The idea of buying a rental property is an appealing one to many Canadians. It is, after all, like starting your own business. Plus, if you invest, plan and execute properly, a rental property can lead to some nice returns in the long run. But with today’s market prices and interest rates, buying a rental on your own is tough. That’s why many Canadians are teaming with friends to make their investment property dreams a reality.
However, there are many pros and cons of co-ownership. As we’ve seen on Scott’s Vacation House Rules, there are many things to consider before you rent your property out to anyone. If you’ve been seriously thinking about buying an investment property with a friend, there are some essential questions you should ask yourself first.
Get all of Scott and Debra’s expert tips by tuning in to Scott’s Vacation House Rules on HGTV Canada. It is also available on the Global TV App and on STACKTV with Amazon Prime Video Channels, fuboTV, Rogers Ignite TV, and Ignite SmartStream.
What Do You Want to Do With the Property?
First, everyone involved with the investment should be on the same page. If you’re buying a vacation home rental, will you rent it out every week of the summer, or do you want to block time off to use it as well? Also, establish what kind of property you want, where to purchase it, and what kind of renters you’re looking for. Finally, how long do you want to be a renter? Talking through the scenarios and goals is always an essential first step.
What Can You Afford?
Dreaming is fun, but reality can look much different than the remodelled retreat you had in mind. Part of pooling your finances for an investment property is an open and honest discussion about what you can afford. Getting a professional mortgage broker or specialist on board is a good idea. That way, you have a clear picture of what you can afford, the mortgage rates, and how long you will be paying this property off.
How Much Can You Realistically Rent For?
If Scott McGillivray has taught us anything on Scott’s Vacation House Rules, it’s to do your research. Look at how much comparable properties in the area are renting for, and figure out what you can offer that others can’t. You may also want to take some time with your partners to figure out how you’ll get your property noticed and rented, learn what costs are associated with that, and determine who will pay for what.
How Handy Are You?
As any homeowner will tell you, something around the house always needs fixing. A rental property is no exception, and as Scott would say, roll up your sleeves. A nice reno or remodel will be a fresh and exciting start, but expect all kinds of things to pop up over your investment property run. Assess your handiness level and compare it with your friend’s. If neither of you can fix everyday things around the house, factor in repairs and professional costs accordingly.
How Will You Split the Workload?
Renting out a property may seem ideal and hands-off, but that’s not always the case. Being a landlord can be time-consuming. You’ll have to make sure your place rents out, communicate with the clients, ensure your space is cared for when you’re not there, and oversee those aforementioned repairs. If you invest in a vacation rental, that work can increase even more because you’re dealing with quick turnaround times. Talk about the logistics and who will handle what in advance so neither partner feels they’re doing more than their fair share.
How Do You Make Decisions?
There are always decisions to make with a rental property, from when and how to do certain repairs to selecting the people who will use the property. What happens if you and your investment partner disagree? How will you handle that situation, and who will be the tie-breaker if you don’t see eye-to-eye?
Do You Have a Comprehensive Agreement Drawn Up?
Handshake deals are great in theory, but they do nothing to protect you financially if something goes wrong. It’s essential to work with a lawyer if you’re taking out a joint home loan with a friend and to draw up the necessary paperwork to see how you’ll divvy up the payments and returns.
Have You Thought of the What-Ifs?
Speaking of legal paperwork, include those hypotheticals no one likes to think about but are essential in protecting yourself and your long-term investment. For example, what happens if one of you passes away? Or if one of you can no longer make the payments? If you don’t have the proper precautions in place, you’re on the hook no matter what. Ensure you understand what will happen in various “what-if” situations before making your final decision.
How Strong Is Your Friendship?
Last but not least, how well do you know and trust this person you’re going into business with, and what do you think will happen to that friendship if your rental property investment doesn’t work out? It’s important to assess the strength of your friendship, consider what tough times you may have gotten through in the past, and think about your communication styles. After all, buying a rental property with a bud can be a sweet deal, but only if you weigh all the pros and cons first.