'Tenanting' a vital skill for landlords
by finance columnist Ellen RosemanReal estate can yield good returns for investors. But success requires more than just a talent for buying low and selling high. You also need an ability to size up potential tenants, to decide if they will treat your property kindly and pay consistently. Experienced landlords say this is the hardest job of all — and requires skills that take a while to develop.
"I have three properties in Moore Park in Toronto," says Eamon Hoey, "and I've learned a lot in the five years since I've been in the rental market. After-tax returns on my properties, including any capital gains, are about 5.2 per cent a year. Most income funds will give you a better return," he says.
"Expect disasters", says Hoey. "The furnace in one property stopped working and caused $105,000 worth of damage. Unfortunately, the insurance didn't cover the damage" — since the home wasn't occupied by tenants at the time.
He makes it a rule not to rent to people with pets. His sister once had a tenant with a pet snake, which escaped and was spotted by another tenant.
"My sister got a major bill from the fire department and the exterminator, who had to search for and destroy the boa constrictor. This isn't an event my sister likes to talk about publicly."
Kathy Paliwoda is a consultant for residential landlords in Southwestern Ontario. She also teaches realtors about a landlord's rights and obligations. She says, one of the biggest causes of disputes between landlords and tenants is overpayment of utility bills. What happens if a tenant agrees to pay the bills for water, gas and electricity and later falls behind? Is the landlord liable? Can the utility put a lien on the property?
In a recent Ontario court case, Duong vs. Waterloo North, Justice Donald Gordon ruled landlords weren't responsible for a tenants' unpaid hydro bills.
Paliwoda says landlords may still be on the hook. Utilities often ask them to sign a contract, saying they're responsible when tenants don't pay utility bills on time. Her advice: If a utility threatens to shut off the power, pay the bills and sue in small claims court. Otherwise, you could have thousands of dollars in property damage that insurance won't cover.
Libby Telford is a first-time landlord. She says, "I think students are the best choice. They're not around much, they respect the rules of the house and they have provided me with post-dated cheques for the term of their lease."
However, she's not looking forward to finding tenants again. "I'm very picky and it's stressful for me, knowing I would consider only one out of every six prospective tenants."
Andrew Vitch is an experienced landlord. He owns seven rental properties with 31 units in St. Catharines, Ont. The worst tenants, he says, are those who bring in friends to sublet their places when they leave. "Invariably, these tenants are not as good as the ones we chose," he says. "When they eventually move, we're faced with significant cleaning and repair costs that probably wouldn't have occurred with the original tenant."
Vitch and his wife Sue do regular maintenance in their buildings. They deliver cards and candies to tenants at Christmas. "I believe the bottom line in selecting tenants is: Are they on the way up or the way down?" he says. "We've rented to several tenants who had recently been bankrupt. After thorough investigation, it became obvious they had bottomed out and were getting things back together."
He talks about "tenanting" as a learned skill. As you get better at screening, checking references, calling banks and employers and running credit checks, you tend to be more satisfied with your tenants — and your real estate investment.
Posted by Steven Porter, Real Estate Broker / Mortgage Advisor
Throughout our working careers the goal most often is to own our home, mortgage free at least by the time we retire.