You bought your first house, yay you! Everyone told you how it’s the best investment you could make and you’re just happy not to pay rent anymore. You start planning little projects to make the place your own… you may even have boxes left to unpack a year later… and then life goes and surprises you. You get offered that dream job out of town, or maybe you bought the house with a spouse and that’s not going well. Or whatever the reason, now you find yourself having to move when you literally just bought the place. It was supposed to be a long-term plan. Little did anyone tell you that typically the first year or two in owning real estate (if you have a mortgage) you likely won’t come out ahead if you sell it. Heck, you may even have to pay out of pocket to get out of it?! What!? You may be thinking, why did I buy in the first place?!
Now before I go on listing the reasons why it’s usually still smart to buy… please note this isn’t always the case for everyone. I have been a Realtor for 9 years and I have helped clients who’ve made money short term, broke even and “lost” money. It really depends on the economic wave you catch. Did you buy in a high market? Are you thinking of selling during a low? Which also, can be seasonal! And it can’t be predicted. So please, don’t blame yourself. Or your Realtor. The point is, not every real estate purchase is long term enough to “make money” and if it’s your primary residence, that shouldn’t be the goal anyways. Of course, good on you if you can come out of it ahead when it’s time to move on, but I challenge people to change their perspective. The reality is you need to live somewhere. Whether it’s for 1 year or 10 years… you will need accommodations. Now the choice is whether to rent (which can be better for short term) or to buy. Now, if you know for sure it won’t be more than a 1 year plan, I would recommend renting over buying, as it can be risky in the short term to trade real estate without losing money.
Many of my clients who contact me hoping to move do so after 3-5 years. But even then, you can still come out in a negative equity position or not have any financial gain to sell(break even). Clients will say things like, “So we won’t make anything to sell? Then, we will just rent it out until we do make something…” Even though they have to move… while I appreciate their approach, is the point to make money? Or if you can sell, break even and say you had basically “rent free” accommodations for 2 or 3 years, wouldn’t that be seen as an “investment”. You can sell and carry-on headache free to your new chapter. Or you can… become what I call an “accidental landlord”. An accidental landlord is someone who bought a house or condo to live in and had no intentions on using the property to generate revenue. Then found themselves obligated to “just rent it out” when it was time to move on due to lack of financial gain. Or in some cases, the market dips and they don’t recover ANY equity and may even have to pay out of pocket to sell. Ouch! Sometimes it’s the only option if they do not have the money and have to move. Sometimes it’s a choice. There are pros and cons to holding property and selling when it is a choice. Some people (actually most people) are not cut out to be landlords. Not because they aren’t smart enough or anything but simply because it’s a task that requires more attention and care than they can handle with their current lifestyle. Most people think it’s a painless solution to rent their home out, move away and forget about it and sell the property later. I highly don’t recommend this approach because this is where I see things go wrong. Being a landlord requires more attention than you think. While, it can be fairly painless when you do the work and know what you are doing. There is A LOT of “what if’s” that are very realistic to expect. Which is a whole other article haha so I won’t go there. To summarize, if you feel like you MUST go this route, I can totally understand. Here’s some advice. Take it from me, I am a landlord of several properties, that I have managed myself for the past 9 years and also hold a property management license.
Tips for “Accidental” Landlords / First Time Landlording
- Realize that owning rental properties is a job. If you don’t hire a property manager, familiarize yourself with the residential tenancy act. Which you can find online at service alberta.ca among other resources
- Expanding on number 1 above, you have certain rights as a landlord… and guess what… so does your tenant. Know what those rights are!
- Find a GOOD lawyer who specializes in landlord/tenant issues and come prepared with a ton of questions and a request for a lease that will protect YOU and comply the tenancy act. The list of questions – first and foremost, includes “how does the eviction process work?” What is the timeline and what are the costs? In some places going from non-payment of rent to eviction is a matter of weeks. In others, it is a matter of many long months. Also, don’t forget to include no smoking rules, decide whether you will allow cannabis growth & consumption etc.
- If this all seems too overwhelming for you to take on, seek out and hire a LOCAL professional property manager who manages properties similar to yours.
- Remember that your job as a landlord is not to become friends with your tenant. You may be friendly, cordial and respectful, but this is a business relationship — one where if you are lucky, you will get paid rent regularly and if you are not so lucky, you will find yourself becoming very hardened towards people. I’m not advising NOT to do business with family or friends but personally I chose not to because I’ve been taken advantage of.
- List all your expenses and find out what you CAN get for rent. You may lose money monthly if your expenses vs. expected rents are too high.
- Get tax advice before making the leap. Did you know that once your home is rented out it’s no longer a primary residence thus subject to taxation, potential capital gains etc. Best to get that advice and see if it even makes sense. You will have to claim rental income.
Best of luck! If you are considering selling your home but afraid you may not come ahead, reach out. I have a no problem doing a free evaluation, running the numbers before you become an accidental landlord! Or if you need recommendations for lawyers, accountants, property managers, I’d be happy to point you in the right direction.
Melissa Morin Team Realtor Lead @ The Melissa Morin Team w/ Century 21 Maximum 403-318-5665