Everything You Need To Know About Income Properties in Edmonton, Calgary and all of Alberta

Investing in rental properties is a great way to generate passive income and build personal wealth, but it’s not something to jump into without doing some homework. There are many factors that should be evaluated when purchasing an income property, and it often entails different considerations than when you purchase your own home. Understanding the needs of a future and often purely hypothetical tenant can seem impossible – especially for a first-time buyer – but there are a few key features to always look for that greatly increase your chances of success. Developing a passive income stream from a rental property requires a certain amount of knowledge and a lot of pre-planning, which is why our team at River City Financial is here to guide you through each step along the way.

The Requirements For A Rental Suite in Alberta

First things first. What are the legal requirements for a property to be used to generate income as a rental suite? In order to be eligible to rent out a portion of your house to tenants as an income property, your unit must have:

  • Minimum ceiling height of 1.95m
  • A direct exit door to the outdoors
  • Each bedroom must have at least one window for emergency escape during a fire
  • Fire protected walls and ceiling between the rental suite and main dwelling
    • Fire protected walls around all exits
    • Gas-fired furnaces and water heaters must also be enclosed in a room with fire protected walls
  • Interconnected smoke alarms installed to cover both dwellings
  • For pre-existing rental suites, the use of a single heating and ventilation system to serve both the main dwelling and rental suite is acceptable under the Alberta Fire Code.

 

[FREE CHECKLIST] Download our Alberta Income Property Regulations Checklist – Be safe… And by the book.

 

Location, Location, Location – Where to Locate your Rental Property

Choosing a Location for Income Property | River City FinancialThere’s a reason it’s such a common saying in the real estate investment industry. Understanding the features of the neighbourhood that your rental property is within is key to successfully getting and keeping tenants because it will show you who to market to and what to focus on when promoting your property. The overall quality of the neighbourhood that you make your real estate investment in will ultimately determine the type of tenants that you attract. If your income property is located downtown and near offices, then you can expect to attract more young business professionals that are looking to be close to work. Neighbourhoods with schools and playgrounds will attract families with children. Anything close to a university or college will greatly increase your potential renter pool, even though you may have vacancies in the summer months. Keep in mind that, with investment properties, the area and overall feel of the neighbourhood you buy in often determines the type of renter you’ll attract.

In the housing market, a desirable neighbourhood is one that provides an opportunity for growth, and there’s no better indication of growth than nearby schools. Families will always prefer to have their children attend a school close to home, so your potential pool of tenants will automatically increase by choosing a property situated near K-12 schools. Having a rental property near a college or university is also a huge benefit with a large population of students, instructors, and other institutional employees entering your pool of potential renters.

When exploring potential income properties, be sure to keep a close eye on what services are located within a close proximity. Grocery stores, banking options, and retail outlets are always good to have nearby, and they are all things potential renters will take note of.

 

Find Creative Ways to Add Value to your Income Property

Any property that doesn’t increase in value over time isn’t a worthy investment, so consider any potential updates and upgrades to add value within the property. You want to sell potential tenants from the moment they set eyes on your property, so general updates like new fixtures and fittings to landscaping and curb appeal can go a long way in adding value to your income property. Make sure to calculate the costs of the upgrades against the potential increase in value to determine how much you can afford to spend on the updates.

Be hyper-aware of the deadlines you set for yourself regarding any renovations and upgrades, as the longer you go without a tenant, the more it will cost you as you’re paying the entirety of the mortgage and utilities. This can take a serious dent out of your bottom line income stream if you’re not diligent in planning and budgeting right from the start.

Here are some simple DIYs that will add value to your property without breaking the bank:

Revamp Your Bathrooms

One area of the home that particularly benefits from some extra attention is your bathroom. This space is typically left looking a little generic, so investing some time to inject a little character to this room will help your income property stand out and increase its value. A few quick upgrades could include:

  • Replacing old faucets and showerheads with a new and modern style.
  • Adding interesting wallpaper as a feature behind the mirror/vanity.
  • Updating light fixtures with something unique and memorable.

 

Focus On The Kitchen
One of the most important rooms in a home is the kitchen, so it’s no surprise that focusing on this space would be a good a idea. However, kitchen renovations can be quite expensive – instead, try these DIYs to freshen up the room.

  • Rather than replacing old or worn cabinets, try painting them. Tip: Painting cabinets white is a great way to modernize a dated kitchen and it will also make the space appear to be larger.
  • Swap out cabinet hardware with something sleek.
  • Consider hanging a pot rack over a kitchen counter or island. This will add an appealing visual element to the room, plus it will instantly add more storage space.

Liven Up The Living Room

Tenants will be paying a lot of attention to the living room of a home, because it’s typically the area where they will be spending a lot of time each day. Make this room feel extra comfortable and inviting by ensuring it is in top condition.

  • Give the walls a fresh coat of paint to erase any marks and scuffs. Add a little more personality to the space by painting an accent wall in a contrasting colour – this would look particularly well on a wall featuring a fireplace.
  • Refresh a tired looking carpet by getting it professionally cleaned. If it still looks worn, then replacing it with a durable upgrade (or even with laminate wood) is a smart investment.

Add A Few Features To The Bedroom

Bedrooms also often fall victim to being left with a generic look – especially when they are not the master bedroom. By inserting a few helpful features to these rooms you will give potential tenants a clear way to distinguish your home from others in the market.

  • Offer some additional storage space by installing a few hanging shelves on the wall.
  • Upgrade closets to include extra hanging rails, or add a closet organizer that features drawers.
  • Add coverings to all bedroom windows – blinds, drapes, or shades are all good options.

Make A Memorable First Impression

As previously noted, the first impression your home makes on potential tenants is incredible important. Little touches that add some charm to your home will go a long way, so be sure to consider the following exterior tips.

  • Curb appeal is key! Properly maintained landscaping can make a huge difference in how your home is perceived. Always have lawns kept trimmed and snow cleared in the winter months.
  • Having a few potted plants around the entrance of the home during the warmer months of the year is a welcoming element that brightens up an entryway.
  • Give your home a unique edge by painting its front door a bold colour. Think: cobalt blue or red!

Familiarize Yourself With The Housing Industry

It’s always a good idea to keep a close eye on the housing industry to try to capitalize on your property investment in a buyer’s market to maximize your potential revenue. Take a lesson from Scott McGillivray, the star of the popular HGTV show Income Property and real estate investment guru that has prospered first hand from the positive effects of rental properties. His success showcases that, in the long run, investments in real estate tend to grow and are more steadfast and less volatile than other investment opportunities.

The housing market has so many moving parts and variables at play that it can seem daunting to try to stay up-to-date without consulting a professional in the industry. That’s why we’re here to share some of our favourite online resources that you can use to get a better understanding of what you’re getting into when investing in real estate:

 

Do The Math Before You Commit

Calculate your overall monthly costs as well as the upgrades and adjustments you might have to do and compare against potential profits to get a general idea of your rental property’s financial situation. When planning your budget, make sure to consider any tradesmen you have to hire to complete the upgrades or additions. Crunch all of the numbers, and if you don’t see a plus sign, don’t do it!

Property taxes are something that can be easily forgotten when investing in real estate, but understanding how much you’ll be paying towards taxes is crucial to making a bottom-line profit on your property. Do your background research and check the last tax assessment for the area to confirm and ensure your property will bring you positive cash flow. Pro Tip: A great way to avoid the annual surprise of property taxes is to have the annual cost built into your monthly mortgage payment!

 

What To Look Out For

Before homeowners proceed with renovating their homes to include a rental suite or upgrade an existing suite, they should contact their local municipality. It’s best to discuss this plan with a Development Officer or Building Safety Codes Officer to obtain the correct information regarding permit requirements (ex. building, gas, and electrical work), zoning, and other construction considerations.

 

Frequently Asked Questions About Income Properties

  • How much of a down payment do I need to buy a rental property?
    • Since April 19th, 2010, Canadians have been required to make at least a 20% down payment on non-owner occupied investment properties.
  • What style of property can I buy?
    • The first thing you need to consider is the number of units it has. Most buildings with 1-4 units are zoned as residential, so the qualification and financing are only slightly different than that of a mortgage similar to your principal residence. Buildings with 5 or more units are zoned as commercial, which isn’t something to go for unless you plan on starting a rental business or property management company.
  • What are some key features I should look for when buying an income property?
    • Three important factors you should keep in mind are:
      • Appealing Amenities: Grocery stores, banking options, and retail outlets are excellent features to have near your income property. And, they are all features that potential renters will take note of when they are evaluating their options in the market.
      • Property Taxes: Be sure to check the last tax assessment for the area of your potential income property to help ensure your property will be bringing you positive cash flow. Note: A great way to avoid the annual surprise of property taxes is to have the annual cost built into your monthly mortgage payment!
      • Nearby Schools: Having a rental property near K-12 educational institutions, a college, or a university is a huge benefit. Families, students, instructors, and other employees immediately become included in the list of your possible renters.
  • Are any inspections required before I acquire a tenant for my income property?
    • Provincial regulations in Alberta require that a landlord and tenants complete both move-in and move-out inspection reports within one week of moving in or out of the property. These reports prove the condition of your income property before the tenant moves in and when the tenant moves out, and offers official documentation in the case of any dispute.
  • Can I request a security deposit from my tenants?
    • Yes, you can request a security deposit from your tenants; however, in Alberta, it cannot be more than the full amount of the first month’s rent amount.
  • Is there are limit to how much I can increase my rent on my income property or how often? 
    • There is no limit on how much a landlord can increase the rent on their property in Alberta. A landlord can only increase the rent after one year from either the start of the tenancy or when the last rent increase was made.
  • Once my property has been rented, who is responsible for property maintenance?
    • The landlord is responsible to maintain the unit and ensure that it is in a good state of repair. The tenant is responsible for ensuring that the unit kept clean and must also repair or pay for any damage to the rental property that is caused by their occupancy – including their guests or any other person living in the rental unit.
  • What are the Minimum Housing and Health Standards and do they affect my income property?
    • The Minimum Housing and Health Standards are rules that all landlords must follow regarding the maintenance and state of their rental properties. These rules are set by Alberta Health Services and deal with various health and safety issues that affect rental properties – you can find them here.
  • What is the Residential Tenancies Act and does it apply to my income property?
    • The Residential Tenancies Act is the regulating document in Alberta that states the rights and responsibilities of the majority of landlords and renters in our province. The document includes laws regarding the responsibilities of landlords and tenants, detailed information on security deposits and inspection reports, and much more. You can find the regulations here.