Things to Consider Before Buying Your First Rental Property

You might have heard online about how extravagant owning a rental property is, but it doesn't come without it's challenges.

That is why I've compiled a list of items that could be overlooked when making the decision to buy your first property.

Last year my wife and I purchased our very own first rental property so I wanted to share our own personal experiences with you.

Research - We spent time to analyze our anticipated future expenses like home insurance, property taxes, mortgage, repairs/maintenance and vacancies.  Also don’t forget about utilities if you are going to be covering these yourself as well as property management fees if you are paying for a property manager.  Once we decided on the type of rental property we wanted to own, we spent many hours researching different MLS listings to filter for the right properties that we were looking for.  This included looking up similar rental listings on Facebook/Kijiji to determine whether or not the property would cash flow if rented.

Showings - Pictures can only do so much when looking up property listings online.  It took us about 10 showings for us to finally find the right property.   We found that when actually visiting these properties, the pictures were actually quite deceiving until you actually see the property in person.

Screening - Once we had purchased our property, we spent countless hours interviewing tenants and reviewing applications.  We advertised on Facebook Marketplace/Kijiji and had lots of interest in our rental through those 2 sites.  We booked viewings in 15 minute time slots over the span of 4 hours on a few days.  ***Be prepared for lots of no-shows...  I'd say about 75% of my booked viewings never ended up showing up to view the property.

Once we had some applications come in, we filtered through the good/bad by calling references, confirming employment information, and vetting names through the Residential Tenancies Order System for history of court orders.  There is also a public Facebook group here in Winnipeg called "Winnipeg Landlords, Property Managers, and Real Estate Developers" where they have their own Bad Tenant List that you can use.

Paperwork/Walkthrough - It's important to complete an initial walkthrough with the tenants on your lease to note existing condition as well as damage to the unit.  I'd recommend taking lots of pictures and video of the unit.  This provides you with proof of condition of your property in case there is any future issues.

There are sample lease agreements as well as condition reports that can be used from the Residential Tenancies Branch in Manitoba.

Service Calls - If you are self managing like we are, (Didn't hire a property manager) be prepared to answer service calls at all hours of the night 24/7.  We decided not to use a property manager as we found from previous experiences that the Property Management Company we had been dealing with didn't add any value for the price they were asking. 

We compiled a list of contractors/companies that we can contact in the event of a future issue arising.  Be prepared as it's only a matter of time before you get a service call.  Our first issue happened 4 days after our tenants moved in. 

Unforeseen Expenses - Make sure you have some additional money set aside for any unforeseen expenses that arise.  For us we needed to replace an air conditioner and broken sewer pipe.

Accounting Fees - Be prepared to pay an additional expense for ongoing accounting.  It helps to keep good records of any expenses, repairs, maintenance and travel mileage associated with the rental property.  I would suggest opening a separate bank account strictly for your rental property transactions.  Your accountant will thank you.

Vacancy - Be prepared for tenant turnover, vacancies and having to find new tenants.  This is inevitable and should be accounted for in your cash flow projections/unexpected expenses.

Tips

• ***Screen your tenants.  (Can't stress this enough)  I've heard too many horror stories about landlords "taking their word for it" then getting burned.
• If tenants are paying for water, sign up for a landlord account.  You will be notified if the tenant is delinquent on payments.  Unpaid water bills can be added back onto your property taxes if unpaid.
• The Residential Tenancies Branch for Manitoba has most forms as well as guides for landlords to use.  Residential Tenancies Branch | Province of Manitoba
• Try to have your tenant possession dates in Spring.  No one wants to be moving in -40 temperatures in Winter.
• Do not provide the keys to your tenants until you received your Damage Deposit and Pet Deposit (if applicable).
• Have a list of service providers/companies on standby making it easy to action your next service call.

Of course you can pay a property manager to take on some of these responsibilities, but only if you're fine with losing that extra free cash flow.

Overall my wife and I are happy with our decision to purchase a rental property, but it is definitely a lot more work than we first anticipated.

If you're looking for an advisor I'd love to work with you and help you meet your goals.  I'm always open to chatting and you can book a call with me by clicking the link below.

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Scott Kok - Associate