Things are difficult in Alberta right now, and many are re-evaluating their careers and living arrangements. For some, loss of income is making paying bills difficult, and a way to lower their overall cost of living is necessary. Others, such as condo owners who chose to purchase in or close to downtown, are now finding themselves working from home the vast majority of the time. They may be thinking about relocating to where they have more room for an office, and perhaps have their own personal green space. And still others may be looking at moving out of urban centres to where real estate is less expensive and life a little less complicated.
For all of these situations, people who own their home are able to consider the possibility of renting out their property while they transition. This is a way to create regular income while also paying down debt and building equity in your home. And given the volatility of the real estate market right now, as well as the prolonged downturn of the economy, some may even advise that it is not the right time to sell.
Real Estate Remains a Good Investment
The struggle to maintain a home for your family can seem overwhelming at times, but property owners can still feel confident that they have made a good investment. 2020 started out well for the housing market, a continuation of a slight uptick in 2019, according to Maclean’s magazine article “Is real estate still a good investment for Canadians?” Last year, the national sales price climbed 0.5%, on track to reach historical norms of 2.1% again in 2020.
Two percent may not seem like much, but since property costs hundreds of thousands of dollars, year-over-year it adds up to quite a bit. A $200,000 condo could rise in value $4,000 the first year, then $4,080 the second year, and so on. If the property is being cared for and maintained, in just five years it will have gained about $20,000 in value.
Costs and Risks Associated With Renting Your Property
After you have put out the initial investment to own a home, it makes sense to want to keep it. But before you decide whether or not you want to rent out your property, ensure you take the time to consider all of the associated costs and risks.
- How much of your mortgage, condo fees (if applicable), insurance, taxes, and utilities will rent cover? If you are ending up paying out of pocket each month, it may be worth crunching the numbers for the long term to determine the overall viability of renting out your property.
- As a landlord, you will still be required to take care of the repairs and maintenance of your property. Are these costs you are able to bear?
- Don’t forget that the rent your receive will count as income for which you will be required to pay taxes. Is this yearly expense something you will be able to carry?
Also remember that there is no guarantee you will be able to keep your property occupied at all times. When this happens, will you be able to cover your mortgage plus the cost of the property where you are residing?
Know Your Rights as a Landlord
Another risk you take on when renting out your property is a bad tenant. The Alberta Landlord Tenant Act is designed to protect both landlords and tenants. Landlords will find information about how to properly evict someone, how much you may ask for a deposit, what to do if you would like to raise the rent, when to give notice for entry, and so on.
Ensure you have a strong lease agreement in hand, preferably written by a real estate lawyer.
Landlord and Tenant Insurance
If you are renting out your property, most mortgage companies require that you acquire landlord insurance. It is much like your standard home insurance policy – with property and liability components – with the added awareness of increased risk, as you are not personally present on your property. Landlord insurance will also cover your personal belongings you leave at the property, just be sure to identify everything you have there with your broker or provider.
Landlord insurance will also cover you for when you are between renters. This coverage is usually very limited for time, however, so read the terms of your policy carefully and keep your insurance company aware of where you are in finding another tenant. If your property is vacant for too long, it could be considered a vacant property, which will nullify your current agreement and requires a different type of coverage.
Always ensure you have a comprehensive water damage package, as water damage is the most common insurance claim.
Finally, ensure your tenant has tenant insurance. Ask to see a copy of their policy as proof.
Trust Lane’s Insurance for All Your Coverage Needs
Lane’s Insurance is a leading Alberta-based insurance brokerage. We are proud to partner with progressive providers to ensure our clients have access to the most complete and up-to-date insurance products available anywhere in the province.
As a brokerage, we work for you, not the providers. When you choose Lane’s Insurance, you’re opting for a proven company with an excellent track record for customer satisfaction. Lane’s also offers outstanding claims support and expert advice that ensures all your insurance needs are met.