Thinking of Becoming a Landlord? Here are the Pros and Cons

Owning a rental property comes with its fair share of benefits, but it’s not for everyone. If you’re on the fence about becoming a landlord in Edmonton, our pros and cons list is here to help you make the right decision.

The Pros: 

Additional Income

One of the first and most obvious benefits of becoming a landlord is the opportunity to generate additional income. With the right investment property, you should have enough to cover the (rental) mortgage and put a little extra cash in your pocket every month.

Build Equity

Yet another financial perk to becoming a landlord is that your tenants essentially pay you to build equity. In short, rent from the tenant allows you to pay down the mortgage, which, in turn, improves your net worth over the long term. 

Appreciation Over Time 

Because real estate is known to appreciate over time, as a landlord, you’ll be able to look forward to increased property values. However, we do recommend partnering with an experienced Edmonton real estate investment agent who will help you zero-in on the right property (most likely to see an increase in value and ROI).

Long Term Wealth

As we mentioned, owning a rental property gives you a chance to improve your net worth over the long term. In addition to increased equity and property appreciation, becoming a landlord will allow you to diversify your investment portfolio, while hedging against inflation at the same time. 

Tax Breaks 

As a landlord, you’ll also be able to take advantage of several attractive tax deductions. Some of these include:

• Insurance
• Accounting Costs
• Mortgage Interest
• Maintenance Costs (repainting, cleaning etc.)
• Wear and Tear
• And more!

*See Canada Revenue Agency for a full list of deductible expenses 

The Cons

Initial Investment Costs

If you don’t already own your investment property, you will have to purchase a property outright or qualify for a rental mortgage (where you will require a minimum 20% down payment). Other start-up related costs may include repairs, renovations, new equipment (i.e. appliances) etc.

Tenant Problems 

Skipped rental payments, property damage, broken lease agreements, complaints from the neighbours and disregard for the rules are just a few of many issues that can arise with tenants. However, with the help of a reliable Edmonton property management company (who will vet tenants for you), landlords can breathe easy knowing they’ll have good, responsible renters occupying their property.

Maintenance    

As the rightful owner of the rental, you’re responsible for (most) property maintenance and associated costs. You’ll also be expected to respond quickly to any emergencies (i.e. a burst pipe, overflowing toilet, etc.), essentially making you on call, full-time. Here again, an Edmonton property management company can take on the responsibility for you.

Vacancy Costs and Responsibilities 

In the event of a vacant rental property, you must be financially prepared to cover the costs. In addition to the mortgage payment, you’ll need to cover the utilities, maintenance (i.e. mowing the lawn, shovelling snow, etc.) and any other responsibilities generally overseen by the tenant.  

Legal Obligations 

As a landlord, you must stay up to date with Alberta/Edmonton legislation regarding your rights, tenant rights, property laws, etc., at the risk of facing legal action. You can do so by regularly reviewing information provided by Alberta.ca and Laws for Landlords and Tenants in Alberta or by contacting Edmonton’s Landlord and Tenant Advisory Board.*

*Note: The Edmonton Landlord and Tenant Advisory Board also offers landlord-based courses and workshops 

Taxable Income 

All income generated from your rental property is considered taxable, which could put you in a higher tax bracket. Keep in mind, landlords are eligible for a series of federal tax deductions, helpful in offsetting their costs (see Tax Breaks, above).  

For more real-estate investment-related info, see our previous posts: 

• What to Look For In An Edmonton Investment Real Estate Agent
• Everything You Need to Know About Investing In Real Estate
• House Flipping 101: 7 Steps For a Successful Flip
• Investment Properties 101: What to Look for in an Investment Property
• Real Estate Investment

 Photo credits: freepik.com