When buying a new home most people choose to sell their current home to help free up cash for their down payment but in a slower market, like the one we are in right now, selling at a lower price may not be the best option. Another option to consider is refinancing or pulling-out money from your first home to be able to buy the next property and renting your current property out. It's a tactic not always available for everyone but if done right, you walk away in a better position than selling. Here are a few things to consider when choosing to keep both homes and rent out the first.

Financial/Tax Implications

In Canada we do not pay capital gains tax on our primary residence, however if you switch that residence over an income property capital gains tax is something you will have to consider. You will need to get your property appraised to get the current market value and you will pay capital gains tax on the difference between what you paid for it and what the current market value is. You are changing the use of the property and essentially you must act as if your primary residence has been sold at fair market value back to yourself as an income property

What Price Should You Charge?

Pricing your property appropriately is key to generating interest and finding renters quickly. What your home was worth last year, or the rent that your last tenant paid does not always reflect current market pricing. You will want to research pricing and pull up comparables in your area and consider what features your unit has compared to these units. Take note of your area’s rental demand, if the market is booming or moving slowly the price should reflect that. If you are renting out your home to cover your mortgage payments make sure to include a buffer for insurance, maintenance utilities and property taxes.  

Preparing The Property for Rent

It is important to get your property ready before listing it for lease and before each new tenant moves in. The first impression of your home and how you maintain it reflects your willingness and responsiveness to address problems as a landlord. Showing that you take good care of the home can also go a long way towards keeping your tenants long term and having them keep it in good shape.  

Here are a few things you should try to do in preparation for new tenants:

·      Deep clean the property

·      Repair and paint the walls

·      Ensure all the appliances are in good working order

·      Check that all light fixtures are working properly and replace any bulbs         as needed

·      Ensure that all the window coverings, closet door tracks, kitchen         cabinetry are working properly

Do You Need to Use a Real Estate Agent?

Typically people view a real estate agent as someone who facilitates the buying or selling of properties, but we also help with leases; the standard realtor fee for leasing out a property is one month’s rent. When handling a lease your realtor will handle things like screening your tenants, completing paperwork, help you manage showings, and list and market the property with professional photos. If you are looking for ways to save money it is doable to rent your property on your own, however, it can take lot of time and you may find your efforts are better spent elsewhere while you have a realtor handle the lease for you.

Renting out your property is a good way to earn a passive income and you have the option to move back in if needed. It gives you the flexibility to strategically sell at the right time while earning an income from it in the meantime. Send me a message if you are thinking of renting out your property and need help navigating the process.

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