Becoming a landlord in Alberta requires a significant amount of responsibility – and a lot of money.
If you’re wondering if it’s worth it to become a landlord, Liu & Associates is here to tell you what it takes.
From how to be a good landlord to how rental income affects your taxes, this guide will help you determine if becoming a landlord is the right choice for you!
Is Being A Landlord Worth It Financially?
Becoming a landlord begins with investing in real estate, which involves factors such as a down payment and mortgage, as well as repairs and maintenance.
You will also have to consider the cost of insuring the property, and it will cost more if you don’t live in the building.
And as we mentioned, there are also repairs and maintenance, which can be a large expense if you purchase a larger building with many units.
As a landlord, you can’t ignore minor issues to avoid spending money. If a tenant needs something fixed, you have to fix it.
Plus, in between tenants, you may have to invest in fixing up a unit before you rent it again.
Now that we’ve talked about the ways in which being a landlord will cost you money let’s consider if becoming one is financially worth it!
As a landlord, you can earn a passive income in rental real estate, meaning that you don’t have to earn money simply by working for it.
Yes, you are responsible for maintenance and upkeep, but collecting rent requires no effort!
It’s also important to note that becoming a landlord offers you certain tax breaks you can use to offset the cost of repairs and renovations.
If you’re smart with your rental money, you can easily earn a guaranteed monthly income by becoming a landlord in Alberta.
How to Be A Good Landlord
Being a good landlord doesn’t mean becoming best friends with all of your tenants.
It requires that you balance care with business sense in order to ensure tenants are satisfied and continue to rent from you.
Here are some key traits of successful landlords:
Being a landlord means keeping track of many moving parts, from leasing to new tenants to dealing with maintenance requests and more.
This involves paperwork, such as forms, rental receipts, and repair receipts.
Having a structured system is key to staying organized as a landlord, so make sure you know where all your important documents are kept and develop a way to keep track of everything.
Communication and Understanding
While you can definitely consider being a landlord a business, you have to remember that you are renting to real human beings who call their units home.
In order to create positive relationships with your tenants, you have to communicate with them clearly.
This means responding to their questions and concerns as soon as you possibly can, as well as notifying them in advance if you are planning any maintenance or making changes to the rental policies.
You also have to be flexible when it comes to rules and policies – to a certain point.
Avoid being a pushover, but give your tenants reasonable leeway if giving in will solve more problems than it will cause.
For example, if your tenant contacts you because they have to pay the rent a couple of days late, a late rental payment is far better than the process of evicting a tenant, repairing the unit, and re-renting it.
Whether you choose to be a flexible landlord or you prefer to stick to the rules, consistency with tenants is essential.
They should know what to expect from you as soon as they sign the lease and move in.
Holding different tenants to different standards can lead to resentment and tension, causing a high turnover rate.
Clearly state your policies in the rental agreement, and make sure this agreement is the same for all tenants. If you make any changes to the policies, apply the changes to each tenant.
How Rental Income Affects Taxes
If you are thinking about becoming a landlord, it’s crucial that you understand how rental income in Alberta works.
All net rental income collected in Alberta must be reported as income on your tax return.
This does not include any deductions for expenses such as insurance premiums, property taxes, and utilities.
And, yes, you can make certain deductions on your taxes by being a landlord!
Here are some deductions you can make:
- Property taxes
- Insurance premiums
- Capital Cost Allowance (CCA)
- Rental loss
- Capital expenses
- Current expenses
Some of these tax terms can be confusing, but to put it simply, you can capital expenses cannot be claimed as deductibles because they have a lasting benefit to your property.
However, they can be added to the tax cost of your property and claimed as a CCA over several years.
Current expenses often require regular maintenance so that they can be claimed as a deductible.
For example, if you add a deck to your rental property, the cost of the deck is considered to be a capital expense.
However, sanding and refinishing the deck is a current expense and can be claimed.
As a landlord, you can claim your rental income as a sole proprietor and not a business or partnership. If you do, you can claim the income on your personal taxes by filling out Form T776.
You can claim your expenses on this form as well.
Just make sure you keep all of your receipts from rent and expenses to ensure you file everything properly and avoid triggering an audit.
Becoming a Landlord in Alberta – Is It Worth It?
Here at Liu & Associates, we believe that with the right financial organization strategies, you can easily enjoy the benefits of becoming a landlord in Alberta!
But the only way to guarantee success as a landlord is to speak to a licensed tax professional.
Our team has the knowledge and expertise to help you maximize your earnings and tax return as a landlord.