Ever since I was young I’ve aspired to be a homeowner. In August 2012 my lifelong goal became a reality when I purchased my first home. Home ownership was a big step – for the first time I was out on my own. Buying a house on your own is tough, but being a first-time landlord is even tougher.
Although I could afford to carry my house by myself, with a mortgage of $255,000, my goal is to be mortgage-free as soon as possible. When I first started house hunting I was satisfied with renting out the basement, but after becoming a big fan of HGTV’s Income Property, I decided to follow in Scott McGillivray’s footsteps and rent out the upstairs (and live downstairs) to bring in the most rent possible. Here are my top lessons learned as a first-time landlord.
1. Pre-Screen Your Tenants Properly
You don’t just want anyone living in your income property. All it takes is one bad tenant to ruin your positive cash flow and damage your rental unit. Pre-screen prospective tenants to make sure they’re a good fit. Tenants often apply to several rental properties, so you’ll want to confirm basic details like their desired move-in date, if they have any pets, and if they are fine with signing a lease.
Be very careful not to discriminate against tenants. If you find out a prospective tenants has five kids and your house only has two bedrooms, you can voice your concern about a lack of space, but whatever you do don’t say you don’t want to rent to tenants with kids.
2. Choose Your Tenants Wisely
Although you may feel like you can read tenants and relying on your gut feeling, take the extra time to screen tenants. It’s better to screen them out than trying to evict a bad tenant once they’re in your property. You should use a standard application form for prospective tenants. CMHC has a decent application form or you can find the application of your province’s real estate board online. I found a lot tenants didn’t complete the form properly, so you should quickly review it to ensure it’s complete.
When screening your tenants you should look for any red flags. If a prospective tenant makes excuses about why their credit is poor or why they don’t pay their rent on time, chances are they’re not someone you want to rent to. One tenant who applied seemed decent on paper, but when I phoned her two previous landlords they said she always paid her rent late, damaged the property, and very often had overnight guests.
If I hadn’t of bothered to phone, I would have been stuck with a headache tenant. Lastly, just because a tenant fills out an application form, doesn’t mean they will still be interested in your property, even after a couple days. While it’s a must to do a credit check, I found it works best if your phone a tenant’s references first. If everything seems fine, you can follow up with the tenants to ensure they are still interested before spending the money to do a credit check.
3. Respect Your Tenants
The landlord-tenant relationship is a two way street. As a landlord you want a tenant who will respect your property and pay rent on time. Meanwhile, tenants want a landlord who will respect their privacy and respond to issues in a timely manner. When I arrive home late from work, I am always as quiet as possible since my kitchen is directly below the master bedroom of my tenants. If you’re polite and a good landlord, your tenants are more likely to be model tenants and leave your house in good shape.
4. Damage Report
The damage report isn’t something to gloss over. You should carefully document any damage to your property (or lack thereof) before your tenants move in. When my first tenants moved out, I noticed my hardwood floors were scratched. Since I didn’t document it in my damage report, I couldn’t remember if the scratches were there before.
It’s your word against your tenants, so when in doubt take photos. You might think you’ll remember any damage, but to be on the safe side document any damage and have your tenants sign off. If there’s a dispute later on, you’ll have the photos and damage report on your side.
5. Price Your Rental Unit Properly
Similar to selling your house, it’s imperative price your rental unit properly. Don’t let greed cloud your judgment. Pricing your unit too high could mean losing a month’s rent, which will take time to recover. In my experience less desirable tenants apply when rent is priced too high.
Take the time to look at comparable rental units and see what’s included (utilities, cable, Internet, etc.), and the rent charged. If nobody calls or tenants visit, but don’t fill in the application form, the price may be too high or you haven’t done a good job staging your property. It doesn’t hurt to phone tenants who have viewed your property and ask for feedback. At least you’ll know why tenants aren’t lining up to rent out your place.
These are just five of the many lessons I’ve learned. Being a landlord is a learning experience, especially when it’s your first-time. Are you a landlord? Is there any advice you’d like to share?
About the Author: Sean Cooper is a single, 20-something year old, first time home buyer 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. You can 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).