This past month, I moved out of the first apartment I bought and tenants moved in.
It has been a goal of mine to be able to hold this initial primary residence as an investment property as I continued to grow my real estate portfolio. I was pretty excited when my mortgage broker let me know I could hold my first apartment and purchase my next home.
It may seem a little bizarre for a REALTOR® to advise you not to sell if you don’t have to. However, if you can swing it financially, converting a primary residence into an income property it is a great way to generate income by way of cash flow, mortgage pay down and asset appreciation.
Below are some tips on how to convert your primary residence into an investment property that will help you become a budding Real Estate mogul.
Have A REALTOR® Provide The Property Value
Maura Cosgrave from MNP LLP advises to have a REALTOR® document the “fair market value” of the property on the month that the property changes over from a primary residence to an investment property. “This will be the starting base for any capital gain which may be realized on a future sale and will impact the amount of tax you will have to pay in the future on an eventual sale of that investment property.” Any appreciation of the property is subject to capital gains tax when the property is sold; however, capital gains tax does not apply to the appreciation of the property while you occupied the home as your primary residence.
A comparative market analyses is a complimentary service I provide to all my clients.
Take Photos Before Your Tenants Move In
Investing in professional photos of your property furnished (staged if possible) and unfurnished provides an excellent resource for marketing the property during tenant turnover.
Fix Any Outstanding Deficiencies
Ensuring you hand over your home in the best condition possible is a must. It reflects pride of ownership and sets the tone for the tenant on how to treat the property. It also saves you from coordinating down the road regards to fixing a loose drawer or broken lock because – yes, ma’am! – You are responsible for all of that as a landlord.
Pick A Good Tenant
Do your due diligence on screening potential tenants. This can be done by calling references, including employers, and conducting credit checks as a final screen. Be mindful of red flags, such as complaining about a previous landlord or frequent moves.
Sign Up For Pendo Rent
www.Pen.do is designed for the citizen landlord to help locate quality tenants, manage your expenses and keeps you organized to simplify the landlord process. It is free for your first property and $10/month for unlimited properties. It is worth it’s wait in tax savings gold … Cosgrave advises: “It is very important to develop a system that tracks all of your expenses... failure to [do so] could result in you paying more income tax than you need to.” Tools like www.pen.do and a good accountant will help set you up to continue to acquire properties and build your real estate empire.
