8 things to do before you become a landlord

It cost $2,201 per month on average to rent a home in Canada in July 2024. That’s according to a report from Rentals.ca and Urbanation. The numbers have been climbing since April 2021. Understandably, the headlines around these eye-popping rents focus on their unaffordability for tenants. What you may read less about, though, is the income potential for landlords. 

Do higher rents make becoming a landlord a wise investment bet? Perhaps, but only if you pay close attention to some fundamental, sensible guidelines for landlords. And these guidelines aren’t very different from when average rents were half what they are now. 

Being a landlord can be tricky. But with the right preparations and expectations, you could end up ahead of the game. Let’s look at seven of those guidelines:

1. Make a financial plan

Before you commit to buying a rental property, ask yourself some important questions. First: Why do you want to become a landlord? Is it just to help you with your mortgage (with the income from a basement apartment, for example)? Or do you want an income-generating investment? If you’re looking for income, you’ll need more in-depth number-crunching, and answers to questions like:

• How much can you afford to spend? 
• How will you finance it? 
• How much return on your investment can you realistically expect? 
• How much of your money can you afford to tie up, and for how long? 
• What will rental income and the eventual sale proceeds mean for your tax bill?

Your advisor can help you carefully review your finances and answer these and other questions. An accountant can also be helpful.

Rental income is a form of what’s called “passive income.” That’s money you earn from something other than a traditional job. Besides owning a rental, passive income could come from sources like dividends, publishing royalties or even owning vending machines. Compared to a regular job, you collect income “passively” – without as much work. That’s according to the definition. But rental income isn’t necessarily all that passive. One former Montreal landlord says owning a rental property is work: “No other investment has ever called me at 2 a.m. to tell me the kitchen ceiling was leaking.” 

Judith Oja-Gillam of Stevensville, Ontario, would agree. She and her husband, Brenden Gillam, have owned 12 rental properties over the years. They bought their first one in 2006, and sold their last one earlier this year. 

2. Treat your rental like a business

Oja-Gillam says it’s vital to treat your rental as a business. That means keeping clear, complete and current records, for example. It means filing all correspondence and noting all conversations. It also means keeping emotions or personalities out of your decisions. Just because you love a property’s decor doesn’t mean it’s the right one for you. And just because your tenant is a nice person doesn’t mean they can be late with their rent. 

It’s equally important to understand the nature of that business, she adds. Be aware of what you can and can’t write off on your tax bill. And be sure to put some of your rental income aside as a contingency fund, to cover unforeseen repairs.

3. Buy the right property to rent

It’s also essential to buy the right rental property. For example, it may be wise to buy a multiple dwelling like a duplex or even a triplex. That way, you don’t lose all your rental income if a tenant “goes south,” Oja-Gillam says.  

Where you buy also matters. She suggests staying out of large cities, as she found it easier to attract good tenants in smaller communities. “So many people still work from home, or are prepared to travel to their jobs,” she says. “And there are fewer rentals to choose from.”

4. Learn your province’s rental rules

You can’t overstate the importance of this. Different provinces have different rules, so become completely familiar with the ones governing yours. In recent years, groups like the Alberta Residential Landlord Association and online resources like the Landlord’s Self-Help Centre have sprung up to give assistance.

Other resources include provincial government agencies like the B.C. Residential Tenancy Branch. You can also consult the website of the Canada Mortgage and Housing Corporation (CMHC). The CMHC site features advice for landlords on getting started, finding tenants and dealing with problems.

As well, you need to use the correct forms for matters like non-payment of rent and rent increases. You’ll find those on the website of your provincial rental-housing agency.

5. Screen potential tenants

We’ve all read stories of nightmare tenants who generate endless noise complaints, damage property and even stop paying rent.

Some sources say the percentage of “bad” tenants is about one in three. In Oja-Gillam’s experience, it was closer to one in two. She warns of “professional tenants.” Those are people who take advantage of the rules protecting tenants to bounce from rental to rental without paying. 

Non-payment can be the least of a landlord’s nightmares. Gillam has also dealt with disgruntled neighbours making noise complaints about her tenant’s domestic disputes. Her husband has been physically assaulted. He’s had to tear a badly damaged rental right down to the studs to repair it. And they even had a tenant physically move the front door without asking permission.

To protect yourself, run credit checks (available through agencies like Equifax and TransUnion). Ask for references from employers and past landlords. Match landlord references to the credit check, which shows past addresses, to ensure the applicant is being truthful. Watch out for fictitious references. Ideally, drive by the prospective tenant’s current address, to see what shape it’s in – and if it even exists.

“Don’t fall for sob stories,” advises Oja-Gillam. “If a prospective tenant’s money situation is very complicated, that’s a warning sign. And be wary if a tenant sounds too glib or scripted.”

Vetting tenants is a lot of work, but as a landlord, you have a lot at stake. “You’re better to leave your property empty than rent it to the wrong tenant,” she concludes.

6. Cultivate the landlord-tenant relationship

Once you’ve found great tenants, you’ll want to hold on to them for as long as possible.

“If you have good tenants, treat them like gold, gold, gold,” says Oja-Gillam. That means responding quickly when something needs fixing, and not being cheap about things like lights and taps.

Jennifer Waters and her husband have rented out the basement apartment in their Toronto home for years. She’s a big fan of going the extra mile: “We’ll do things like buy our tenants Christmas gift cards and send flowers when they move in,” she says. “My husband is also quite handy and we’re super-responsive, which you need to be.”

7. Be hands-on with managing your rental

“You have to actually manage the property,” says Oja-Gillam. “If you can’t be on-site yourself to oversee the property, hire someone who can.” 

And while you may be able to do some common repairs yourself, keep a list of trusted professionals handy. That way you can deal with problems as soon as they arise. Brenden Gillam took early retirement from his building contracting career to manage their properties full-time. But even he had to call in the experts from time to time.

You also need to keep on top of your rental payments. Due to administrative backlogs, getting a tenant evicted for non-payment can take months. “The minute someone is late with their rent, start the eviction process,” Oja-Gillam says. “And don’t accept a partial payment if you can afford not to, because that will set the process back to square one.”

8. Check your insurance coverage

If you’re renting an apartment within your home, make sure your existing home insurance policy covers you. But if you’re renting a building you don’t live in, you’ll need additional property and liability insurance. An advisor can help you get the protection you need.

While it’s not legal to require your tenants to purchase insurance, it’s important they know your policy doesn’t cover them. It’s wise to recommend they take out their own policy so their personal property is covered.

So, the question remains: In today’s market, is owning rental properties a good investment bet?

Oja-Gillam says yes – eventually – but only if you understand the risks and pay close attention. Over the years she was a landlord, she saw her rental income increase significantly. But so did operating costs, and the cost of borrowing. If anything, she suggests that such barriers to entry are higher than ever. “And the more properties you own, the more headaches you have.”

She also warns you may not realize significant income from your rental property until you sell it. “Operating costs can easily eat up most of your rental income,” she says. “When you really make money is when you sell.” 

And that’s when all your hard work and due diligence can pay off.

This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.