With interest rates at all-time low, it can be tempting to buy a property and rent it, thus becoming a landlord. If you decide to take the plunge, you may want to have a look at those common myths first.
- The “quick buck” myth. Most people think being a landlord equates to just depositing rent checks in their bank account. This is only one of the many tasks involved in being a landlord. You have to find tenants, maintain your property, pay taxes, and by the way, rental income is taxable. There is no such thing as making a quick buck when you are a landlord!
- The D.I.Y. repairs myth. Just like everything, your property will need repairs and maintenance. You won’t always be able to do these repairs yourself to save money. Thinking about not doing the repairs? Think again! If you have tenants, you have a duty of care. You also need to be in compliance with your city’s Fire Code and other by-laws.
- The easy eviction myth. If your tenants stop paying rent, you can just change the locks to take your property back, right? Wrong! In British Columbia, you have to follow a legal procedure to evict tenants. First, you need to give them written notice. You also need a valid reason for eviction. Not liking your tenants anymore won’t cut it. Your tenants can appeal your decision at the BC Tenancy Branch. If your tenants do not move-out at the indicated time, you need an Order of Possession. Same goes if they abandon the property or if they die. It could take months before you get your property back.
- The tax-deduction/refund myth. When you rent a property, you must declare the rental income to Canada Revenue Agency. You can also deduct related expenses such as interest paid on mortgage, advertising, repairs, property tax…etc. If your expenses exceed your income, you can claim a loss. It will reduce your tax payable, and maybe trigger a refund. However, CRA is rather adamant that a rental property has to generate profits over time. If you continually claim losses, the Agency can disallow your losses and reassess your return.
Becoming a landlord can be a very interesting experience, and possibly build some wealth. In order for this to happen, you need to treat your rental property as a business from day one.