Should I Buy a Rental Property?

Should I Buy a Rental Property?

I don’t know, should you? I guess the real question to ask is, why do you want to buy a rental property?

There are many reasons why someone may want to buy a rental home. Perhaps you are looking to diversify your current investment portfolio by adding a real estate component. You may be looking to supplement your current day job income to relieve some of your financial stress. Maybe when you watch your favourite HGTV show about investing in income properties your belly tingles. If you’re like me, that feeling may be from the whole tub of ice cream you ate while watching the show, but it may also mean your desire to try it for yourself has finally reached its breaking point.

Whatever the reason you’re looking to invest in real estate, I think it’s important to establish your ‘why’ so you know how much investment and effort you are willing to put in. Knowing your ‘why’ also helps you to target the type of rental property that is best suited for your lifestyle, personality and financial goals.

If anyone has ever told you it’s “super easy” to invest in real estate- they just got lucky. After owning several investment properties over the past 15 years and dealing with tenant after tenant, I can say without a doubt - It’s a crapshoot. Can it be super easy? Sure. You can get lovely tenants that pay on time, keep the home clean and you never have to worry about them. You can also have tenants who are unpredictable, difficult and make you want to sleep on a bed of mouse traps.

You need to know if your reason “why” will outweigh the potential downfalls. You need to know if you can handle the potential hardships and risks that come with owning a rental property. It can test your resolve at times but it can feel like you are #winning. It’s generally a mixture of the two, however, the more you understand why you bought in the first place the more you can avoid unexpected difficulties.

Here are just a couple of things to consider if your reason is:

SUPPLEMENT INCOME

If your ‘why’ is to make monthly income and to subsidize your current day job income, that’s a great reason to invest. There are a lot of opportunities out there to do this. Typically, if this is your goal, your best return is most seen with multi family units. The 2,3 even 6 unit buildings or the student rentals. This is a great way to bring in a decent monthly income, but will usually involve a lot more stress and a few more hoops to jump through to arrange a mortgage. These are the high risk, high reward properties and you will most certainly encounter problems with and likely experience high turnover of tenants. Keep in mind the tenants will all be living in the same building cooking different foods, have pets, listen to loud music etc. This can lead to some unhappy tenants and complaints that end up on your plate. What did Biggie and Puff Daddy say? Mo’ tenants, Mo’ problems? Ok, maybe not, but you get the point. The more people you are responsible for, the more headaches you will likely have to deal with. Dealing with angry tenants isn’t for everyone. If you are outgoing, a risk taker and you have a “Gordon Ramsey” type personality, this may be right up your alley. In contrast, if you are going to lie awake at night, stress, worry type of personality, I may look for another strategy. To some it’s not worth it, but for someone whos trying to supplement their income, it’s all about the benjamins baby. So understanding that it may mean more headaches you need to be ok with these potential hassles.

DIVERSIFY YOUR PORTFOLIO FOR RETIREMENT

If your ‘why’ is to plan for your retirement to act like a pension, or in addition to your pension or investments that is a great strategy. If your strategy is to simply buy and hold for the long haul, a single family home in a more sought after area that yields higher rents may be better suited for this goal. Of course, if its in a more expensive investment, it will likely mean a higher purchase price, and therefore a larger down payment and a higher mortgage. A higher mortgage will bring a higher payment and could translate into not making a monthly profit at all. That’s ok too. If you are able to find a tenant who has enough income to pay a higher rent and brings you no drama, earning no extra income on a monthly basis may be just fine. This is a long term strategy anyways. If you’re a “gotta have it now” personality, this may not be for you. It doesn’t typically promise a huge return in the short term, but of course in Real Estate, you never know and you may get lucky and get both.

These are only two reasons here, and yours may be different. There are several more reasons to want to buy and several more things to look at for, but let’s be honest, I’d be here all day. The point is, if you can understand why you want to invest, you can then strategize and ensure that you are limiting your stress and exposure by purchasing a home that's the right fit for you.
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