Investing in Rental Properties

By
Real Estate Agent with Sutton Group-Capital Realty Ltd.

Investing in rental properties is one of the oldest ways to make a return on investment.  Millions of investors in North America hold multiple homes and many have increased their net worth by renting their property to tenants.Photo of a house for rent 

 

The owner, or landlord, is responsible for paying the mortgage, taxes and all costs associated with maintaining the property.  The tenant pays the rent to enable the landlord to cover the expenses incurred and ideally to receive an amount in excess of expenses to remunerate the landlord for the investment risk and work of managing of the property. 

 

A landlord may also charge more in order to receive a monthly profit but this will depend on what the rental market can support.  The most common strategy however is to charge enough to cover the expenses until the mortgage has been paid down and the mortgage payment declines, at which time the increasing difference between the income and expenses becomes the landlord’s profit.

 

As well, the annual inflation rate may cause the property to appreciate in value over the course of the mortgage being retired, leaving the landlord with a more valuable asset in the end than when it was purchased.


There are, of course, risks to the investor on the face of what seems like an ideal investment.  If you end up with a bad tenant who damages the property, or fails to pay the rent or, should you end up having no tenant at all for a period of time, then cash flow may be tight as the landlord would have to pay the mortgage and maintenance/repair expenses out of pocket.  Having a reserve of cash that may have been accumulated from prior rental surpluses is advised whenever possible.

 

As well, there is the matter of finding the right property.  Not all locations are the same when it comes to owning a income property.  Indeed, some locations are downright bad choices for your investment.  You will want to pick an area where vacancy rates are low and where the amenities and conveniences are appealing to those who want to rent. 

One of the major differences between a rental property and other investments is the amount of time and work you have to devote to maintaining your investment.  If you buy a bond or stock, it will simply sit in your brokerage account and either go up or down in value depending on the fluctuations of the economy and other factors without much of any effort on your part.  If you invest in a rental property, there are several responsibilities that come with being a landlord.  

 

Eg.  Should the power go out or the plumbing begin to back up, you will be the one who gets the phone call. If you are able to do the handyman work, you may save something on the cost of the repair; otherwise, you may like to hire a professional property manager who would be happy to take the problem off your hands.  Of course they do charge a fee for service and the rental income may not always exceed the added costs.

 

I have been a landlord for many years now and I have never lost money on a real estate investment.  It has not always been easy work but it has always been profitable!  If you would like to have more information on buying an investment property, be sure to give me a call.  Helping investors of like mind is one of the things I love to do!

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By R. Greg Osmond, MBA

About the Author: R. Greg Osmond, MBA is a Platinum Award winning Realtor dedicated to serving the people of St. John's, Mount Pearl, Paradise, Kilbride, Goulds, Conception Bay South (CBS), Portugal Cove-St. Philips, Torbay- Flatrock- Pouch Cove, and Logy Bay - Middle Cove - Outer Cove, Newfoundland and Labrador. For over 24 years Greg has been practicing in Real Estate. He is also president of Red Maple Development Inc., a firm focused on new home construction and existing home renovations, for Greg's clients and the market.  Greg can be reached at 709-682-9670.  Greg's Associate Realtor, Andrew Macdonald BBA, may be reached at 709-749-8879.

Want to get in touch? Email rgosmond1@gmail.com. For more information, please visit http://www.rgregosmond.com. Thinking of selling your home? I have a passion for helping my clients with buying and selling real estate! If there is any way I can be of service to you today, please feel free to contact me!

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Rainer
21,199
Chuck Beaumont
Royal Lepage Binder Real Estate - Windsor, ON
Going The Extra Mile...

Great article Greg, I am actually just starting to read a book that looks at this whole process. You hit on some very good points as well. Have you got any secrets for selecting the ideal tenant? Thanks

Jan 11, 2012 02:20 PM #1
Rainmaker
124,422
R. Greg Osmond
Sutton Group-Capital Realty Ltd. - St Johns, NL
MBA, Red Maple Realty

Thanks Chuck.  Thats a good question and gives me another idea for the next post.  To be sure finding good tenants is key to success.  There isn't any one thing that guarantees you will have a good tenant but I always try to get as much info on the tenant as is reasonable.  It helps me develop a sense of what they will be like as a tenant and if they are likely to damage the property or be tardy with the rent.  I will add a few more tips to the next post.

Cheers.

Jan 11, 2012 02:44 PM #2
Anonymous
Lyndsay Power (Lifestyle GMAC Real Estate)

Great article greg!! You mentioned alot of great points. For anyone out there looking to invest, this article would be a great read before they start their hunt. St. John's is becoming a great place to look for investment properties with our upcoming and rising economy and you seem like a great agent to get in contact with for helping individuals locate that ideal income property.

Cheers!

Lyndsay

Jan 12, 2012 08:27 AM #3
Rainmaker
124,422
R. Greg Osmond
Sutton Group-Capital Realty Ltd. - St Johns, NL
MBA, Red Maple Realty

Thank you Lyndsay!  I am happy you found the article usefull.  And I appreciate your kind words!

Jan 12, 2012 08:56 AM #4
Rainmaker
11,465
Donald Stevens
MyInsuranceNerd.com - Los Angeles, CA
Insurance for Landlords and Real Estate Closings

You can always tell when someone has taken on a niche and taken it seriously. We are birds of the same feather my friend. Good job and well written.

 

 

Donald Stevens

http://www.mylandlordinsurance.com

http://www.myinsurancenerd.com

May 31, 2012 12:20 PM #5
Anonymous
Groundwork Busienss Solutions

Good Article,

One important point is to ensure you are still able to come out profitable when that $375K income property Mortgage rate goes up to 5%+ in the next 5 years. It isn't a given that you'll be able to raise rental rates in order to cover the spread so some careful thought may be required. This isn't even taking into consideration the possibility that housing prices may even cool down (or possibly decline) as a result.

<a href="http://gwb-solutions.com">Groundwork Business Solutions</a>

Jun 26, 2012 06:38 AM #6
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Rainmaker
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R. Greg Osmond

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