When it comes to finding properties that will earn steady income from rent, Edmonton has plenty of excellent options. And with record low mortgage rates, it’s a great time to consider investing in real estate to earn monthly rent income.
Benefits of owning an income property
Owning an income property means you can deduct certain expenses such as property taxes, mortgage interest, insurance, utility bills, property management, and maintenance costs from your income.
And should your expenses exceed your rental income, you may be able to deduct that loss from other sources of income. Talk to your accountant to go over tax benefits in detail.
Investment value — and rent income — increases over time
Buying real estate won’t make you rich overnight. But generally, property values increase over time and with that the amount of rent you can charge also increases. Compared to other investments that are more volatile or don’t pay out as often or as much, real estate is a fairly solid, predictable choice.
Steady rental income
The right property for rent in Edmonton will not only cover your mortgage and operating costs, but will also generate a steady monthly income.
What to consider before you become a landlord
Understand the responsibilities expected of you as landlord
While someone else may be paying the mortgage, you don’t get to just sit back and collect the rent cheques. As landlord, you are responsible for:
- Finding and evaluating tenants including background screening and reference checks, creating legal lease agreements, collecting rent, performing walk-throughs, and evicting tenants if necessary.
- Maintaining, renovating, or repairing the property as needed.
- Administrative functions including posting rental ads, budgeting, and tracking expenses and receipts for tax purposes.
You may consider hiring a management company to take care of landlord responsibilities. This can be a great option if you prefer a more hands-off approach. Just make sure you account for this additional cost — roughly 10% — when calculating your net rental property income.
No investment is guaranteed
Just like any other market, the property market has its ups and downs. If unemployment rates increase or property values plummet, your income property investment will be impacted too. You’ll also need access to cash to cover unexpected costs like repairs or longer-than-normal periods of vacancy.
Do your research first
Before buying an investment property, find out where you can expect long term demand. Properties in the urban core or close to public transit and/or post-secondary schools will be highly desirable among tenants looking to rent in Edmonton.
Enlist the help of an experienced realtor with knowledge of average rent in Edmonton neighbourhoods to ensure your anticipated rental income is realistic and appropriate for the area.
You’ll also want to consult with a mortgage broker who will advise you on options for financing a secondary investment property, particularly how much down payment you need (in most cases 20%).
How to calculate rent in Edmonton
There are plenty of rental property calculators and formulas available that can help you figure out how much rent to charge to cover costs and earn rental income from your investment property.
Gross Rental Income is the total rent amount before costs or expenses.
Gross Rental Income = Monthly Rent x 12 months x (1- (Vacancy Rate* (%)/100))
*The vacancy rate is the amount of time the property is vacant and not making rental income.
Net Rental Income is the actual rental income once you have taken into account the operating expenses including taxes, insurance, maintenance, and management fees (if applicable).
Many investors use the one percent rule to determine the monthly rent to charge on an investment property.
1% Rule for Rental Property
Multiply the property purchase price plus any repair costs by 1% to determine a base level of monthly rent. To earn monthly rental income, your monthly mortgage payments should be less than the 1% amount.
E.g. $200,000 purchase price plus $15,000 in repairs/upgrade = $215,000 x 0.01 = $2,150 rent
This rule works as a quick estimation but does not take into consideration expenses or standard rental rates for the area. No calculator or formula can take into account all of the different variables and should not be a substitute for the expertise of a reputable realtor and/or financial adviser.
If you have questions about buying an investment property to rent Edmonton realtor Wally is ready to help! Call/text Wally at 780-238-7384 or send him a message now.