Renting out your home can be an excellent way to earn a passive income and generate a solid return on your real estate investment. Increasingly more Canadians are choosing to become renters over homeowners, so there’s no shortage of demand for rentals. As a homeowner, you can capitalize on this trend.
There are many different reasons you may wish to invite a tenant (or two) to live in your home:
- You have plenty of spare room and are keen on earning a side income.
- You’ve recently emerged from a costly divorce or lost your job and need extra money to cover your living expenses.
- You’ve moved into a new home with a large mortgage and are looking to offset the steep monthly payments by collecting rental income.
While becoming a landlord can be financially rewarding, renting your home for the first time can be daunting. With no prior knowledge or experience, it can be tough to know where to begin and how to navigate challenges you may encounter along the way.
In this article, we lay out the steps you need to take to ensure your first rental experience goes smoothly. We’ll cover the laws you need to comply with, how to market your home effectively, how to screen tenants properly, and more.
If you’re the type who likes to get straight to the point, we’ve also condensed this guide into this handy checklist that you can download and refer to as needed:
Step 1: Learn the laws governing rentals in your jurisdiction
As a budding landlord, your first step is researching the various laws that apply to rental property. Doing so will help you avoid getting hit with a hefty fine or facing a lawsuit from your tenant.
The rules and regulations surrounding rental properties vary between provinces and between municipalities within each province. To get started, visit your municipal and provincial government’s websites, and review the relevant regulations.
Rental property standards
Your home must comply with local bylaws that set minimum housing standards. These laws are in place to ensure rental units are safe for tenants to occupy and provide access to essential amenities like heating, water, and electricity.
Typically, these laws encompass the following categories:
- Residential zoning requirements
- Building codes
- Fire codes
- Electrical safety standards
- Health and safety standards
Depending on the current state of your home, you may need to perform some renovations to satisfy your local bylaws, which may require obtaining one or more permits.
Your rights and responsibilities as a landlord
If your property is already in top shape, your next step is understanding your rights and responsibilities as a landlord. Some topics you should consider reviewing include:
- Rent increases – Each province sets a cap on how much you can raise your monthly rental fee and how often.
- Tenant screening – Certain laws govern how you can screen and select tenants. For example, you’re not allowed to ask potential tenants questions deemed discriminatory.
- Repairs and maintenance – Generally, it’s your job as a landlord to ensure your home is in a good state of repair. However, you can usually pass on small tasks to your tenants, such as testing the smoke alarm.
- Inspection report – an inspection report attests to the property’s condition when the tenant moves in and when they move out. Each province has rules that outline when and how to conduct this inspection.
- Tenant eviction – Each province has rules that dictate when you’re legally allowed to evict a tenant and the procedure to follow.
- Damage deposit – some provinces allow landlords to collect a damage deposit, while others disallow the practice.
Step 2: Enhance your home’s curb appeal
For many people, curb appeal is a vital aspect of the rental experience – they want to live in a place that imparts a sense of comfort and tranquillity. Thus, you risk losing a quality tenant if your property appears battered and grimy.
By sprucing up your home to make it sleeker and more vibrant, you’ll capture the attention of more renters. Here are some tips for enhancing your home’s curb appeal:
- Wash all doors and windows
- Apply a fresh coat of paint to the exterior
- Add stylish lighting along the pathway to your front door
- Trim overgrown plants and trees
- Cut the grass and pull the weeds
- Replace worn-down fencing
- Upgrade your front door
- Remove any clutter from the front and back yards
- Clean the outdoor furniture
- Add more plants and flowers
Before applying any fancy upgrades, remember to focus on the glaring issues. Attend to the cracked paving stones, rotten fence boards, and chipped paint on the doors before adding any fancy upgrades. And when it comes to greenery, less is better, as it can be a chore to maintain a collection of exotic plants properly.
Step 3: Market your home
Key Takeaway: Different listing sites are popular in certain geographical areas. Put yourself in your tenant’s shoes and do a number of google searches with different key words and take note of the top 3 search results. Next make sure you are comparing apples to apples for rent, for example does the rent include utilities?
Once you’ve finished beautifying your home’s exterior, it’s time to get it listed on a rental website where it can garner interest from renters. For this step, you’ll need to create an informative and compelling advertisement.
First, you need to take some strategic and high-quality photos. The goal is to showcase each of your home’s rooms and highlight all its features. Be sure to tidy up your home before you start snapping pictures so that the layout and structure of each room are visible. Capture your photos in the presence of bright lighting, too.
Second, write a clear and concise summary that communicates all the relevant details about your property that a prospective tenant would be interested in knowing. Here’s some information you can cover:
- Basic features: square footage, number of bedrooms and bathrooms, appliances, parking availability, type of kitchen countertop, etc.
- Nearby amenities: proximity to public transportation hubs, parks, shopping malls, schools, etc.
- Rental fees – the monthly rent price, security deposit details, rent discounts, etc.
- Utilities – mention what utilities your rent price covers and which it doesn’t
- Restrictions – disclose any crucial rules that tenants must abide by, such as those that pertain to smoking or pets.
Once you’ve created an ad you’re satisfied with, post it, along with your contact details, on the rental property listing website of your choice.
Step 4: Accept inquiries from renters and ask pre-screening questions
Key Takeaway: Make sure you have a phone script of the key questions to ask so you are able to take calls confidently and you don’t accidentally miss asking a key question!
After some time, you should receive a decent number of inquiries from people expressing interest in becoming your tenant. Contact these individuals and conduct a pre-screening interview to determine if they meet your basic qualifications.
At this stage, you can begin curating a list of who has the potential to be a quality tenant (this is also the time when you may spot red flags in some candidates).
If you’re unsure of what to ask, here’s a list of questions to get you started:
- What is your monthly income?
- When do you plan on moving in?
- Why are you moving out of your current home?
- How long have you lived in your existing home?
- Do you have any pets?
- How many people will be moving in with you?
- Do you smoke cigarettes?
- Do you consent to a credit and background check?
- Have you ever been evicted?
- Have you ever broken a lease agreement?
- Would you be willing to provide a reference from your employer and past landlord?
- Can you pay the security deposit and the first month’s rent before moving in?
- Are you willing to commit to a one-year lease agreement?
Remember that you don’t have free reign to ask any questions you wish. Any personal questions that violate their human rights are strictly prohibited. The Fair Housing Act and your jurisdiction’s Human Rights Act outline the types of questions you should never ask during your interview.
By law, you must treat each applicant with respect and dignity and provide them with a fair opportunity to become your tenant. You cannot reject a candidate based solely on traits like age, gender, ethnicity, disability, or marital status.
Step 5: Conduct Viewings and Provide Rental Applications
Key Takeaway: Show up 10-15 minutes before the viewing to prep the property for viewings (open blinds, windows, lights on, turn up heat, etc) Whatever you can do make your rental more inviting and presentable!
Individuals interested in renting your home will want to visit your property to assess if it meets their needs, preferences, and expectations.
Arrange with each candidate a time and day to conduct a viewing. It’s wise to book all appointments for the same day, preferably during the weekend. That way, you can complete the viewing process efficiently.
Ensure that you tidy up your home and resolve any last-minute issues before you proceed with viewings. Patch up holes in walls, fix broken appliances, steam-clean the carpet, etc. It’s important that your home looks presentable and makes a great first impression.
After each viewing, provide each candidate with a rental application form to fill out and return to you. Make sure you request the following:
- Personal details (full name, address, date of birth, contact details, etc.)
- Copy of government-issued identification
- Employment references
- Past landlord references
- Details of any other people (and pets) who’ll occupy the property
- Proof of income (pay stub, bank statement, letter of employment, etc.)
Step 6: Receive rental applications and screen potential tenants
Key Takeaway: As you perform your due diligence, your goal is to validate as many data points or facts. The more information you can confirm to be true, the more informed decision you can make on who to rent to!
Once you receive the completed rental applications, the next step is to screen each candidate to determine their suitability for tenancy. Typically, this step involves assessing their credit report, background report, and references.
A credit report provides an overview of an individual’s credit history, including the amount of debt they carry, their payment habits, and whether they’ve ever defaulted on their debt obligations. It may also contain their credit score, a financial metric measuring their overall creditworthiness.
From this report, you can gauge the applicant’s ability to make timely rent payments, which is the most vital characteristic of a quality tenant.
Here are some of the details you should examine in a tenant’s credit report:
- Credit score – In Canada, credit score ranges from 300 to 900. A high score indicates the applicant manages their debt and bills wisely, never taking on too many liabilities and making timely payments. A low score suggests the opposite.
- Payment history – assess whether the applicant has any past due amounts owing, how behind they are on payments, and how often they pay late.
- Type of debt – what kind of debt does the applicant carry? Is it high-risk debt that charges steep interest rates like unsecured lines of credit or payday loans? Or is it low-risk debt like a car loan or student loan?
- Total debt amount – determine how much debt the applicant owes and how much they pay each month on their accounts.
- Credit limits – check how much credit they have access to on credit card and line of credit accounts and liberally they utilize it. Large balances may indicate a propensity for excessive spending, which could result in them falling behind on their rent payments.
- Bankruptcies, consumer proposals, and accounts sent to collections – any of these negative items indicate the applicant has experienced severe financial problems in the past or is still recovering from them.
While an applicant can supply their own credit report, obtaining it directly from a third-party source is preferable. The reason is that individuals can easily alter documents or create fake ones from scratch.
SingleKey offers a comprehensive and easy-to-read credit report that provides a treasure trove of financial data to help screen tenants. Once you purchase your report, it’s available to download in as little as five minutes!
An applicant’s background report offers insight into their behavioural patterns and past transgressions.
Depending on your report’s details, you could uncover criminal records, negative news stories, and past evictions, which may be enough to persuade you to pass on the applicant.
You can also review their public social media profiles to gain insight into their personality and past education and employment. By doing so, you can spot potential warning signs that indicate the applicant will be a troublesome tenant.
Employment and past landlord references
Reaching out to the applicant’s current or past employer and any prior landlords is vital for two reasons.
First, you can verify whether or not they’re being honest and accurate regarding the information they provide on their application. Second, you may discover new (possibly unfavourable) details that you otherwise would have overlooked or never considered in the first place.
Questions you can ask the applicant’s employer include:
- Are they currently employed at your company?
- How long have they worked at your company?
- What’s their monthly salary?
- Are they responsible and respectful?
Questions you can ask the applicant’s past landlords include:
- Did they pay their rent on time?
- Do they still owe you any unpaid rent?
- Did they get along with their neighbours?
- Did they cause any damage to the property?
- Did they keep the property clean?
Step 7: Select your tenant and have them sign the lease agreement
Key Takeaway: Make sure to check and verify a government issued photo identification to ensure they are who they say they are on the lease!
Once you’ve thoroughly screened each applicant, choose the one that best matches your qualification requirements. Inform the applicant that you’ve accepted them as a tenant and send them the lease agreement to sign.
The lease agreement is a legal document that outlines the rights and responsibilities of the landlord and tenant, which stem primarily from the laws in your province. Each jurisdiction has specific rules about what your lease agreement must cover. And depending on where you reside, you may need to use a standardized form.
Here are some key terms a lease agreement typically covers:
- Name of each tenant
- The date the tenant(s) can move in
- Restrictions on illegal activities
- Lease duration
- Monthly rental fee
- Acceptable rent payment methods
- Services and utilities included in the monthly rent
- Security deposit
- Repairs and maintenance
- Notice requirements for entering the property
- Restrictions on tenant alterations to the property
- Smoking and cannabis use
Be sure to clarify any terms the tenant needs help understanding and address any questions they might have. Once they’ve signed the agreement, add your signature, and send them a copy within the legally required time frame.
Step 8: Collect the damage deposit and first month’s rent
Key Takeaway: Always make sure you have received the funds fully deposited into your account before you give possession!
The next step is collecting the tenant’s damage deposit and the first month’s rent. As with lease agreements, the rules surrounding these payments vary between provinces.
A damage deposit (or security deposit) pays for costs you incur to repair or replace something within your home that your tenant breaks, steals, or loses. You can also use the funds to cover unpaid rent, cleaning costs, and other obligations your tenant fails to honour as part of their lease agreement. Typically, the maximum damage deposit amount you can charge is the equivalent of one month’s rent.
In some provinces, like Ontario and Quebec, you cannot legally ask tenants to provide a damage deposit.
In Ontario, you can request your tenant to pay a rent deposit (usually referred to as last month’s rent). However, you can only use the funds to cover unpaid rent – never property damage. In Quebec, you’re not allowed to ask your tenant for a damage deposit or a rent deposit.
The first month’s rent is the rent fee your tenant pays before they officially move in and take possession of your home. It’s essentially a prepayment.
For example, let’s say you and your tenant sign a lease agreement on August 17, and the lease begins on September 1. The monthly rent is $1,200. In that case, you would collect $1,200 from your tenant and record the payment as an advance for September’s rent. As a result, the next rent payment would be due on October 1.
Step 9: Complete the move-in inspection and choose a possession date
The final step in renting your home is performing a move-in inspection alongside your tenant. Essentially, you will assess the property’s condition and report your findings. Move-in inspections are mandatory in Canada for rental properties.
The purpose of this procedure (sometimes called a “walk-through) is to hold you and your tenant accountable for the state of the property and set expectations for care and maintenance. A rental move-in inspection shows which damages existed before the tenant took possession and which occurred during the lease term. In case a dispute arises regarding property damage, indisputable evidence shows who bears responsibility.
Each jurisdiction has rules that dictate how and when to do a move-in inspection. For example, in Alberta, a move-in inspection:
- Must occur one week before or after the tenant moves in
- Must occur between 8 a.m. and 8 p.m.
- Cannot be scheduled on a holiday
Ideally, you should schedule the move-in inspection the same day the tenant takes possession of the property.
To prepare for the inspection, declutter your home and move out your furniture so that there’s ample space and every area is visible. In addition to documenting the tenant’s observations in writing, consider taking photos and videos.
Once the move-in inspection is complete and the report signed, the tenant can legally assume possession of the property.
Before you hand over the keys to your tenant, it’s good to provide them with a move-in checklist that outlines helpful details about the property and tips for basic maintenance. For example, you can supply instructions for testing specific devices like smoke alarms and changing the batteries as needed.
The checklist should also verify that they’ve received a signed copy of the lease agreement and note the completion of the move-in inspection. Lastly, ensure it contains your emergency contact information.
Have the tenant sign the checklist and then add your signature as well. Keep the original document for yourself and send them a copy.
That’s it – you’re officially a landlord!
Our Final Thoughts
As you can see, renting out your home takes a lot of work, especially if this is your first time doing so. Yes, you can realize a boost in your income, but being a landlord also entails a fair amount of responsibility, due diligence, and tenacity.
For these reasons, it’s wise to begin the journey by learning how the rental process works one step at a time. By doing so, you can avoid many of the pitfalls that new landlords routinely face, like getting stuck with a nightmare tenant.
Still in need of a helping hand to make your first landlord experience a great one? SingleKey offers the following products to set you on the right track:
Tenant Report – this handy report gives you a wealth of knowledge about an applicant’s background and credit history. Dig into the details to determine who to accept as a tenant and who to avoid.
Rent Collection – this online rent collection tool lets tenants pay their rent online through pre-authorized debit, which means you never have to collect cheques again. It also sends automatic reminders to tenants as the 1st of the month approaches.
Rent Guarantee – this program will cover your rental income for up to 12 months, up to $60,000, should your tenant default on their rent payments. You also qualify for property damage coverage for up to $10,000 and $1,500 in legal fees.