into confusion, do I need to cover my costs? Obviously to some extent, however, I'm living free and will continue for the short term. What I'm hoping is that in the time I am living for free I can pay down the mortgage a bit faster to make the cash flow work if it doesn't cover the costs (that said, it'd be awesome to have positive or break even NCF).

Any idea what insurance costs are? As well what appeals the most to renters? Close to c-train, schools, downtown? I guess it all factors in.

Oh I know they don't pay the condo fees directly.. Just wondered if you can charge rent - then say "condo fees are $220.00, that covers all your heat, water etc. so I you've gotta write me a cheque for that every month"


Thanks

There's different ways of looking at it. You don't need to cover all your costs if you think that the property is going to appreciate enough that, over time, you can sell it and cover any payments you have been making. If you don't think it's going to, then there's no point in investing in a rental. Right now, with a slow sales market and a hot rental market, there's no reason why you wouldn't be able to find a place that at the very least covers your costs. I'm finding a lot of people are trying to sell (dump) properties right now, that they bought in the hopes of renovating and flipping. You could probably find one of those and lowball it, then turn around and rent it.

All the factors you mentioned will make it more appealing to renters.

I don't know the specifics, but I would assume you can't charge extra for condo fees. You would be bundling that into the rental cost, and instead of charging $500/month + $200 in condo fees, you would advertise it for $700/month, including heat and water.

[photon]

Originally Posted by Wookie

Any idea what insurance costs are? As well what appeals the most to renters? Close to c-train, schools, downtown? I guess it all factors in.

On a condo, you don't really have to worry much about insurance. The condo fees cover replacement costs of the condo building itself (one of the things to check when buying). The tenant will have to worry about insurance for their stuff (content insurance). We carry some extra insurance in case of vandalism and stuff like that, but I think it's only $30 a month or something like that.

When buying a condo make sure your agent has lots of experience with condos and knows what kinds of things to look for when reviewing the condo corporation and it's finances.

Oh I know they don't pay the condo fees directly.. Just wondered if you can charge rent - then say "condo fees are $220.00, that covers all your heat, water etc. so I you've gotta write me a cheque for that every month"

From a renter's point of view, doing it like that just draws attention to the fact that they're paying for your expenses. It's better to advertise it as one rental price.

Plus that also lets you increase the rent saying "oh, condo fees" when the condo fees haven't changed mwahaha...

[photon]

Originally Posted by Wookie

The work you're doing or did to suite the place - was it pretty expensive? Did you do it yourself?

Heh, I'm terrible at it so my dad's doing it for us, but we're paying him to do it. It's going to cost about $10k I think, obviously would be a lot cheaper if I did it myself, but it would take forever too since I work during the day.

[Incinerator]

Wookie, in your situation I'd likely look for a one bedroom high rise condo in downtown that caters to the young professionals market, sort-of the "starter exec" bracket.

Starting small makes it easy to manage, and if you pick'em right a condo in good shape is a LOT easier to maintain (read: maintenance-free) than being the landlord for a duplex or a house. Perfect for rookie landlords who are not particularly handy.

Like others have mentioned, build the condo fees into the rent, it's a lot easier for the tenant to swallow than breaking them down. Tenants want to pay the rent and forget about everything else, kinda like condo dwellers who like the "pay it & forget it" lifestyle. Telling your tenant he's paying $1400 a month for heat, water, secure underground parking, an exercise room, swimming pool, rec room, party room, theatre room, sauna, conciege etc. etc. is a whole lot more appealing than telling him the rent is $1100 and your condo fees for all that stuff is an extra $300.

PM me if you'd like more extensive help on this subject.

[photon]

Totally agree, our condo is by FAR the easiest property that we have rented out. In 3 and a half years, I think I've had a call from the tenants once. And that was to tell me something happened but they fixed it.

[ken0042]

One more tip- make the condition of the lease that they have tennant's insurance. And ask for a photocopy of the policy be given to you within 30 days. Partly because this helps soften some of your risk, but also because the type of people who get insurance also tend to be a little more resposible in life.

[Flames_Gimp]

get a plavce with a basement suite and rent out the basement and live upstairs or better yet, rent out both floors

[Winsor_Pilates]

Maybe do a pre-sale instead.
That way you only need 10-20% down now and by the time it's ready (a couple of years), you are also ready for a place to stay and the value will likely have already increased a fair bit.

Plus you'll be the first person to live in a brand new place and don't have to worry about bad renters/finding renters or any other issues involving renters.
Also, chances are you can't rent enough now to cover your monthly payments anyway, so a pre-sale won't be taking money out of your pocket every month where as renting to someone likely still will.

[Incinerator]

Originally Posted by Winsor_Pilates

Maybe do a pre-sale instead.
That way you only need 10-20% down now and by the time it's ready (a couple of years), you are also ready for a place to stay and the value will likely have already increased a fair bit.

Plus you'll be the first person to live in a brand new place and don't have to worry about bad renters/finding renters or any other issues involving renters.
Also, chances are you can't rent enough now to cover your monthly payments anyway, so a pre-sale won't be taking money out of your pocket every month where as renting to someone likely still will.

What you said was great advice...with a "Best Before 2005" sticker on it.

Builders have all smartened up and have priced the new constructions on a scale according to the projected market value at completion. Some will make you sign a declaration that you will not be buying for rentals. Buying new right now is akin to writing the builder a cheque for equity that you do not yet have but they think you will have.

At this time, buying a newish resale with a motivated seller because (s)he's upgraded and moved already is the way to go. In a normal residential real estate market, the money is almost always made when you buy the place, not when you sell it.

[Winsor_Pilates]

Originally Posted by Incinerator

What you said was great advice...with a "Best Before 2005" sticker on it.

Builders have all smartened up and have priced the new constructions on a scale according to the projected market value at completion. Some will make you sign a declaration that you will not be buying for rentals. Buying new right now is akin to writing the builder a cheque for equity that you do not yet have but they think you will have.

Prices are not made for projected completion. No one would buy them if they were.
Why would someone pay a premium for a projected value when they can buy something already built for less and enjoy that increase in value themself?

as for renting, yes some contracts may restrict renting, but most won't and it's pretty easy to figure out at the time of purchase. From my understanding, the OP only wants to rent until they're ready to live there anyway so when their presale is complete they likely won't need to rent it anyway.

[Dan02]

Originally Posted by Incinerator

What you said was great advice...with a "Best Before 2005" sticker on it.

Builders have all smartened up and have priced the new constructions on a scale according to the projected market value at completion

Dunno about that, usually price is set at the begining of the construction phase, while/if you're on a waiting list though prices are still subject to change. Once your deposit is down though usually the price is set unless you wanna do any upgrades. I can just imagine the abuse that could take place if they had the right to change the price on you after they require you to put a non-refundable deposit down.

[Wookie]

Got really busy and didn't have much time to look into this much further. However, I'm going to look at a place tomorrow that my realtor thinks I should buy.

The possession date is pretty much asap, but I'm hoping to buy and take possession nov. 1 in order to give me some time to get my %$%$ together.

Going to start reading up about rental agreements, tenant rights, landlord stuff etc. Past threads, etc.

Any suggestions (again) would be great!

Regarding doing any fixing up. I think I'd just do any painting that was needed (because I can paint, not because I thought it looked easy)

[Wookie]

Well I found older threads on insurance, that was helpful. I've already negotiated my mortgage. Would they have already included my insurance? Or should I start looking elsewhere? I'm single (not married) and have no kids.

I'm not putting 25% down.

The place is a townhouse/condo.

[Dan02]

Originally Posted by Wookie

Well I found older threads on insurance, that was helpful. I've already negotiated my mortgage. Would they have already included my insurance? Or should I start looking elsewhere? I'm single (not married) and have no kids.

I'm not putting 25% down.

The place is a townhouse/condo.

If you don't put 25% down you need(by law) to have mortgage insurance. It runs on a scale i believe from 5% if you only put 5% down down to 0 when you hit 25%, seperate although i believe they will tack it onto the mortgage. Thats a extra 10k on a 400K house and would be done with the mortgage I believe.

Your homeowners insurance(or landlords insurance or whatnot) however is completely seperate you need to do on your own as far as i know and i am not 100% sure but getting your mortgage is probably conditional on having insurance setup.