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Why You Should Buy a Rental Property ?

Why You Should Buy a Rental Property ?

By

David Doe
*

Published in

Real Estate
*

05 Jan 2022


Before or after retirement, buying a rental property is a great way to supplement your income. However, there are numerous factors to consider before proceeding. Assessing the expected profits, costs, and return, as well as the benefits and risks associated with the property, will help you make the best decision possible. Three critical factors to consider when purchasing rental property in Canada are listed below !

Why Buy a Rental Property in Canada in 2022 ?

Why Buy a Rental Property in Canada in 2022 ?

The pandemic-sparked work-from-home trend has fueled the Canadian real estate market significantly. Many people are looking to rent a property in the city's suburbs because they want to relocate to more convenient areas of Canada to accommodate their work-from-home needs. As a result, houses for rent in Canada are in high demand. Owners of rental properties will earn more money as a result of this. Because of the increase in real estate in Canada, there will be more condos for sale in 2022 than in 2021 in Canada and Vancouver, increasing the national median rent per square foot !

According to rentals.ca, the average rent for rental and condominium apartments in the Vancouver and Saskatoon municipal regions ranged from $985 to $2,165 in March 2021. Similarly, the average rent for a two-bedroom apartment in Quebec, Ontario, and Nova Scotia ranged from $1,774 to $1,999. These reports and statistics show that no matter where you are in Canada, whether in a provincial or municipal region or in the heart of the country, rental properties are guaranteed to generate substantial financial returns !

Income from Rental Property:

When looking for a rental home, it's essential to consider whether the property will generate a good income. After all, one of the primary reasons for buying a rental property is to make money. Apply the 1 per cent rule to determine if a rental property has a reasonable chance of earning revenue, which states that the average monthly income should be at least 1% of the purchase price to fund future rental property expenses adequately. It's easier to manage and budget additional funds when you know how much rent you'll pay !

The Costs of Owning a Rental Property:

By default, you do not get to keep the taxable profits from the property. It would be beneficial to consider the costs you will incur as a landowner. The 50 per cent rule is a general guideline for calculating expenses that state that your payments should equal 50% of your total annual revenue from the house. Aside from taxes and revenue, major expenditures on a rental property can be divided into the following:

  • Operating Cost: Monthly income taxes, premiums, regular repairs and repair products, land security fees, and vacancy costs are all examples of operating costs (the costs if the property goes unoccupied for some time) !
  • Capital Expenses: Capital expenses are unplanned costs such as replacing a water heater, air conditioning, plumbing, flooring, or repairing a damaged roof. You're good to go ahead and invest in a rental property if your total expenditure, as calculated by the 50 per cent rule, appears to be able to cover such additional expenses !

Profits From Purchasing a Rental Property:

You can use simple subtraction and division of your operating expenses and gross income to calculate your ultimate financial returns or profit from purchasing a rental property. You can calculate your cash-on-cash return on your rented property by adding up all of your earnings and expenses. To calculate the annual capital, subtract the operating expenses from the gross income to get the net operating income, dividing it by the rental property purchase price (excluding mortgage payments). Subtract the monthly capital expenditures and mortgage payment from the monthly net operating income to calculate the mortgage cost.) Knowing the potential profit from purchasing a rental property allows you to take specific and timely steps forward, confident in the knowledge that you will benefit financially !

The Drawbacks of Purchasing Rental Property in Canada

Financing & Two Disadvantages.

Although the disadvantages of purchasing a rental property are few, they are extremely powerful in ensuring that everything goes smoothly !

To break into the real estate business in Canada, you may need at least US$25,000. Though it is not required, you may need to set aside thousands of dollars if problems arise. There's also the issue of funding. Financing your purchase can be challenging because it requires an upfront payment of roughly 20-35 per cent of the total cost of the property, as well as a 90-day verification period on the source of funds !

Liquidity Concerns

Although valuable, selling a rental property when you're ready can be difficult because real estate is a non-liquid asset that can take a long time to sell, depending on market conditions. There's also the matter of negotiating contracts and locating a qualified realtor !

Management Issues Can Occur

Managing a property without the assistance of a property management firm can be difficult, especially if you are on a work assignment abroad or if you are in the country but too preoccupied with other activities such as work to keep up with your property's needs, such as maintenance, rent collection, and finding long-term tenants !

Search For the Right Partner

In general, finding a trusted partner who understands the market and the legal aspects of purchasing a home concerning an investor's unique situation can make buying a rental property(s) in Canada a lot easier. Whether you are a resident or a non-resident, a typical investment cycle entails finding and purchasing a property in Canada, keeping the property in your possession for some time while it appreciates and accumulates equity, and then offloading it at the appropriate time !

A property management company with core values based on integrity and commitment will guide you through identifying properties that meet your investment needs while also providing legal expertise to help you become a legitimate property owner in Canada !

Is it Financially Feasible To Make a Purchase ?

  • Purchasing rental property should be viewed as a long-term investment that will help you build wealth !

  • Consider whether your real estate investment has the potential to generate a higher return than other options !

Why Buy a Rental Property - Get Expert Advice ?

If you're in good financial shape, want to diversify your income sources, and don't mind enlisting the help of a real estate agent, buying rental property in Canada can be a great idea and a sound investment, especially if you're too busy to take care of the property or live far away from it. Assemble a team of experts to assist you with real estate, legal, tax, and financial matters. Getting the right advice early on can help you save money in the long run. Because purchasing a rental property is an investment, you should consider bringing in an investment advisor to your team, as any property you purchase will affect your asset mix and overall portfolio. When you've found the perfect rental property, talk to Guglu Homes about your financing options !

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