NF - Any of you Guy's Landlords?

[Fishnwire]

Have any of you folks ever done the landlord thing. My wife and I are thinking about buying a house with an apartment in it. I have some questions about what rate the rental income is taxed at and what expences can be written off against it. The place doesn't have separate meters so I'd be paying the gas, water, and hydro. What percentage of that, if any, can I write off? Is it based on square footage?

 

Also, a friend (not the sharpest guy I know) said something about if you use your rental income to pay down your mortgage you get a tax break there as well.

 

Is there somewhere I can go that has FAQ's for landlords? Any help, advice, etc...would be very appreciated.

[rbaquial]

Landlord FAQ

 

Landlord Tentant Ontario

 

Best bet is to use Google - its an excellent search tool.

[huey graphite]

I have one rental property thus far but it is a seperate dwelling.

 

I believe in your case, the portion of utilities you can write off would be based on square footage.

 

I would strongly suggest the following;

 

1) Check the credit references of potential renters regardless of the cost (tax write-off). This is imperative.

2) Get a good accountant. (His/Her services also a tax write-off)

3) Read Robert Kiyosaki's "Rich Dad" series of books. Although a small portion of what he teaches is specific to US rental property owners, much of it applies to us in Canada as well. They will motivate you like no other financial books.

[ketchenany]

A good friend of mine had a property and then got a bad tennat, took him 3 years to get rid of her and many $$$$ later, court hearings with lawyers etc.

[huey graphite]

A good friend of mine had a property and then got a bad tennat, took him 3 years to get rid of her and many $$$$ later, court hearings with lawyers etc.

 

This is why I strongly recommend checking their credit references. Additionally, get their current address and take a drive bye. I would go as far as talking to some of the current neighbours.

[Terry]

first is it a legal apartment......

 

but yeah by % square footage

 

and same the interest on your mortgage by % of the house they use

 

repairs, but not improvements unless you want to deal with capital gains

 

% of property tax

[JohnF]

Have any of you folks ever done the landlord thing. My wife and I are thinking about buying a house with an apartment in it. I have some questions about what rate the rental income is taxed at and what expences can be written off against it. The place doesn't have separate meters so I'd be paying the gas, water, and hydro. What percentage of that, if any, can I write off? Is it based on square footage?

 

Also, a friend (not the sharpest guy I know) said something about if you use your rental income to pay down your mortgage you get a tax break there as well.

 

Is there somewhere I can go that has FAQ's for landlords? Any help, advice, etc...would be very appreciated.

 

The rental income is simply tacked on top of your other income for tax purposes. The benefit part is the deductions you can claim (operating expenses for the rental portion of the property). You need to understand that if a part of the principal residence is used to generate income you won't be able to claim the full tax exemption when you sell it.

 

As for the mortgage, the lender will not consider 100% of the rental income when determining your GDS & TDS. These are the ratios that determine what your maximum borrowing ability will be.

 

PM me if you have any questions. I'll help however I can.

 

JF

[BUSTER]

I sold my rental property due to many many many issues over the years with tenants, my advice is to not bother, invest elsewhere, the headache isnt worth it, I paid the morgage on 2 houses many of times, not to mention, i couldnt find a tenant for 3 mths. guess who pay's for it, that last time it went empty I just sold it ,made a nice chunk of cash and ran, never to return to the horrors of landlord.. beware and keep at least 3mths mortgage in the bank for when your tenant screws you over if you do go that route! good luck

[hawkeye]

two words "never again"

 

what everyone else said about tenants is true. My last one was a minister. I thought that I had found a good honest guy. Never paid a dime of rent and I finally had to kick him out. So much for character references

[JohnF]

When mortgage rates dropped to 3 & 4% the average quality of tenants started to slide. The good people couldn't resist the cheap mortgage rates and went out and bought houses. There's a pretty good chance that tenant quality will rise slightly with the economic times because of lowering job security etc but landlords will still have to vet the apps carefully.

 

There's a lot to be said for being a resident landlord. For some reason tenants under the watchful eye tend to be more dependable. Of course there are exceptions to every rule.

 

JF

[Guest steel'n'esox]

Im not a landlord but an exterminator and I deal with the pest problems left by jerk tenants on a daily basis. If you persue that route I would make damn sure you know who your renting to on a personal basis either through work, fishing friend etc. Renting to someone you dont know is like signing a blank cheque as you never know how much it will cost to get rid of them. Also dont be fooled by good impressions chances are theve already screwed someone else, and shady tenants have great eyesite and usually move out in the night

[Daplumma]

I have had two rentals over the years.Had no problems with the first one and sold it for a good profit.The one I own now is also great.Has been vacant for only one month in 4 years I have had it.I sold some land I subdivided to buy the house outright so the only expense is taxes and insurance.If its vacant for a long time its no biggie,I would rather have it vacant than have bad tennants.I would strongly recommend using a property management company to screen the tennants applications.It will cost you a bit but its well worth the money and it is a write off here in the states.It can be very rewarding to have a good relationship with your tennants.My current ones are a young couple That are just starting out together.Very nice and take great care of the place.He is on his best behavior because he wants to hunt my property this fall.If you approach it like a business and try to make the customer happy and make some money its a great deal for all.Best of luck.

Joe

[Fishnwire]

Thanks for your input everyone. I know that I'm taking a chance of getting into a real jackpot if I get bad tennants...I've heard some horror stories. I know it can takes months and lots of $$$ to get rid of bad ones. Did anyone else see the Holmes on Homes where he renovated a house that had been rented by pot growers? There was over $100000 work needed.

 

That said, I'm still leaning towards giving it a shot. JohnF, thanks for your advice and I appreciate the offer of further assistance. Expect a huge PM...you may regret having been so accomadating.

 

I'd be living literally on top on the renters, so I'll be able to keep an eye on them. No grow ops.

 

Thanks again.

[John Bacon]

"You need to understand that if a part of the principal residence is used to generate income you won't be able to claim the full tax exemption when you sell it.

 

I assume that the "tax exemption" that you are referring to is capital gains on a principle residence. If you are renting less than 50% of the house and you do not claim CCA (depreciation) on the building, then there is still no capital gains tax when you sell the property.

 

I have rented in the past; it can be pain, but overall I think it was worth it. Check your tenants out carefully. It was quite a while ago that I rented my basement. I used a service that not only did a credit check but also checked rental history as well, I don't remember the name of the association that performed the check.

 

If the rules have not changed, you have a choice of using square feet or number of rooms to allocated expenses between personal and rental. A portion of pretty well every expense associated with that house can be deducted from rental income. I was usually able to show a loss and reduce my income taxes. I am not sure if you will be able to show a loss with the low interest rates that we have.

 

You may want to consider charging the tenants for a portion of the utilities. That gives them an incentive to conserve. I am not sure if it is legal to do this without seperate meters; however, that is what I did with my first tenant.

[mikeh]

I found some of the better tenants were the ones just starting out on there own . I had a duplex at one time and I used to tell the tenants not to get too friendly with each other , the reason was that if at some point they had a dissagreement with one another I would hear about it. I would probably follow this rule if I lived on top and rented out the basement. I'd try to advertise in a local university to see if you could get a student.

 

good luck.

Edited June 3, 2009 by mikeh

[JohnF]

That said, I'm still leaning towards giving it a shot. JohnF, thanks for your advice and I appreciate the offer of further assistance. Expect a huge PM...you may regret having been so accomadating.

 

Glad to help.

 

JF

[JohnF]

I assume that the "tax exemption" that you are referring to is capital gains on a principle residence. If you are renting less than 50% of the house and you do not claim CCA (depreciation) on the building, then there is still no capital gains tax when you sell the property.

 

I have rented in the past; it can be pain, but overall I think it was worth it. Check your tenants out carefully. It was quite a while ago that I rented my basement. I used a service that not only did a credit check but also checked rental history as well, I don't remember the name of the association that performed the check.

 

If the rules have not changed, you have a choice of using square feet or number of rooms to allocated expenses between personal and rental. A portion of pretty well every expense associated with that house can be deducted from rental income. I was usually able to show a loss and reduce my income taxes. I am not sure if you will be able to show a loss with the low interest rates that we have.

 

I usually recommend that the prospective landlord gets some advice from his accountant before getting in too deep. Decisions like whether or not to depreciate are better addressed by professionals, particularly the ones that are gonna be the buffer betwixt you and Revenue Canada.

 

On the whole rental housing can be an excellent investment, particularly for young folks trying to get established financially. Common sense and due diligence will keep you out of trouble.

 

JF

[Chris]

Some good advice above. Since 2001 we have owned two rental properties but currently own only one. We have had four different tenants. Knock on wood...so far we have had very minimal problems with our renters. Our investment in the first property paid off very well, better than anything we've witnessed in the money markets, way better. We seem to be on course to repeat that with our second property. Screening potential tenants is a must and going to collect the rent rather than have it mailed or delivered gives you a chance to inspect your property each month.

 

We've been lucky, living in a small town, but I have also heard some very real local horror stories as well. Done right I believe there is more money to be made with this kind of investment than playing the money market game. If you just want to sit back and not do any work money market is probably better for you.

[fisherman7]

Where I work, we own 10 rental properties and we have had absolute nightmares. We renovated one property and a week later the tenant flood it out and the unit below him. We've spent over $10k evicting a tenant, who because they had no income got free legal services. The rules and the tenant board are very tenant friendly so if you don't have all your ducks in a row, good luck evicting. Still, I will personally be looking at rental property myself, but it will not be to a single person or family. I will be renting to students. I'd rather have 3-4 sources of rental income than have all my eggs in one person's basket. And yes, I know what they will do to the place - that's why you get a security deposit and Dad's email address to send pictures to.

[John Bacon]

that's why you get a security deposit and Dad's email address to send pictures to.

 

I believe that security deposits are illegal for residential rentals in Ontario. You can get first and last months rent but it must be used a rent, not as a security deposit.

[crappieperchhunter]

We are small time landlords. My company pension, should our company stay in business long enough for me to retire will be meager, so we had to prop it up with something.

 

Being a landlord is work and comes with risks/rewards. You gotta take the good with the bad, just like the stock market.

 

The single best advice I can give you is get a good accountant. I can't stress this enough. When we got started in the landlord thing we had an accountant who a friend worked for. He got us money back every year and we where happy. Then he passed away, so we started a search for a new accountant. This new accountant is brilliant. He has got us TONS...well for my world...TONS... more money back EVERY YEAR. I just wish we would have been with our 2ND accountant from day one, it would have put alot more $$$$$ in my wallet that's for sure.

 

Overall the landlord experience has been positive for us. Good luck to you if you head down that road.