Rental Property Calculator
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Did you know that 95% of Canadians rent their homes privately and that all those homes are owned by just 20% of the population?
Rental property investment can be a reliable source of income if you are prepared to manage your investment and are also careful to make sure that the margins work for you. Unlike the stock market, real estate investing means that your capital is secured in a tangible asset that will (usually) increase in value much more predictably.
How to invest in rental property?
Investing in a rental property is (on paper at least!) relatively simple. If you have excess capital, you can take out a mortgage in order to buy a residential property. You then let the property to tenants, charging them a rent which covers your mortgage and the expenses you incur in managing the property.
Many of the expenses involved in managing a property as a landlord are currently tax-deductible. Expenses that you are tax-deductible include:
- legal and accounting fees incurred in writing leases and collecting rent
- management fees (if you use an agency to manage the property)
- employee wages
- minor repairs
- property taxes
However, there are some unavoidable expenses which are not currently tax-deductible. These include:
- the cost of your own labour
- upgrades and improvements to the property
- legal fees incurred when buying the property
- mortgage repayments
- expenses relating to a part of the property that you live in
How to get started in real estate investing?
How do you get into investing in real estate? The first is to thoroughly investigate the area you are considering buying in. The average rent in Vancouver for a 1-bed apartment is $2176/month, whereas, a 1-bed apartment in Edmonton is just $1026/month. That is a difference of $13 800 a year!
The top tip for investing in real estate for beginners is to start locally. If you know the area well or, better yet, have lived there you will have a wealth of knowledge to advantage you in making a wise investment. Maybe a property is beautiful, roomy and looks like a sure-fire winner. But wait! That sleepy-looking bar over the road that was empty when you visited at 3 pm is in fact the most popular student night in town! How will you rent to a family if Latin Fusion Wednesday is keeping them up all night?
If you know an area you will also have a good idea of what kind of tenants you are likely to attract. Different types have their advantages and disadvantages. If it's an area with a lot of young, social people and good bars you will never have a problem filling a vacancy. On the other hand, you will probably have a high turnover rate (which can be a headache, writing new contracts every couple of years) and an elevated rate of repairs and maintenance. A suburban family home might take longer to fill but when a lease is signed, your tenants are likely to stay for the long term, especially if they have school-age children.
How to calculate ROI on a rental property?
Return on investment (ROI) is a calculation you can make in order to work out how much money you will be making on an investment. In terms of rental property, this involves balancing the cost of purchase, repairs, taxes and mortgage premiums against rental income.
Simply put it is your income divided by your expenses.
A simple calculation but with many elements! Our property rental calculator at the top of the page makes things easier. Just input the value of the property you are considering buying (or have bought) along with mortgage repayments and other variables and have the result in seconds. This will show you how to correctly value your rental investment.
Good to know
For a deep dive, take a look at our guide to rental property investing
Investing in rental property: for beginners?
Is real estate investing for beginners? Yes of course, with research and determination even a beginner can get into and make money in property rental. At the same time, it is important to remember everything that being a landlord involves.
First of all, if you are already a homeowner, then you already know how stressful purchasing property can be! At least with buying property to rent you can view the process as a purely business decision and avoid some of the emotional turmoil that comes with buying a place for yourself and your loved ones to live in.
Secondly, you will need to develop your own system for finding tenants and then deciding if they are right for your property. Are you a good judge of character? If not, don't worry, there are agencies and real estate management companies that specialize in exactly this and will be happy to handle everything for you for a percentage fee.
Lastly, you should consider the market. Rental prices have gone up by over 6% on average since last year, and house prices have gone up by 3%. Of course, there is a huge variety in trends from province to province, city to city and even within larger cities. Specific research on the area you are targeting and realistic analysis of your financial situation are imperative before entering into real estate investment. Have a look at our guide to recent house price trends.
How to learn about real estate investing?
The best way to learn about real estate investing is to read an analysis of current trends by professionals in the market. It is always a good idea to be in contact with a financial advisor who can assess your situation and give you specific guidance
Start working with a financial advisor today
Why invest in real estate?
Why should you invest in Canadian real estate rather than ETFs, stocks, commodities or crypto? Well, as Mark Twain supposedly said, "Buy land, they're not making it anymore". Houses, of course, are still being built in Canada, but at a much slower supply rate than can meet demand. Over 160,000 houses were built in 2021 but a recent news report suggested that Canada needed more than 5.8 million new homes to be built by 2030 to meet demand. If construction continues at the current rate there will be a shortfall of around 3.5 million.
Next, an investment in property tends to be more inflation-proof than other methods of saving. So long as the housing market continues to go up then the capital used to buy the home is secure. The rental income (minus upkeep and taxes) therefore can help keep your assets in line or even above the inflation rate.
Property investment also allows you to maximize capital as you can take out a loan from a mortgage lender to buy the asset (the property) and then pay it back using the income from your tenants. If your rent is able to cover expenses, mortgage premiums and inflation-proof your capital then you have made a secure investment that will continue to generate income for years to come.
Good to know
For a step-by-step intro to investing in rental property take a look at our guide to rental property investing