When it comes to building wealth, we’ve all heard how advantageous it can be to own real estate. Purchasing a condo as an investment property is something that many people have considered because it is relatively affordable compared to single-family homes, there will always be a demand for condo units, and it is a profitable investment.
As a property owner, the hardest part is getting started. Most new owners are surprised by how much work is required of them when it comes to finding and caring for tenants. This article aims to help new owners gain a stronger understanding of how to successfully rent out their condos.
Before you do anything, make sure the condo building allows rentals
Most condominium buildings are okay with rentals, but you must check the rules before you buy. In some buildings, rental periods must be at least 30 days long. In others, it could be 6 months or a full year. These types of rules are created to prevent all of the unwanted noise and damage that comes with Airbnbs and weekend rentals. Plus, other owners aren’t wild about the idea of new strangers constantly coming into their building.
Depending on where you live, the association or corporation may also have regulations that cover lease requirements. For example, there may be restrictions on the number of people allowed to live in the unit at one time, or, rentals may only be permitted after the owner has occupied the unit for a specific period of time. There could also be regulations that put a cap on rental units.
Make sure you are aware of what is and is not allowed when it comes to renting out your unit to avoid surprises.
Brush up on landlord/tenant laws
Once you’ve determined that your building will allow rentals, the next thing you’ll want to do is read up on landlord rights and obligations. The laws will vary depending on where you live, so it’s important to use resources specific to your city or region.
For example, in New York, owners may only take the equivalent of one month’s rent as a security deposit. When a tenant moves in, you’ll need to give them an itemized statement of any charges you intend to take out of the security deposit within 14 days. As another example, in Toronto, a landlord is allowed to raise the rent by a guideline amount once per year. This can happen 12 months after a tenant has moved in or after the last rent increase. However, this guideline does not apply to new buildings, additions to existing buildings, or most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018.
You’ll want to know about maintenance responsibilities, pet rules, rent collection, lease agreements, and how to resolve disputes if an issue comes up.
If you live in and rent out a condo in Ontario, these rules will apply to you.
- Pets – landlords cannot evict a tenant for having a pet, but they can refuse to rent their condo to someone with a pet. That being said, condominium rules take precedence over the Residential Tenancies Act, so if your condo doesn’t allow pets, the tenant may be forced to get rid of it
- Right to access property – landlords usually have the right to enter an apartment to repair and maintain it. They must give 24 hours notice though, unless there is an emergency. You also have the right to show the unit to prospective tenants with appropriate notice
- When you want your unit back – landlords cannot move back into their condo during the term of the lease. If the tenant is on a month-to-month lease, the owner may provide 60 days notice in writing in order to reoccupy the unit. As of fall 2017, in order to prevent owners from kicking out tenants just to charge a higher rent, an owner wishing to occupy their unit must compensate the tenant with a month’s rent, or offer them another acceptable unit, and occupy the unit for at least one year. If the landlord advertises the unit for rent or sale, re-rents, demolishes or converts the unit within 12 months of the tenant vacating, the owner is subject to a fine of up to $25,000
Setting a price
Setting the right rental price is very important. You don’t want to charge so high that the price keeps qualified renters away, but you want to make sure you’re not setting the bar too low, either.
Many landlords will keep the asking price similar to nearby rental units. There’s nothing wrong with taking this approach, but you may also want to incorporate a few of these points into your price-setting process:
- Estimate your monthly condo costs, and add 20 to 30% for a profitable return (0% means you’re breaking even)
- Use Zillow or Realtor.com to see what rental prices are listed for in your building or neighbourhood
- Weigh the best things about your unit with comparable rentals in the immediate area. Adjust your asking price as low as -20% up to +20% depending on what your unit has to offer
- If you’re renting from May to September, demand is generally higher. You may raise your asking price slightly. Conversely, if it’s winter, you may need to drop the price
- If you are spending more than $500 to advertise, you can add up to 10% to the rent. Chances are higher that you will attract a renter who can afford to pay more
- Is the neighbourhood “up-and-coming?” You may add 5% to what you would have charged for rent because the desirability of the neighbourhood will increase within the next 5 years
How to find qualified tenants
Your next step is to find a tenant to rent out your condo. Kijiji, Craigslist, Facebook and local rental sites are great because they’re often free. The downside is you might be hit with a wave of applicants, and not all of them will be qualified. You can use your own personal network, but you may not want to be your best friend’s landlord. You can also hire a realtor to find a great tenant for you, or use paid sites to attract more mature/affluent renters.
If you are selecting a renter on your own, make a shortlist and invite candidates to view the unit. This is a good opportunity to talk with candidates and see what they’re like. Before they come, ask them to email or bring a credit report, a letter from their employer, and 2 or 3 professional references, including a reference from a former landlord, if possible. Credit scores ranging from 660 to 800 are very good, while scores under 579 are considered poor. Do keep in mind that candidates who are new to the country may not have built a credit score yet. If that’s the case, you can ask them to provide you with proof of income.
Selecting a good tenant may take some time, but it’s definitely worth taking this process seriously.
When to start advertising
As a best practice, market your property 2 to 3 months before it is available. This gives candidates time to provide their current landlord with adequate notice, and gives you time to take care of anything that needs to be done before the new tenant moves in.
Once you’ve found a good tenant, you will need them to sign a lease. The lease is the legal document that summarizes your relationship, obligations to and expectations of the tenant. That includes how much rent they will pay each month, when rent is due, the dates of the lease, insurance requirements, rules regarding pets, smoking and noise, what happens at the end of the lease, etc.
Leases generally last for 12 months. After that, unless a new lease is signed, tenants are able to rent month-to-month.
If you’re new to writing leases, you can either see if there are examples from your city available to you, or ask a real estate lawyer for assistance. If your lease is not specific or detailed enough, it can lead to big issues later on.
Depending on your condo community, you may need to share a copy of the lease with the board, as well as the contact information of the tenant.
Your rights and obligations as a landlord
As an owner, your rights and obligations will be influenced by your condo’s and city’s rules and laws. For example, you should make it clear to your tenant who is responsible for changing light bulbs, fixing appliances, unclogging drains, issues with mould, etc.
If you are going to care for many of these tasks, you need to make sure you are accessible by phone or email, and do your best to respond to your tenant as soon as possible. If your building uses condo management software, it will be a lot easier to stay connected with your building, receive notices, and submit requests, even if you don’t live there.
Landlords must take care to uphold occupancy standards, ensure tenants are following the rules, and ensure their investment is being protected. It’s a lot of work, but it also offers financial rewards when done well.