Before you buy a rental property: ten questions to answer honestly

Owning a rental property is one of the most popular ways people try to build wealth outside the stock market. Done well, it can provide monthly income and long-term growth. Done carelessly, it can become an expensive, stressful second job. Before you sign anything, work through these ten questions.

The numbers

1. Does it pay for itself on day one? Add up the mortgage, property tax, insurance, utilities you'll cover, maintenance and condo or association fees. Compare that to a realistic rent, not the best-case rent. If the property only works when it's full all year and nothing breaks, it doesn't work.

2. What if it sits empty for two months? Vacancies happen. Plan for them.

3. What will repairs really cost? Many experienced landlords set aside a fixed share of rent each month for repairs and replacements: roofs, furnaces, water heaters and appliances all wear out on their own schedule, not yours.

4. What if interest rates rise? If your mortgage renews at a higher rate, can the property still carry itself?

The work

5. Who answers the phone at midnight? If it's you, be honest about whether you want that. If it's a property manager, include their fee in your numbers.

6. Do you know the local rules? Rental laws, tenant rights, short-term rental bylaws and licensing vary widely between cities, provinces and states. Read them before you buy, not after.

7. How will you choose tenants? Fair, consistent screening protects you and your tenants. It must also follow human rights and fair housing laws.

The bigger picture

8. How much of your wealth is in one building? A single property is a concentrated bet on one street in one city.

9. How easily can you get out? Selling a property takes time and costs money. You can't sell a bedroom when you need cash.

10. Who's on your team? A good real estate lawyer, an accountant who understands rental income and a reliable inspector are worth paying for.

Buy a rental because the numbers work, not because the story sounds good.

If you can answer all ten with confidence, you're far better prepared than most first-time landlords. If you can't, that's useful information too.