How many rental properties do you think it would take to replace $100k in income at retirement?

Is it 20? 15? How about 10? It is actually 4.5.

The average household income in Calgary is just under $100,000 per year. The amount of free and clear real estate one needs to own to replace that income is surprisingly low. If you knew that four rental properties would replace your working income with passive income at retirement, do you think you would want to own revenue properties?

Like any large investment, it's important to know the pros and cons before making any big decision and you need to be clear on what your goals and risk appetite for owning Calgary rental property are.

Step 1. Can I Afford Income Property?


Are you financially ready to buy a rental property? The numbers have to make sense when investing in real estate.

  • Do you have enough money for the 20% down payment needed for an additional property?
  • Can you make a sizable purchase like real estate and still cover your existing financial obligations?
  • If any repairs are needed to a property before it’s rentable, do you have the money to pay for those repairs?
  • Do you have the money to carry the mortgage until you’re able to rent it?

Crunch the Numbers

Calculate the costs of a rental property, including the mortgage, mortgage interest, property taxes, insurance, utilities and property management fees, (if applicable). Don't forget there can be general maintenance and repairs. Now, estimate how much rental income you will receive, then subtract the expenses. The difference is your net rental income, which is subject to income tax. Once the taxes have been paid, your final number will show either a positive cash flow (you’re making money) or a negative cash flow (you’re losing money).

  • Average 1 bedroom rental in Calgary is $1,178 (minimum $695 to a high of $3,149). rentboard.ca
  • Average 2 bedroom rental in Calgary is $1,441 (minimum $745 to a high of $3,500). rentboard.ca

Talk to a Mortgage Broker

Speak with a mortgage broker who understands all the components of buying revenue property and can show you all your options for a mortgage. If you’re looking for a mortgage broker who understands Calgary real estate investments, contact Mortgage360 

Talk to an Accountant

Any money collected from rent is considered income, and thus subject to income tax. Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains taxes. Make sure to talk to your accountant to fully understand the tax implications.

Step 2. Do Your Research.

Next, do the research. 

  • What are rental rates in the neighbourhoods you are looking?
  • Will the rental cover a mortgage, property tax and incidentals? 

Most, first-time investment property buyers tend to start with condos. A one-bedroom condo is cheaper to buy than a two-bedroom, but when it comes to renting it out the two-bedroom will always be easier to rent. If the economy ever takes a downturn, a two-bedroom condo will have a distinct advantage over a one-bedroom when renters decide it is more cost effective to share the rent than to go at it alone.

Are You Cut Out to Be a Landlord

Do you have the energy and time to be a landlord? If you plan to manage your rental property yourself, you’ll need to get up to speed on what your rights and responsibilities are. It's a big investment to just "wing it", so figure out if you are cut out to screen rental applicants, collect rent, deal with repairs and understand the rules. There can be fines for landlords who don’t live up to their obligations. 

In Alberta, the Residential Tenancies Act (RTA) applies to most people who rent the place where they live. This law sets out the rights and responsibilities that apply to landlords and tenants. 

Consider Hiring a Property Manager

If managing the property isn't for you, then you may want to hire a property manger. A property manager will market your property, screen potential tenants, collect rent etc. It might be peace of mind for you that everything is taken care of.

Step 3. Location, Location, Location.

You need to seriously look at location – you want to make sure your rental properties are located in areas that will thrive in good times and bad.

To attract high quality renters, look for areas with good public transportation, amenities or near a hospital, university or college. The more your rental property can offer the more renters it will appeal to and the demand will always be there.

Calgary Communities to Consider Buying Rental Property.

  1. Beltline
  2. Aspen Woods
  3. Acadia
  4. Tuscany
  5. Bridgeland
  6. Brentwood
  7. West Hillhurst
  8. Currie Barracks / Garrison Woods
  9. Inglewood
  10. Dalhousie

CONCLUSION

Buying a rental property can provide a stable source of income, but like any investment, you need to understand what you are getting into before you buy. Make sue you do the math, do your due diligence and have a solid long-term plan. 


Find a Realtor in Calgary to buy a home. Contact Marnie Campbell Realty Team.

The Marnie Campbell Real Estate Team can help you make better real estate decisions, so you have no regrets buying a Calgary home.


Posted by Marnie Campbell on

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