And Here's Our Response to this reader's Biggest
Real Estate Question!
Thanks for the GREAT question(s) Scott!
And, since we know you've been reading Rev N You for awhile you
probably know that we're going to say the answer really depends
on your goals. :)
Let's start with renting your place out.
Whether you should pay a management company a full month's rent
to find, screen and place the tenant or do it yourself is a
great question. It's something we recently struggled with on
our Triplex in Toronto. Our friends that were living there and
looking after it for us moved out so we turned it over to a
management company.
One month of rent is a serious kick to the cashflow pants.
Personally, we chose to place the tenant ourselves because
there are a lot of other things we'd rather put that $1,700 (1
month's rent) towards. Being so far away this was tricky but
our friends helped us out with the showings.
If you are planning to do a furnished
rental there are plenty of other considerations that
you should factor in. The biggest is that typically furnished
rentals are shorter term. This means you will be dealing with
more turnover. Turnover always costs money even if you
are renting it out yourself. We recently did a furnished rental
and will write an article about the advantages, disadvantages
and considerations involved in a furnished rental in
August.
It really comes down to how much time you have and whether you
want to deal with your tenants at all. If you want a little
challenge you could always try it once (renting it out
yourself). In Toronto in particular we love the Viewit.ca and
Craigslist.org listing combination. It hasn't failed us yet.
Check out our article on the 5 steps to rent out
your property for more details.
As for operating at negative cashflow ...
we did it for awhile with a
condo we had in North Toronto. When you consider the principle
paydown
and tax write offs you'll USUALLY find that you're still
coming out ahead by a
few thousand dollars every year even when you're in a negative
cashflow
situation without appreciation. That said, I always remember
something I read (in I believe, Rich Dad Poor
Dad) which said "How many houses can you own if
they all cost you $100/month?"
In other words, it really does come back to your goals. It will
be tough to build a giant portfolio of negative cashflow
properties. But if you are starting out slow and your goal is
to use as little of your own time and energy as possible to
begin building your portfolio then you may be best suited to
find stable easy to manage neutral or slightly negative
cashflow properties. But, if your goal is to begin making money
from your properties and build a large portfolio then I'd
consider approaching this from a more hands-on perspective to
maximize your profit and your learning.
Our Nanaimo property manager once said to us "when you're
making good money in a job it does you no good to make a bunch
of money on your properties - the government just takes it
anyway".
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