Three Things To Know Before Becoming A Landlord

The majority of Nanaimo real estate agents make their living helping people to buy and sell homes that they will live in.  But there’s a big difference between buying a home of your own and purchasing investment property in Nanaimo.

Here are three things to know before becoming a landlord.

1. The Simpler The Better

Many beginning real estate investors make the mistake of buying an investment property the same way they would buy a home to live in themselves.  They focus on features and amenities but forget that as a landlord they are the ones that will have to pay for something when it breaks and needs to be repaired.

The more upgrades and options that a home has, the greater the odds that something will malfunction.  Sometimes more than one thing will break at the same time.

Experienced real estate investors and landlords know that following the KISS formula is the key to making an income property as profitable as possible.

KISS – or ‘keep it simple stupid’ – means that basic homes that don’t have a lot of expensive upgrading are the most profitable.  True, a fancier rental home may command a higher rent.  But those expensive upgrades will also be costlier to maintain.

Basic rental homes not only have lower routine repair expenses, but the turns – the time it takes to get the house ready for rent - are also much quicker between tenants. 

2. The Truth About Tenants

Speaking of tenants, it’s important to remember that tenants are people too.

Nanaimo real estate agents that don’t specialize in investment property usually overlook this simple fact.  They think that one tenant is just as good as the next.

Now, it’s important for landlords to treat all potential tenants equally and fairly.  Successful real estate investors always have a firm understanding of the landlord tenant laws in their area.

They also make sure to gather as much information about a potential tenant as possible.  Employment history, credit reports, and criminal background checks are completed and verified 100% of the time.

Landlords know that it’s always easier – and much less expensive in the long run - to take the extra steps to find and keep great tenants.

3. Keep Your Eye On The Bottom Line

And speaking of expenses, let’s talk a little bit about the bottom line. 

Another common mistake the novice landlords and real estate investors make is to focus only on cash flow – or the rental income coming in – and not the bottom line.

Known in the investment world as ‘net income’ the bottom line refers to money that is left over after the mortgage and taxes, and normal operating & maintenance expenses, have been paid for out of the rent money received by the tenant.

Think of the bottom line as the monthly profit you make from your rental home - or the return on your investment.

Here’s a quick example: Let’s say you paid $300,000 for your investment property and your gross annual rental income is $30,000.  Out of that $30,000 you’re paying for the mortgage, taxes, and insurance, and for any other normal operating expenses.

When everything is said and done, your net income is $15,000.  That’s a 5% return on your investment each year. 

Keep in mind that this is just a simplified example. 

An experienced real estate agent who specializes in investment property is a good resource to learn what the normal returns are for rental real estate in your area.