Becoming a First-Time Homebuyer & Landlord at Once
In Canada, there are nearly 4.5 million adults and families who live in rental housing – representing approximately one third of total households. If you’re looking to purchase a home, particularly your first, it may also be worthwhile to look into leveraging this significant demographic through an owner-occupied property.
This type of ownership, which must be used as your primary residence, allows you to benefit simultaneously from being both homeowner and landlord. It also represents a relatively low-risk way to try your hand at real estate investing, and a practical way to earn money through property appreciation and profits generated from rental income.
5 tips for buying an owner-occupied property
- Determining affordability is a key factor when making any large purchase, especially a home. With an owner-occupied property, you’ll be living in the same house as your renters, so you may want to consider a larger home, or one that is already set up to accommodate tenants, which may end up being more expensive. Your rental income may offset your costs, but you also need to be aware of expenses associated with being a landlord and have a plan for any shortfalls during gaps between tenants. Researching the average rent for your desired neighbourhood will help determine whether this type of purchase is financially feasible.
- Get pre-approved for a mortgage. Your lender requires information about you and the home you plan to buy but, with an owner-occupied property, they’ll also want details about your potential rental income. Getting pre-approved for a mortgage means you can make an offer on a property with the confidence that you’ll be able to access the money you need to complete the purchase. When investing in an owner-occupied property, the rules and qualifications are similar to those required for a traditional mortgage, but there are some distinct nuances you need to understand. For instance, lenders will want to mitigate their risk by ensuring you can cover costs and expenses without the rental income should there be any vacancy lulls.
- Searching for any type of home takes time, research and patience, but finding the right owner-occupied property requires even more of an effort. Inherently, you’ll be giving up a certain degree of privacy and freedom, so you’ll need to decide what type of residence that translates into. For example, will you be better off in a single-family home or a duplex or even triplex? As a general rule, single-family homes tend to attract longer-term renters, and liveability aspects and nearby amenities are key. Size and location are equally important. Will your tenants be taking over any storage space you had in mind in the basement, or occupying the third floor where your children’s play space could have been? It’s also a good idea to connect with a local Realtor who can investigate the desired neighbourhood thoroughly and assess whether the area has a high vacancy rate.
- Treat your rental property like a business by remaining professional with your tenants and abide by rental property rules based on your provincial regulations. Ensure that the rental property is a safe place to live, everything meets current codes and utilities are in good working order. Set clear boundaries between you and your residents. You’ll want to be friendly, but avoid fostering a close relationship to avoid awkward business-based decisions. Maintain separate accounting books and records from your personal residence, which will not only help for tax purposes, but will also help you gain a thorough understanding of the financial aspects associated with a rental.
- Finding the right tenants through proper screening is essential to a successful owner-occupied experience. Generally speaking, families or professional couples are seen as better prospects based on perceived financial stability. For many people, living in an owner-occupied property will instil a desire to take better care of their unit. On the flip side, however, living in the same building with their landlord could make some tenants uncomfortable, so make sure this information is disclosed upfront. Conduct a credit check and insist on references to help determine whether your potential tenants are fiscally responsible and reliable, and make sure you have a written rental or tenancy agreement signed and in place so all parties are aware of their rights and obligations.
Have questions about becoming a homeowner and landlord at once? Answers are a call or email away!