SO I DID A THING - BUYING AN INCOME PROPERTY IN NOVA SCOTIA
My personal experience investing in real estate and rental properties
Be prepared when looking for rental properties for sale
So, I did a thing. Something I’ve been wanting to do for about five years but didn’t because of nerves and personal circumstances. But this fall, I finally bit the bullet and did it: I bought an income property.
This is going to be a big project. Buying rental property is on a lot of peoples’ minds: so many of my own clients are looking to purchase rental property in Nova Scotia. I’ve decided to share this journey with you in hopes that you can get some insight before you invest in your own. Before it’s over, I’m guessing there’ll be surprises, successes, and more than a bit of stress – plus lots of lessons to learn.
About my income property – or should I say, investment property
It’s a 50-ish-year-old side-by-side two-storey duplex in Dartmouth with three bedrooms on each side. The surrounding neighbourhood is mainly rental units, so it shouldn’t be a problem to find tenants in the long term. My daughter, Jocelyn, will be moving into one side, while the current tenant who’s been there for three years will remain in the other. Before she moves in, we’re renovating. (This is why “investment property” sounds more accurate right now.)
One of the reasons I chose this property was because the previous owners were happy with the tenant and she wants to stay. That’s a huge load off my shoulders. Having a reliable, stable tenant means there won’t be a lapse in income – a big worry when it comes to owning rental houses. The tenant in the unit Jocelyn will occupy is moving soon, so I’ve pushed the closing date to give them time to move.
Getting a mortgage for an investment property
I took possession at the beginning of December after completing all the paperwork. It’s been 13 years since I’ve applied for a mortgage and this is the first time I’m doing it on my own as a self-employed single mother. It’s a good refresher to better understand what my clients go through; at least, that’s what I kept telling myself as I prepared document after document for the bank.
The particulars of becoming a landlord
I also need to take some time to learn more about being a landlord. Although I’ve done some minor property management for past clients, owning rental property is new to me. I need to find out more about the Residential Tenancy Act and my responsibilities under it. For now, I know I’ll need a new lease with the existing tenant, to transfer her damage deposit from the previous owner to a new dedicated interest-bearing account, and to check to ensure she has tenant’s insurance (a condition for my own insurance).
Having Jocelyn live in one of the units benefits both of us. For me, it means that I won’t pay capital gains because it will be her primary residence. For her, the rent from the other two bedrooms (we’re thinking $500 per room) will pay for utilities and fund the renovations we’re making to her side.
Leasing a rental property
I’ll also need to prepare a lease for Jocelyn’s future roommates. Since she’ll be living with them directly, I want to make sure she has as much control and flexibility as she needs to in order to have a good living situation. For example, a yearly lease might be too long if things aren’t working out, plus it automatically renews unless notice is given. A fixed-term lease doesn’t auto-renew and 6 months is probably a good trial period to make sure everyone gets along.
The 2% rule of real estate
Current tenancy rules state that a landlord can only increase rent by 2% per year and that cap is in place until the end of 2023. After that, I can slowly increase the rent to market value. My existing tenant is paying significantly less than the average rent so I’ll be limiting the renovations on her side to replacing the siding and windows. Since she pays her own utilities, these upgrades should still benefit her with some financial savings and increased comfort.
Investing in real estate for retirement
So the financial picture is this: the rent from the existing tenant pays the mortgage, and while I’ll front the money for the renos, the rent from Jocelyn’s roommates repays that, plus utilities. In 6 months, I remortgage the property, take the equity I’ve built up and buy the next income property. And I keep doing this until I have around 10 properties.
This is all part of my retirement plan. As a self-employed person, I don’t have a pension to rely on and have to fund my full retirement. I’ve laid the foundation already with typical investments and Registered Education Savings Plans for my kids, so investing in income properties are another piece of the pie. In 10 years when I’m ready to retire, I can start liquidating properties to supplement my income.
What comes next?
I know this is going to be an emotional rollercoaster ride. Already, I’m feeling excited and nervous, and it’s just beginning. While the stress of finding the right income property and getting a mortgage are behind me, I’m excited to work through the renovations and see how they turn out. And was this even the right decision to start with? What if my tenant leaves? What if the next one causes problems? What if I can’t pay the bills?
I don’t have all the answers, but this much I do know: I’m in for an interesting, exciting winter. So get in, fasten your seatbelts and hold on – we’re about to take off!