Hi everyone, I’ve been so busy that even if I cloned myself I’d be overworked. In the meantime though I have a couple questions from tenants about how the rents affect them and their difficulty finding suitable accommodation.

Vancouver Tenant Asks…

I was wondering if you could comment on rents in Vancouver…  Specifically 3 BR Plus, Detached, townhouses etc.  They seem to range from $2000 to $20000 a month… unbelievable…

Given that the the average total household income (before taxes) here is about 80K do you think there is a market for rents this high?  I look on Craigslist and where you would be hard pressed to find 20 detached 3 bedroom homes for rent just 2 years ago, there are thousands of them today..  Am I being hopeful in thinking this is going to put downward pressure on rents?

Are all these accidental landlords nuts?  Or are the rents justified?

Thanks!

Rachelle’s Answer

The selling price of Vancouver homes is astronomical and unsupported by any fundamental numbers. I expect to see a crash in Vancouver I just don’t know when. What you’re complaining about is specuvestors. These are people who buy homes praying for capital appreciation. After all the market has been climbing for years now. So far they’ve been right but one dark dreary day all these landlords  gamblers will be very badly burned by this mania.

I have never seen so many people think that property investment is the road to riches and I’ve never seen so many old savvy landlords sell. They are sitting on the sidelines in cash. They want to buy alright but they can’t find anything worthwhile. Funny thing about these old goats, they want to make MONEY. It reminds me of Warren Buffet, who wants to shoot fish in a barrel after the water has run out. They wouldn’t and don’t buy in this market. They’ll be buying later when prices come back to earth and you can make money on a rental property.

The facts are that renting in Vancouver is a gift as all these specuvestors buying at stratospheric prices and renting the properties out at less than 50% of the carrying costs. If you look at what these people are paying to buy these properties, the rents are way too low for them to profit from this business. The one trick pony is that the prices of these properties will go even higher than they are now and that’s how these landlords will make money. Unfortunately they can’t make money the way landlords used to by renting the place out and collecting the rents.

To answer your question about the proliferation of these landlords and the amount of vacancy I can tell you that it certainly will end up putting a huge downward pressure on the market. It’s the same here in Toronto. You see it really clearly in the condo market. I used to rent out a newer one bedroom condo for about $1200 five years ago but I would mostly rent them in 10 days max. Now I still them for $1200 but inflation means that I’m actually renting them for less today and they take much longer to rent to decent people. Rents in real terms are going down in Toronto even as properties go up in value. The problem with Vancouver is there isn’t a whisper of a chance that these landlords will break even on their investment. So they’re already in left field, it’s hard to say how long each landlord is going to hold out on their price and when they will reduce the rents. The rental market speaks to them but as far as I’m concerned they’re already crazy so it’s really difficult to predict what the nutters will do, how long they will hold out before they lower their prices and so on.

The other problem with renting off these people is they have no idea what being a landlord means, what their responsibilities are, and they just can’t wait until some bigger idiot buys from them at a higher price to rent it out for a greater discount to tenants. For someone like me who’s been around for years, the market in Toronto and Vancouver is obscene. It’s so far removed from the reality of what this business is about it makes me sick. If you can’t make money as a landlord from your rents, you should not buy the place. Period.

Speculate all you want but call it what is. The major problem as I see it is that these landlords are not being honest with themselves about what they’re doing. Tenants do get hurt in this market as they have to move over and over again, families do not have a stable home. This pushes more tenants into being buyers just because they want to stay rooted in one area. Once you have kids this becomes a real priority because you don’t want to be changing schools every year. I’ve even heard of landlords who will just sign a 6 month lease because they plan to sell.

Tenant On Assistance Asks…

I have a few questions regarding rental units cost and who the units are available to.  First if you have a minute, I would suggest you take a small peek on kijiji Thunder bay. It will help you see what we have for rental units in this city. we have a College and University, which  seems to make landlords jump at the opportunity to rent units geared to having only students renting each room  between $400 and sometimes up to $600 per bedroom!

I understand there is many students who can group together and afford these places… But what about the average people like myself ? I am a single mother working and I am also on social assistance. I’ve been on a geared to income housing list for just over 2 years. My last landlord kicked me out to allow his brother to move into the unit and now I am sharing a room with my  4 year old son in storage in a friends basement.

I’ve applied to a few places even found a potential roommate to help … but I have been denied at the units I’ve applied for. One told me that my credit rating wasn’t high enough.  I was unaware they could check your rating in order to rent a unit. If I had outstanding credit I would have just applied to buy my own house since mortgage and property tax is  far cheaper then renting. Even my social worker told me she bought a house for this reason and her friend who was also in social work had to get a roommate just to afford rent in this city.

Is it fair to charge so much for rent? The units are rarely  well kept in this city. I did live in Edmonton however there was a subsidy for lower income families where they would help you with the rent by up to $550! Here I get $100 and I cant find a 2 bedroom home for less then $800+ utilities and my budget just cannot stretch that high…  I would really like advice as to what I can ask landlords as far as trying to rent a unit.

I take very good care of my home and I am aching to find a suitable clean unit that can be safe for my son as well. I find it odd Landlords would rather jack up the price and rent to messy careless students for the school term then fix everything and start again, as opposed to having one long term person who will take care of the property and maintain the unit as though it were their own… I hope I am not rambling on… I am just so confused as to why its so hard to be able to find a safe place to live. Any advice would really help, I need to know  how to talk to landlords to let them know I am not going to ruin their investment.

Rachelle Answers

While I understand your frustration, I can tell you that it is fair to charge that much for rent. The problem you are encountering is far more than your budget.

Tenants who are on assistance cannot have their assistance garnished. Last year in the entire portfolio I managed 100% of the people who were evicted were on Ontario Works. In that year I have about $50,000 or more in arrears I can never get back. While I do have tenants on Assistance who do pay the rent, my policy is to avoid having to go through evictions because of the loss of energy, time and money. If 100% of the people who I evicted are on assistance doesn’t it make sense that I would avoid renting to them?

Furthermore of those evictions, many of them also had a social problem component. So in addition to not paying their rent, they had loud parties or damaged the place. In one case the police were called too many times to count for everything to loud noise to their guests fighting in the halls and even after a year of getting parking tickets, they couldn’t manage to park in their own spot. One was a drug dealer. In all cases the apartments were completely trashed when the sheriff gave them back to me.

A while back the government made it possible for landlords to get the rent paid to them directly. This allayed many a landlord’s fears about not getting paid rent. A short time later the government decided that the tenant could call and cancel at any time. I had one poor landlord who had a tenant coming from out of town who got the first month’s rent. When the tenant came to move into the apartment, she didn’t have the last month’s rent. She called her worker who apologized for not mailing it out and promised to mail it right away to the landlord. The landlord gave her the keys. A few days later when she didn’t get the check from Ontario Works for last month’s rent she called the worker back. The worker refused to give her any information because of the Privacy Act. It turned out that the tenant as soon as she had the key got the worker to send the money for the rent directly to her. The landlord never did get paid.

That’s why no one will rent you a place. Many landlords would much rather leave a place empty rather than rent to someone on Assistance. It’s just too risky, evictions take too long and the chances of getting your place trashed are high.

My advice is to work hard to get a job and get off assistance. Then you will no longer have this problem. It takes about 4-6 months to evict a person. In that time, the landlord still has to pay his or her bills, the mortgage, property taxes, repairs and so on. Once a landlord goes through this once especially if there is a social problem component or damages, they will much prefer to leave the apartment empty rather than take a chance on a tenant.

Once the government either takes responsibility for this risky group of tenants by making sure the landlord gets paid the rent and reimbursed for damages to the apartment or makes it far quicker to evict people limiting their loss, you’ll find it easier to get a place. The only way landlords can make some money is through rents. They are not going to subsidize your rent. It’s supposed to be more expensive to rent than to buy. That’s because the landlord has to make some kind of profit because they invested their money to buy the place.

I’m sorry if my advice is not what you wanted to hear, but that’s just the way it is. Assistance is no way to live, you owe it to yourself and your son to make a better life for yourself. Good luck.

I got 2 reader questions about leases in the same day. I guess that’s a sign we’re due for a post on leases.

Reader Question 1

Hello Rachelle,

I have 2 tenants renting a 2 bdrm unit. They both signed the same lease. There have been issues between the two of them and their lease is up 30 June 2012.

I have received 1 of the tenant’s 60 days notice to move out, but not the other tenant’s notice (which would be due 30 April 2012).

The tenant who has provided notice is wondering if this takes her off the lease regardless of him providing notice or not.  I have never been in this situation before and could use a little advice.

Thanks in advance

Answer

I’m assuming that you’re in Ontario here. In a situation like this where you have two tenants who sign a lease, they are both equally responsible to pay if there are damages or a default. Also in a roommate situation like this one, one tenant cannot give notice and the other stays. They either both leave or both stay or one could sublet their portion of the lease if you wanted to.

You can’t be a little bit pregnant and you can’t run out of your responsibility to the landlord by giving 60 day notice when you are a roommate.

This exact reason is why I always get every adult over 18 to sign the lease. Every one of those tenants is legally responsible for the money and the more people on that lease the better chance you have to collect.

If you agree to change the lease, then you just have the one person on the hook and if she had a roommate in the first place she probably can’t afford the rent by herself.

It’s the same with guarantors, they are responsible as long as the tenancy exists. Their obligation doesn’t end at the end of the lease but when people move out. There is no benefit to the landlord to release the guarantor of their obligation to pay any damages.

Reader Question 2

Prospective tenants have suggested that they’d be willing to sign a 5 year lease – their suggestion, not ours.  They come with glowing references from a prior landlord who said the only reason they left his rental was because he sold it.  What pitfalls should we be aware of if thinking about signing such a long term lease?  Is there a big potential for a scam here that we’re not seeing?

Thanks,

MW

Answer

Why did he sell his rental if he had these great tenants in it?

I would be very suspicious. There is no benefit for you the landlord to have a 5 year lease in fact there are a lot of reasons why you shouldn’t. Let me explain that a little more. First of all in Ontario if the tenant for whatever reason chooses to break the lease, you as a landlord have the duty to mitigate damages. That means you must immediately try to find a new tenant and have proof of doing so. Then you can take your lease to Small Claims and collect the rent the tenants should have paid you when the property was vacant plus…any reasonable out of pocket expenses for advertising and showing the unit. At the same time you could sue for damages if there were any damages in the rental unit.A reasonable amount of vacancy would be probably 60 to 90 days that could be collected from your previous tenant. You’ll work for every cent of that money.

First you have to find your old tenants to serve them with legal documents. Second you need to pay for court costs and possibly a paralegal. Third it takes a long time to get a court date. As a matter of expediency many landlords choose to skip this long and arduous process and just take the loss and move on.

Now here’s a few things you cannot do with a five year lease. You cannot sell your property unless the new owner assumes the tenants. The notice to move out because the owner has sold can only be given at the end of the term in your case 5 long years. Other than that you have to negotiate with the tenants to get them to move out and you have no legal recourse.

You cannot move into your property yourself again until the term of the lease is up, again five years.

You cannot terminate the tenancy for continual late payment until the end of the term is up.

With a five year lease the tenants can break it whenever they like with very little repercussion to themselves and you cannot sell your property, move into it or terminate the tenancy for continual late payment. It’s a bum deal for the landlord with no benefits whatsoever.

If you sign the conventional one year lease, it automatically becomes a month to month tenancy at the end of it anyways. Because we have seniority of tenure in Ontario you cannot as a landlord say to the tenant that their lease is up and they have to move out. You can only evict on very narrow grounds that are outlined by the Landlord & Tenant Board. Non-payment of rent, continual late payment, criminal behavior and a few others where the tenants are doing some egregious wrongs that can be proven in a court.

About Landlord References

For those of you who have never experienced a bad tenant let me tell you that I have had a few that would cause me to lie. I am generally a pretty honest person and quite straightforward but after 6 months of some tenants I would lie to GOD to get rid of them. If you think I’m a bad person for saying that you’ve never had a bad one. Imagine the worst possible scenario regarding to tenancy you can imagine and multiply it by 20. Some of these people even pay their rent. We have one tenant who’s a real treat in one of the buildings I manage. She calls the city for every maintenance request. She doesn’t fill out a work order or anything so the first notification you get that her tap is leaking is a city order. Would I lie to get rid of her? Yep.

What about if you have a tenant parked in your house for 6 months not paying rent? You’ve made all the mortgage payments, property tax payments, maintained the place out of your own pocket. Your credit card is sadly misused. A landlord calls you for a reference… What would you say? You know if you give them a reference they’ll have another victim move the hell out of your property. If you don’t it may be another couple months before they find another poor sucker to prey on.

Landlord references are not to be believed. One time I had a landlord come to a showing with their tenant. Isn’t that unusual?

Some landlords will go to the tenant’s present address to see how they live now. This is a much better reference than listening to what a landlord (if it’s even a landlord) over the phone. What you see is what you’ll get.

So I’d pass on the five year lease. The bottom line is you have no idea what might happen in your life for the next five years and you might have to move in or sell. In any case it’s highly suspect. I suspect you have a professional at work there and mentioned at one point that you want someone who’ll stay for a long a time. My guess is they’re feeding you a line and you’ll be sorry. It’s just too weird.

What do you think? Pass on this tenant? Do you hold your tenants accountable for breaking leases?

photo credit: bixentro

A while back I had an interesting email exchange with a tenant… Here it is, with the names changed to protect the guilty.

The Setting…

I rent an apartment and sublet one of the bedrooms. In December I received first/last months rent ($1100 total) for an agreement beginning in January. I asked this person to sign an agreement that they would provide 60 days notice. They did. On Mar 9 I received notice that he was moving at the end of the month.After I reminded him of the 60 day notice, I told him that if I couldn’t get a replacement he would at the least forfeit the last months rent. He said he didn’t care. So now 4 days before the end of the month I find a replacement. But honestly, I spent 4 beautiful days in, interviewing for the room. 

Question: Do I have to give him money back? I didn’t even get 30 days never mind 60. Thanks.

I Answer

Hi Mr. Smith,

Welcome to being a landlord, you are not allowed to charge double rent. You are allowed to charge for any legitimate charges you may have incurred such as advertising expenses and credit checking expenses.

R

Another Question

Thank-you. Is a legitimate expense your time?

I Answer 2

Dear Mr. Smith,

You could try. Not usually, although it should be…

R

What Does It Feel Like To Be A Landlord?

Thanks again. It just burns me when I kept the place immaculate and did everything I agreed to…

Question 3

Sorry, but one last question…if I refused, what would happen? If it was taken to small claims court, could I be charged additional money as well as having to return the $550? This guy is a student from Japan and really arrogant. It would please me to make his life uncomfortable. Thanks.

I Answer 3

Dear Mr. Smith

Chances are he won’t sue.

R

Question 4

But if he did, would I have to pay court costs or anything like that..how could this play out? Also, if he did, would you go to court with me? Thanks

I Answer 4

Dear Mr. Smith,

No, I would not go to court with you. You cannot legally collect double rents just because he’s a jerk doesn’t give you the right to rip him off

R

The End…

Ok, Thank-you.

We should force every tenant to walk a mile in a landlord’s shoes

photo credit: psd

Here’s a dirty secret about being a landlord…it’s hard to make money. This is because as soon as you make a couple nickels to rub together there’s someone trying to tax it, spend it or steal it.

Landlords Get No Respect

Pretty much every one hates landlords. I’m not sure why this is. Certainly no one believes a landlord has the right to make a few bucks in their business. Look for instance at the whole water billing saga. Your tenant doesn’t pay water, you get the bill on your property taxes. As a business owner no one want to subsidize your bad tenants. Yet the utilities themselves are in the business of selling water. They extend credit to bad risk customers and they get burned and that is one of the risks of being in business. However with common agreement they feel free to unload that cost on the landlord even though the landlord has no way to protect themselves.

Landlords Hurting In Ontario

We have more bad debt than we know what to do with. As evictions take longer and longer to process these debts are huge. I have three tenants who owed more than $10,000 this year. That’s a lot of money that could be used to fix apartments and install new windows and pave the parking lot. This problem is getting worse.

It’s Lucrative To Rip Off Landlords

The current eviction process benefits scammers. If you set up a system that benefits people trying to defraud landlords…guess what? You’ll get more people gaming the system because it pays them to do it. In Ontario we collect first and last month’s rent. It should take about a month to evict someone. That way there is no financial benefit to the tenant over the landlord. Currently it can take 4-6 months to evict a tenant. By not showing up in court and getting an extension the non paying tenant can get an easy couple months more free rent. How is this good for our business?

Evictions Are Bad Business

Landlords don’t want to evict tenants. If you look at the work and money we spend to get tenants in the first place it’s easy to understand. We paint, we pay for advertising, we upgrade our apartments all in an effort to get a customer to move in. What possible motivation do we then have for turning around and kicking that person out and starting over again?

Landlords Have A Right To Make Money

Every business has to have some kind of motivation behind it. Landlords get in this business not to subsidize tenants but to provide a service and make some dough. Unfortunately the landlord business is one of the most regulated businesses you can get into. You will not have the right to withdraw service if your customer doesn’t pay. In most cases you will not be able to write a mutually beneficial contract with your tenant. Your tenant will be able to sign that they have no pets and then bring in their pack of Rottweilers. Your tenant will sign a contract that they will mow their lawn, but when the city bills you because the lawn is 20″ high, you won’t be able to do a damn thing about it.

Unless We Start Protecting Landlords We’ll Lose Them

If there is no benefit to being a landlord, landlords will leave the business. They will want nothing to do with a business that costs them time, money and stress. Over and over the municipalities go to landlords for a cash grab. Property Taxes, Fines, Charges for Garbage Removal, Landlord & Tenant Board Fees, Income taxes, HST and on and on. Then at the same time, landlords are being defrauded by predatory tenants but still expected to make all their payments. Lots use their day job money to subsidize the repairs and expenses of the property.

Capital Appreciation Is Over

We’re headed into at the very best a flat real estate market. It makes some sense to people to pay out of their own pocket when they see those increasing house prices. It makes no sense whatsoever in a flat or descending real estate market. We’ll see some of this in years ahead. Any incentive for landlords to remain will be removed. Public sentiment will change about real estate and people will rush to sell their losing “investments”

Mortgage paydown is weak for years. Most people just don’t know that after making your mortgage payments for 5 years in a flat market, you’ll barely make enough to pay your realtor and get your deposit back. That will take all the excitement out of the landlord game.

Landlords Are Small Businesses

Most landlords scrape their dollars and cents together to try to buy a property and get ahead. They do the best they can. They invest in their properties. They pay their taxes and improve the economy. They deserve respect and protection from the government.

Who’s with me here? Landlords need more protection and respect!

photo credit: Eric Kilby

In my never ending quest to maximize income in the properties I manage this month marked our first back to back rental. These used to be common in Toronto a few years back when vacancy was low and tenant expectations were equally low.

Back To Back Rentals

For those who are not familiar with the term, back to back rentals involve moving the old tenant out and moving the new tenant in immediately. The entire process is fraught with complications. Movers don’t show up and the old tenant can’t move. The moving reveals hidden defects in the apartment and the new tenant is unhappy. The cleaners and contractors don’t show up and the apartment isn’t up to par for moving in. You discover a cockroach problem. The list goes on and on.

The Extra Application

Last month we rented all our vacancies for April. Then a very qualified applicant came in and dropped off an application for an apartment. She had seen the apartment a week before and wanted it. The same day I got a phone call from another property manager inquiring about one of my tenants who had not even given notice. A light bulb went off and all my prayers were answered. I had an extra apartment to give my new tenants. What could possibly go wrong with my master plan?

Making A Deal With The Outgoing Tenants…

Because the outgoing tenants didn’t give me notice I discuss the situation with them and they agree to leave a few days early. This will surely give us enough time to complete the work.  So they’re going to move out on Thursday and by Friday we’ll be able to start work. The first of April is Sunday so a full three days of work should work to get the apartment ready and clean for new occupants.

Everything Is The Property Manager’s Fault

I do have some really great people who work for me in all the buildings. I have to rely on their judgement because in most cases they are the ones on the ground dealing with tenants and they have a lot more information than I do about the important gossip and interplay between tenants and stuff going on. There’s a veritable soap opera happening. Ignore it at your peril.

At the end of the day whenever anything goes wrong it’s your fault for failing to anticipate it, deal with it or organize around it. I didn’t inspect the apartment myself so as it turns out the ensuing chaos was my fault.

It’s Impossible

I get a frantic phone call from the super 3 days before the end of the month. I’m told that there’s no way the apartment will be ready in time for move in on Sunday. I go there and find that for my first back to back rental I’ve wisely chosen an apartment that has barely been renovated and has been occupied for the last five years.

Work required to bring the suite up to our current standards…

1.  Building bulkheads and installing new mirror doors in three bedrooms  and entrance
2. Removing some old stinky carpets in the three bedrooms and replacing it with new laminate
3. Removing old stick on tile in the entrance and  kitchen and both bathrooms and replacing it with new ceramic tiles
4. Painting the entire apartment
5. Arranging for pest control for cockroaches we were not aware of.

Considering that a few of these items require drying time and would make the other work required very difficult I decide that painting and pest control will simply have to do because that’s all I can do.

Nobody’s Happy…

The maintenance man has been working really long hours to get the painting finished so he’s not happy. The super’s embarrassed because he’s not used to turning over units in this condition.  I am also unhappy because my grand scheme to maximize income is making me very unpopular. I’ve also managed to delude myself into thinking that the suite is going to be fine and the tenant will like it because she has new paint.

A Solution Presents Itself

At any one time in a building there will be an apartment or two that contains people who are in the eviction process. These people can move at any time before the sheriff comes and you are happy when they leave. One of these characters chose to leave and so I fortuitously ended up with an extra apartment. An apartment it so happens that had been fully renovated about a year ago.

This particular apartment was in decent shape and just needed some paint. So…this week we’ll be doing that and our new tenant will move into this apartment instead of the other apartment.

Here’s The Deal

Your staff will hate back to back rentals and will do everything in their power to avoid them if they can. It’s a stressful process with many possible complications. They’ll have to get in and clean and paint in a few days. They’ll also have to coordinate the other leases and move ins and move outs at the same time.

You Still Have To Try To Get That Extra Month

In a world that was free of chaos and hardship, property managers would have a month to renovate and another to rent the suite. That leaves only 10 months of the year to make money on the rental and it’s really going to hurt your performance.

What About The Tenant?

What about when you have a tenant in the apartment? I hate to say it but the tenant going out is not the person you have to worry about. The first person to worry about is you and your pocketbook. You also have to worry about your incoming tenant and what they need or want. After that the old tenant gets the consideration. Do what you have to do. After all the sooner you get the space rented the less you have to disturb the tenant.

Maximizing income will not make you popular but you should do it anyways.