Should you beceome a landlord?

Among the flurry of enquiries I've been dealing with lately (and no complaints about that!), there have been several questions about buying property as an investment. My recently created commercial website deals with this topic at some length, but it will perhaps do no harm to touch on some of the main points here.
So then ....

Are there any prerequisites?
For a start, you don't need to occupy any property you buy in Canada nor, in fact, do you have to be a Canadian citizen or to even reside in Canada.
All that's necessary is the wherewithal to make a purchase. Money is welcome here!
At the same time, though, you are well advised to either already have the comfort level it takes to be a landlord or the fortitude required to become one. There's a price to pay and it isn't just the dollars you put out to acquire a place.
The longtime public perception of tenants being exploited by property owners dies hard, however outdated. Thus, the courts and legislature tend to favour those who can't afford to pay rather than those who are anxious to collect rents that are owed to them. Indeed, despite a reduction in some of the imbalances of the Landlord and Tenant Acts, the tilt is still against the "comfortably well off" rather than the "downtrodden poor." You can without doubt line your pockets if you do things right, but you can also have the shirt taken off your back if you do them wrong.
Apart from all this, there's some imperative to understand the economics of owning and managing income properties. In particular, you should look askance at the Get Rich Quick schemes, if only because they have few if any roots in reality. It may make sense to buy your house with No Money Down, but leveraging yourself to the hilt for the sake of a rental income is likely to be a recipe for financial disaster.

Finding the right property
There's a variety of choices when you're looking for income properties.
You can buy single family homes or multi-family ones, or you can purchase commercial or industrial buildings that can be rented to business people. You can buy a place for less than $100,000, or you can make an investment that runs into several million dollars. You can own something that you can manage singlehandedly on your own, or you can invest in a substantial property that calls for an onsite superintendent or the services of a property management company.
In all cases, though, your primary concern needs to be what the accountants refer to as R.O.I. -- the return on your investment. This, too, can vary, depending on how much you are able to personally look after the day to day requirements or, in fact, wish to do so. In turn, market conditions determine the rents you are able to charge and the extent to which you can keep your expenses as low as realistically feasible. An additional factor is the age and condition of whatever you buy and the need or chance of increasing the income by making improvements to it.
In effect, owning income properties is a business and the more you understand this and know how to manage an enterprise, the greater your R.O.I. is going to be.

Finding the right tenants
In general, residential tenants are easier to find than commercial or industrial ones. In contrast, though, they are more likely to give you collection problems. It therefore behoves you to handle vacancies with some care. It may well cost you less to keep a place empty until you can fill it with the right people than to grab hold of the first potential occupants.
Leases are less common in the residential field than they were, except perhaps when it comes to large apartment buildings. Even so, asking for references and getting some idea of a potential tenant's creditworthiness is advisable. If some applicants balk at this kind of question, there's likely to be a good reason for it and you could well be clear of them!
Business tenants are, needless to say, likely to have quite acceptable financial standing. Moreover, you can invariably arrange Triple Net Leases, which means you have no expenses other than building insurance and maintenance -- and even these can be incorporated in what's called a "common area cost" that tenants pay over and above their basic rent. Into the bargain, one real benefit of commercial and industrial tenants is that they're unlikely to move elsewhere for some long time, if at all. At the same time, however, the possibility of economic upsets and company takeovers shouldn't be overlooked. Thus, you need to, as it were, have Plan B on hand, just in case.

Allowing for the ups and downs
Perhaps the most important piece of advice is the just mentioned Plan B idea.
Running and making a business successful means going beyond everything being written in stone. An ability to be flexible and make adjustments is paramount. You need to be prepared for surprises and , in particular, have the financial cushion to absorb them. Tenants can lose their jobs, businesses can see sales disappear, and you, too, can be hit with a turn of events. In the business world, there's a need for what's called working capital, and property owners require a similar source of funds that can smooth out the bumps that can suddenly arise.
If investing in property can, as many authorities will now argue, give you a more predictable and assured return than the stock market, it also calls for some time and effort. You can't simply sit back and wait for the money to roll in.

Duncan Pollock, Real Estate Broker,
427 Gate Street, Niagara-on-the-Lake,
Ontario, Canada L0S 1J0
Tel: 905-468-3154 Fax: 905-468-3812
Cellular: 905-704-9037
email: duncanpollock@sympatico.ca
Note: e-mail address changed as above on November 3 2007
website: http://www.duncanpollock.com

PS. One of my web pages provides a list of the other newsletters I've sent out. If you choose to go to it, you can click on any title to bring up its full text.
PPS. I've recently been invited and encouraged to create a second website, one that deals with my approach to the industrial, commercial, and investment real estate market. You can reach it, if you're so inclined, at http://www.iciniagara.com.