I recently celebrated my second year as a proud homeowner and landlord. While being a first-time homeowner has been tough, being a first-time landlord has been even tougher. It hasn’t been an easy journey to say the least, but with over half my mortgage paid off in only two years, it has been well worth it. While I’m already on my third tenant in three years, my experience thus far as a landlord has helped me land quality tenants in only 5 days.
Here are the most important lessons I’ve learned in my two years as a landlord.
Tenant-Proof Your Property
While my first tenants were careful not to damage my house, my second tenants were a lot less caring. In a perfect world tenants would treat your property as if it were their own. I learned the hard way that it’s important to tenant-proof your house. Similar to childproofing your house when you have a toddler, tenant-proofing your house means doing your best to protect it from unnecessary damage.
As the saying goes, hindsight is 20/20. I never thought of installing doorstoppers – until my tenant’s child slammed the door handle through the wall. Before renting out your property, you should do a walk-through to assess anything that could be damaged by tenants. Tenant-proofing your property is better than going after your tenant for damages.
Inclusive or Plus Utilities
An important decision when renting your property involves your utilities. Utilities can eat into your profit. There are three main utilities: heat, hydro, and water. As a landlord you usually have control over heating, but you’re at the mercy of your tenants when it comes to hydro and water. When renting out your property, you’ll need to decide whether you want to make the rent inclusive or plus utilities. The ideal utility arrangement depends a lot on how trustworthy your tenants are.
Inclusive: If you’re renting to family or friends you can trust, inclusive may be the way to go. The advantage of inclusive is cash flow stability – you’ll know the rent to expect each month. You won’t have to go through the headache of photocopying your bills and chasing after your tenants for their share of the utilities. Inclusive rent has drawbacks – your tenants will less likely to care about how much utilities they use, as they aren’t sharing the bill. Furthermore, utilities can eat into your positive cash flow. For example, in the city of Toronto water and sewage rates have been going up by 10 per cent every year as long as I can remember, but as a landlord I’m only allowed to raise my rent by a meager 0.8 per cent in 2014, according to the 2014 Rent Increase Guideline. That’s hardly enough to cover skyrocketing utility rates.
Plus Utilities: Making your tenants pay a share of the utilities is a great way to make them watch their usage. A tenant will be more likely to turn off the lights when they’re not home if they’re footing part of the bill. Sharing utilities costs is a lot more attractive from a marketing perspective. What sounds like a better deal – $1,550 per month, inclusive; or $1,425 per month, plus a share of utilities? I’m guessing the latter. A lot of renters aren’t aware how costly utilities can be – while you shouldn’t hide utility costs from your tenants, at least they’ll be interest when you tell them how much they can expect to pay each month. The only real headache about utilities is dividing them. If the utility bill doesn’t come in until a month or two later, you could find yourself chasing after a former tenant for a share of the utilities once they’ve already moved out.
Advertising Your Rental Property
It’s important to take some time to develop a marketing strategy for your rental property. Depending on the type of property you’re advertising, you’ll want to attract the right type of tenant. If you don’t mind tenants who come and go, advertising at the local community college can be a great source of tenants, although students don’t always have the same pride of ownership as most renters. A major employer like a hospital can also be a great place to look for quality tenants.
Advertising your rental property is a lot like finding a mate online. Have you ever noticed people are more serious on paid dating websites like eHarmony than free websites like Plenty of Fish? The same can be said for advertising your rental property. While you can advertise your property on free websites like Craigslist and Kijiji, you won’t necessarily attract the highest quality tenants. I’ve had much better luck advertising my property on paid websites like View It. While it doesn’t hurt to advertise on free websites, you should pre-screen your tenants extra carefully before letting them view your property.
These are only a few of the many lessons I’ve learned as a landlord. The number one lesson I’ve learned is it’s better to lose a month of rent than settle for less than desirable tenants. By marketing your property properly, you can avoid being caught between a rock and a hard place and accepting a tenant you wouldn’t have chosen under normal circumstances.
Landlords, do you have any tips for finding quality tenants?
About the Author: Sean Cooper is a single, first time home buyer and landlord located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. Follow him on Twitter @SeanCooperWrite and read some of his other articles here.If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).