Until a few weeks ago, Anita and Craig Turner were both renters and landlords at the same time. They owned two rental properties, one in Sandy Hook near Gimli and another in the city's North End.
"When we moved from Gimli to Winnipeg, the house that we decided to rent out was where we had lived (in Sandy Hook)," says Anita Turner, an entrepreneur who owns a local clothing store.
"We wanted to hang onto our Sandy Hook property and build some equity there. But while we were renting in the city, we still bought another rental property, which we never lived in at all."
Craig and Anita, a young couple with their first child, were hunting for the ideal home for themselves in the city, which they recently found and bought -- thanks to the equity gained from their two rental properties, which they sold about the same time they bought their home.
"What we do is we like to buy a house, rent it out for a couple of years and watch the market trend to continue the way it's going (upwards) and then put the home up for sale," she says, adding they are now looking at buying another rental property.
It is a strategy that commercial real estate broker Bruce Harvey sees with increasing frequency these days.
Harvey, who teaches commercial real estate courses, says buying a rental property can be profitable in three ways.
The Turners' investment strategy involves two of those ways: building up equity and having the property appreciate in value.
The third is to have the rent paid by tenants become a constant cash flow that can be used as income.
Lately, however, more people investing in rental properties have been more concerned with building equity and the potential for the investment to grow as the real estate appreciates in value, as in the Turners' case.
"It has become more prevalent lately because properties have been going up in price," Harvey says, adding real estate prices have seen double-digit percentage increases over the last few years.
But before rushing to the bank for mortgage approval for a rental property, he says some planning and saving are necessary.
"When you buy a house, you can put as little down for a down payment as you want," he says. "Most lenders are going to want you to have 25 per cent down when you do an investment, which makes it a little difficult for people to buy their first investment."
The down payment was not an issue for the Turners, who had saved up for the 25 per cent deposit on their second rental property in the North End, which they sold last month.
"You can use CMHC, but it's very expensive," says Harvey, adding the Canada Mortgage and Housing Corporation's financing comes with substantial fees that can be cumbersome, particularly for someone looking at buying a larger rental property.
"You can go up to 85 per cent (15 per cent down payment) as long as it's multi-family. It's got to be someplace where someone is going to live. It can't be retail, office or industrial."
His advice for someone looking at starting out is to do what the Turners did: Start out with a lower-cost property.
"Usually, the cheaper property, the easier it is to carry when it comes to a single-family home," Harvey says, adding a buyer should do an income and expense statement beforehand.
"Sometimes, people are pretty surprised, especially if they buy an expensive property, that they can't get enough rent to make it work."
Though often costing more to purchase, rental properties with multiple units have better potential to become cash-flow investments. Single-family homes, in contrast, often do not generate enough cash flow from rent, especially when the landlord has a mortgage payment every month.
It also is easier to find tenants for lower-cost properties -- tenants who will pay on time because the rent is much less costly, Harvey says.
"One of the general rules of thumb is you should be able to get a dollar per square foot per month as rent."
All that planning and saving will be for naught if the tenants do not pay the rent.
"We didn't just rent to the first person who called us," says Anita Turner, adding they had a great experience renting in the North End. "There was a little bit of a screening process."
They owned their North End property for a little more than two years and had two different tenants during that time. Both were excellent tenants, she says.
"We try to find good tenants, and I recommend that anyone looking at doing this should go to the Residential Tenancies Branch so you know what you're responsible for and what your tenants are responsible for."
Charged with regulating the Residential Tenancies Act in Manitoba, the branch can provide detailed information about landlord-tenant relations.
"The branch is sort of a one-stop shop for residential tenancy issues," acting branch director Laura Gowerluk says. "There's lots of legislation, so to cover it all would be a little cumbersome, but what I would suggest is the branch is always available to provide information to landlords and tenants."
Its website (www.gov.mb.ca/finance/cca/rtb/) also provides much of the pertinent information, listing guidelines and rules governing renting properties as well as providing downloadable versions of required forms.
The branch can also provide advice about rent increases, property inspections, security deposits and how and when a landlord can evict a tenant.
"You can't just go and change the locks," she says. "If a tenant hasn't met an obligation and you want to terminate a tenancy, the act specifies when you're able to do that, what kind of form you need to give and what kind of notice is needed."
Issues with tenants come up sooner or later -- even for the Turners, who say they have been "very lucky" with their tenants.
"The only problems we really had were delays in paying the rent, but we had a nice family living there," says Anita Turner about the property in Sandy Hook. (They had no problems with their North End tenants.)
"They had kids, and we were very understanding. You have to show a little bit of patience and compassion."
One key financial consideration before plunging in to the landlord business is monthly cash flow. It's fine and dandy to tot up the rental income and mortgage bill and figure you can make it work, but what if the rent stops?
Tenants can move out, and there's always the chance you'll be carrying the property with no rent income for a few mortgage payments while you try to find another tenant. Can you afford to make the mortgage payment with no income from the property? If the answer is no, best to wait until you can. Better to plan for the worst than face the worst with no plan.
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