One of the most frequently asked questions that we get from friends and family is, “we’re moving; should we sell our property in this market or rent it out?”
Another common question is “I’m buying a house for the first time. I don’t know how long I’m going to live there and maybe I’ll have to rent out in the future, so what should I buy?” Both of these really come down to the same question, which is, “what makes a good rental property these days?”
Our answer is specifically for the Edmonton (and area) market, which is where we are. This is a tougher question than it used to be because things have changed. When we started investing in 2013/2014, a lot of properties were good rentals because rents were high, but now over the last few years, rents have come down and not everything makes a good rental anymore.
More than anything, if you’re considering renting your place now or in the future, it just comes down to the math: whether the rent will cover all your expenses. I’m not talking about just the mortgage and the taxes, but the insurance, the repairs and maintenance, the vacancy costs, and the condo fees. You want to make sure that all expenses associated with that property are going to be covered by the rent in order for it to be a good rental property (ie. it “cash flows”!).
If it’s not all covered, then it’s probably not worth the trouble to hold onto it. That said, you also want to take a look at the market. In this market right now in Edmonton (October 2019), it is a buyer’s market. There are a lot of people selling, and not many people buying. There are about 10,000 listings in Edmonton and last month, just under 500 were sold. That’s only 5% of the total listings sold in a month. It’s not a very good time to sell, so even if the rent doesn’t cover all the expenses, it might be worth just renting it for a year or two until the market does pick up and it’s a better time to sell.
To save you from doing the math on your own, what does make a good rental property?
Well, most single-family homes, townhouses, duplexes, and condos don’t cash flow, so they don’t make great properties to rent. Generally, these days a good rental property has more than one suite. For example, a house with a basement suite, or a house with a garage suite (like our last property, in which we also added an in-law suite in the basement). When you have more than one suite like that, then it cashflows pretty well.
That’s exactly what my brother did a few years ago when he bought his house. He bought a 1300-1400 sqft house, and he got the builder to put in a fully legal basement suite. He’s getting about a $1000/month rent. If he decides to move, that house and the basement suite will make a great rental if he decides to keep it or if it’s not a good time to sell.
If you decide to keep your house as a rental, the next follow up question that we usually get is, “what do I do about property management?” Should you just manage it yourself or get someone else to manage it? What are the options?
Patrick and I believe that unless you really want to manage it yourself, then don’t. There are several good property management companies out there that will do it for you. It’s often not worth the headache. It is a lot of work and your biggest risk is your tenant. If you don’t want to spend the time figuring out what kind of lease you need and how to properly screen a tenant, then it is much better to just hire somebody to do it. That’s what we did from the very beginning, and we are definitely happy with that decision.