'Tenanting' a vital skill for landlords

'Tenanting' a vital skill for landlords

by finance columnist Ellen Roseman

Real 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

10 Biggest Mistakes Novice Investors Make

10 Biggest Mistakes Novice Investors Make

Real estate has become the tech stock of the 2000s, the darling investment that everyone seems to think will be his ticket to easy wealth. And why shouldn't investors be snapping up cute little cottages? After all, mortgage rates are low and the housing market is hot. How hard could it be? Slap on a new coat of paint, put some flowers in pots by the front door, put a "For Rent" sign in the yard, and start counting the cash.

 

In 2004, the National Association of Realtors reported that nearly a fourth of all the houses sold in went to investors; about 80 percent of investment properties were existing single family houses. If you're looking for rental income -- and most investors are, according to the NAR -- buying a single-family house may be the first mistake. All it takes is for a property to sit vacant for a couple of months -- or a tenant to run out on the lease -- to put a new real estate investor in a financial bind. Far better to buy multifamily units, such as duplexes. That way, you can live on one side and have the rent from the other side pay your mortgage. Or, rent out both sides and give yourself some breathing room in case one tenant moves in the middle of the night without paying his rent. A first-time investor should look at (multifamily units of up to) four units to limit their risk.

If you're still convinced that investing in rental real estate is the road to riches, at least go into the proposition with your eyes, as well as your wallet, open. Here are 10 common mistakes made by new real estate investors:

1. Falling in love with the property. Stop thinking like a homeowner and start thinking like a business owner.  Get emotional about the deal, not the house. 
2. Not performing your due diligence.This is more than just an inspection of the property, although that's essential. (Can you say, "deferred maintenance costs"?) It's also a thorough investigation of your area's current rental market. What are the vacancy rates and average rents for comparable units? What's the average age of the rental housing stock? How is the neighbourhood zoned? What are the government regulations about rental properties? Has the Municipality approved new rental complexes nearby?
3. Forgetting the rule of home improvements.It will always take three times the money and twice as long as you estimate to get a unit ready to rent. Or is that twice the money and three times longer? Either way, you need to build that extra cost into your expenses. 
4. Thinking you'll get those low mortgage rates you see on the Internet. Those are for owner-occupied homes. Investment property is considered a riskier loan and you'll pay more in interest rates. The credit qualifications also will be higher. You don't need perfect credit, but if your credit is in the dumps, you won't get the loan. 
5. Not pre-screening tenants. New landlords can get very excited about prospective tenants who show up, take one look at the place, hand them a cash deposit, and want to move in that weekend. Don't do it. When selecting renters make them fill out an application, and check their credit, employment and rental history before you take a dime from them. It's a much more expensive -- and potentially nasty -- headache to evict a bad tenant than to have a unit sit vacant for a couple of months. 
6. Breaking your own rules. Landlords establish policies for good reasons. When they start ignoring those policies, they're headed for trouble. No pets means no pets. Don't ever let someone move in without a security deposit, and don't ignore collecting late fees. (where permitted by law) 
7. Investing long-distance. Unless your rental property is in a spot you love to visit regularly, such as a lake or the beach, keep your rentals very close to home. Otherwise, you'll eat up your profits by driving back and forth to manage the property or by paying someone to make repairs, etc. for you. 
8. Paying too much for the property. If you're embarrassed to make a low-ball offer to a seller, don't invest in real estate.. Rental property owners generally work off a multiple of 100. That means that if you pay $100,000 for a unit, you need to collect $1,000 a month in rent to pay all the bills and have a decent profit margin. If you've done your homework, you'll know what your rental market will bear. 
9. Not studying the competition. Why does the guy across the street fill his units the same day someone moves out and yours sits vacant for months? He might not be very picky about whom he rents to, but he also might have lower prices, have washers and dryers in his units, pay for lawn maintenance and trash pick-up, or have his building on a wireless network. 
10. Being under insured. Insurance on rental property goes beyond insuring the building against fire or a flood. You need to look at your own coverage for liability. If there's a loose railing and a tenant's child falls off a balcony or there is a burglary and a tenant says it's because you wouldn't install security alarms, you're likely to get sued. 

 Real estate investing can be lucrative by following successful strategies and tactics of other successful investors. These 10 tips are by no means exhaustive but are a good starting point for a novice investor.

Posted by Steven Porter, Real Estate Broker & Mortgage Advisor.
 

6 Ways to Avoid the Tenant From Hell

 While there’s tremendous success to be had in the world of investment properties, the unsightly truth is that one bad tenant can cause a monumental setback.
It’s hard enough to keep up with wear and tear on your investment property without having to deal with disgruntled residents causing willful and severe destruction to a home. From “Sharpie parties” — where tenants invite friends over to vandalize the home with markers — to “indoor swimming pools,” where renters flood the premises and take a dip, there’s no shortage to the devastation that tenants can create.

Of course it’s not always so dramatic, but the problem of trouble tenants is quite widespread. In a poll conducted by Vancouver-based newspaper The Province, 71 percent of landlords say that they’ve had problems evicting a renter despite justifiable grounds. Late rent payments, broken appliances, and disputes over damage deposits are some of the most common issues that landlords face. The costs involved with repairing damage left by a less-than-upstanding renter, not to mention the time and money that it takes to pursue an eviction, can be enough to strike terror into the heart of even the most seasoned property owner.

The good news is that an ounce of prevention is still worth a pound of cure. While you can’t always foresee issues with renters, there are steps that you can take to drastically reduce the chances of problem tenants gaining access to your rental in the first place.

Having an airtight tenant screening process is one of the best ways that you can protect yourself and your properties from potential devastation. Let’s look at a few tasks that can help you build a metaphoric hedge around your property that helps prevent unsavory tenants from getting in.

1. Require a Tenant Application

The right questions can help you to sift through unqualified tenants at the start. Draft an application form and have it ready for every prospective tenant. Ask each adult to provide basic information, such as name, date of birth, contact information, emergency contacts, and request similar information about any children who live with them.

In addition to asking the date they hope to move in, ask these questions:

• Do you have any pets?
• Do you smoke?
• Have you ever been evicted?
• Have you ever been convicted of a felony?

Be sure to request references, employment information, and a way to contact their previous landlord. Consider asking an attorney look over your form, to ensure both that you’ve covered your bases and that you haven’t asked any questions that could be considered discriminatory or cause legal issues.

2. Start Interviewing

The interview is vital. This is your chance to screen prospective tenants and find out whether or not they’re an ideal match for your property. Good questions to ask include:

• Is your income the same every month, or does it vary?
• Why are you moving?
• Describe your perfect rental space.
• What’s your favorite or least favorite thing about the place you’re living in now?

The interview should give you a good idea about whether or not the prospective tenant will be able to afford the rent and abide by the terms of your rental. This About.Money article, “Ten Questions for Prospective Tenants,” provides a fairly comprehensive list well worth considering for the tenant interview process.

3. Conduct Diligent Research

Always follow through with a check of potential tenants’ references, credit, and possible criminal background. Verify important information that the tenant provides, particularly current employment and previous rental history.

When contacting references, ask how long each person has known the prospective tenant and for their opinion on the reliability and character of the tenant. It’s especially important to get in touch with previous landlords, who may be more likely to paint an accurate picture for you. Current landlords might be desperate for a problem tenant to leave and may gloss over the truth in an effort to get the tenant to move faster.

4. Watch for Warning Signs

Look out for red flags that can alert you to a potential problem tenant. If the applicant makes you feel nervous or seems desperate to move in as quickly as possible, that could be a warning sign.

And watch out for candidates who question every aspect of your rental application process, as this may be an indicator of someone who will be unwilling to abide by your rules when renting. Legitimate candidates understand that it’s important for you to conduct credit and background checks, and most will appreciate the care you take in selecting tenants.

Be sure to compare the application and your notes from the interview to what comes up on the background check. Be extremely wary of any discrepancies.

5. Keep It Legal

Of course, as important as it is to have a solid tenant screening process, it’s also important to ensure that your process complies with the law. While you should watch out for warning signs, never screen tenants based on feelings alone. Be careful to use the same qualifying procedure for all applicants, and treat all candidates equally to prevent accusations of discrimination.

You should also use the same process each time you deny someone, regardless of the reason for denial. A simple e-mail highlighting the reason is sufficient. Doing this properly and in writing can help to prevent any accusations of discrimination. As another legal side note: Be sure to check local laws before collecting application fees or a deposit, as this practice may not be legal in all areas.

6. Get It in Writing

Finally, once you have found a tenant for your property, it’s important to make sure you have a rental agreement in place. This document should contain clear guidelines and will help ensure that you and the tenant are both on the same page, preventing problems from arising later on due to miscommunication. The agreement should include the names of all the residents, occupancy limits, and rental terms, including late fees, acceptable payment methods, and charges if a rent check fails to clear.

While many landlords are hesitant to implement a tenant screening procedure because it’s time-consuming, in the end a solid screening procedure can save time and prevent a world of hassle. You’ll be able to weed out problem renters and save yourself from costly evictions and extensive repairs down the road. Finding a tenant that’s a great match for your property is more than worth the time and effort it takes. You’ll thank yourself later, and your wallet will too. 

by BRENTON HAYDEN, REPRINT

Public Alert – Unlicensed Syndicated Mortgage Brokering Activity

​The Financial Services Commission of Ontario (FSCO) is warning consumers that it has received complaints about some websites promoting syndicated mortgage investments. The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.

These websites may refer to the investments as "pooled mortgage investments" or "principal secured investments". These websites, along with their online ads, may guarantee high rates of return, secured by real estate, and claim to be RRSP and LIRA eligible.

Consumers should exercise caution if they are contacted by any entity matching this description. Consumers should also be aware that all mortgage brokerages, brokers and agents in Ontario are required to disclose the material risks of any mortgage investment to investors in writing and in plain language. Investors should ensure they receive this disclosure and should carefully review it, ideally alongside independent legal advice, before making an investment or lending decision.

If consumers arrange a mortgage from a mortgage brokerage, broker or agent that is not licensed in the province, they are not protected under the Mortgage Brokerages, Lenders and Administrators Act, 2006 [New Window], which holds Ontario’s mortgage brokerages, administrators, brokers and agents to specific standards.

FSCO's website contains a list of all mortgage brokerages, administrators, brokers and agents licensed to do business in Ontario as well as tips on shopping around for a mortgage.

A licensed Ontario mortgage brokerage, administrator, broker or agent can provide information and advice on the risks involved in borrowing, lending or investing for different mortgage products.

CONTACT
Media inquiries
Aisha Silim
Phone: 416-226-7795
Email: Aisha.Silim@fsco.gov.on.ca
Public inquiries
1-800-668-0128
contactcentre@fsco.gov.on.ca

https://www.fsco.gov.on.ca/en/about/warning-notices/Pages/warning-unlicensed-syndicated-06-16-2014.aspx

More landlords refuse to rent to social assistance recipients

 An increasing number of landlords are reportedly not accepting people on social assistance until they receive the proper support system from provincial government.

Provincial governments will pay a heavy price for not having a fair system in place to support private landlords that house those on social assistance.

That is the view of many landlords who are now refusing to accept those on social assistance. “In Cambridge, we have 3,100 families waiting for non-profit housing and yet there are only a few hundred units being built,” says Kayla Andrade from Ontario Landlords Watch. “Investors are shying away until there are better systems in place.”

She says that landlords want a “three strikes and out system” in place. “They should have to pay their rent with social assistance money or their payment gets cut off,” she says. ‘Every landlord I know wants the three strikes and you are out system.”

While recognizing the frustrations of landlords dealing with non-paying tenants, the Federation of Rental-Housing Providers of Ontario (FRPO)  advises landlord not to refuse a rental to someone just because they are on social assistance support.

"To do so would be a serious violation of section 2.(1) in Ontario’s Human Rights Code (likely also in other provinces) and would certainly result in heavy fines and penalties against the landlord (up to $25,000). Landlords should conduct credit checks, income checks and reference checks, but should never consider social assistance support as a ground for refusal. Landlords can also better protect themselves by requiring guarantors and conducting criminal background checks on rental applicants."

Many landlords have cited the growing number of “professional” tenants taking advantage of loopholes in the system and more sophisticated methods to deceive the landlord.

“We are seeing more tenants bring their own credit checks, which are often fake, to landlords that do not cop on that they are false,” she says. “Work papers are also being forged. There are many places now to get these false papers and so it’s easier for them.”
Written by  Grainne Burns

Steven Porter, Broker - REMAX Aboutowne Realty Corp., Brokerage

High-end of market continues to show strength: Sotheby’s

Luxury home owners worried about offloading their million-dollar properties can take heart from the figures in the new Sotheby’s report.

The controversial removal of Canada’s immigrant investor class program may have frightened a lot of homeowners, but a new report is showing that appetite and interest in the high-end of the market has remained relatively strong.
The Realtor says that sales of homes worth more than $1 million boomed in the first half of 2014 across all of the country’s major markets – Vancouver (up 34%), Toronto (up 34%), Calgary (up 17%) and Montreal (up 11%).
“Several factors are driving Canada's high-end real estate market in 2014: net migration into major urban markets, immigration of high net-worth individuals into cities like Toronto and Vancouver, significant transfer of wealth between generations and historically low interest rates,” said Ross McCredie, CEO of Sotheby's International Realty Canada.
“Heading into the second half of the year we expect Canada's high-end housing market to remain strong, especially in the single-family home category where inventory remains tight. We're also expecting to see renewed confidence in Montreal's real estate market given the recent change in the political climate,” he added.
Homeowners in Vancouver were particularly concerned about the impact of the cancellation of the program. However, according to the Sotheby’s report, the greatest sales gains were in the single-family home sector, posting a 38 per cent increase with a 37 per cent increase in condo sales.
written by:  Grainne Burns - Canadian Real Estate Wealth

Steven Porter, Broker, Buyer Rep. - REMAX Aboutowne Realty Corp.

Financial advice: Say goodbye to family cottage before it's too late

 TORONTO -- After the unforgettable family gatherings, sunbathing on the dock and picture-perfect moments with the kids, it's hard to say goodbye to the cottage you've grown to love.
But financial advisers say that learning when to let go is a fundamental part of ensuring that your lakefront property doesn't become a bad investment.
"There's the romance of it, and there's the reality," said Jason Pereira, a senior financial consultant at Investment Planning Counsel in Toronto.
"The cottage is a place where you escape, but there's also its own series of responsibilities."
For cottage dwellers, that day is inevitable. Eventually you will face the dilemma of either selling the property or passing it down to your children, if you have them.
Neither option is easy and, in many cases, comes down to choosing the best time for the transition which, for tax purposes, will likely be after retirement when your annual income drops.
Financial advisers say one of the biggest mistakes cottage owners make is assuming that somebody else in the family actually loves the place as much as they do.
"A lot of people are quite preoccupied with keeping the property in the family, for some reason," said Christine Van Cauwenberghe, assistant vice president of tax and estate planning at Investors Group.
"People need to look at selling the cottage as a very viable solution."
Several advisers said they've seen instances where transitioning the ownership of the property created powerful rifts within the family. They suggest that cottage owners take a step back and ask themselves whether a few days at the beach should come at the expense of potentially destroying family relationships or shifting a financial burden onto their children's shoulders.
"Often you'll have two kids, and one will be financially successful and one will be not as financially successful," said Greg Rasmussen, an investment adviser at Manulife Financial in Muskoka, Ont., a popular cottage region.
"As soon as you transfer it into their name you're going to have that tax bill."
If one child can't afford the cottage, but the family insists on keeping it, then make special arrangements that are in writing. A promissory note can clearly outline the long-term financial expectations.
"Make sure that child is paying fair market value," Cauwenberghe said.
"Maybe it's not in cash, but in receiving that much less of the estate."
Even in a smooth transition of ownership, there's still years of potential fights ahead as siblings get saddled with the expenses of regular upkeep, taxes, and figuring out a way to share the property without bickering over whose family gets the place each weekend.
That's why advisers suggest that, unlike jewelry or silverware, a cottage shouldn't be treated like a family heirloom because it's not the kind of asset you can store in a drawer and forget about.
"A lot of people can't afford -- even on a divided basis -- to run them," said Tony Layton, chief executive of financial services company PWL Capital.
He said he's seen instances where children will gain possession of a cottage, but don't have time to maintain the property and let it fall into "semi-ruin."
Eventually those children can be forced to sell the cottage and -- depending on how much the value has appreciated over the years -- can be hit with a massive tax bill they can't afford.
In other instances, one child might want to sell the property while other others do not, which can lead to further problems if those situations aren't laid out in writing.
"If anything, you should have agreements in place that say: 'You can buy me out or I can force the sale,"' said Pereira.
"There almost has to be a prenup in place for the cottage to avoid those hazards down the road."
Cash proceeds are easier to divide amongst a group because its a relatively clear-cut process that involves more numbers and less emotion.

by David Friend, The Canadian Press

Time for law changes, says landlords

  Landlords across the country are calling for a bad tenant registry and changes in legislation to protect them against rogue renters
More renters are taking advantage of legal loopholes and tenant-friendly municipalities, and leaving landlords with unpaid bills and lost revenue.
A B.C. couple made national headlines this week for failing to pay for rent for almost two years, and cheating six landlords out of rent.
Landlords in the province are calling on the Residential Tenancy Branch to keep a record of all bad tenants and to provide this information to potential landlords, but they are arguing that privacy laws make this registry an impossible task.
Speaking to CREW, Kalya Andrade from Ontario Landlords Watch says every legislative act should be reviewed as, at the moment, it is lies very much in favour of the tenant.
“There are a lot more tenants who are targeting landlords that they can take advantage and use the legal loopholes to get away with it. We are coming across more and more cases like this and something needs to be done. Unfortunately, the politicians simply do not want to help the landlords,” says Andrade.
As reported by CREW this week, condo tenants are calling for help against demanding management boards and landlords.
Canadian Real Estate Wealth - Jamie Henry

Posted by Steven Porter - REMAX Aboutowne Realty Corp.

Reverse Mortgages – A mortgage option for Retirees

 What exactly is a Reverse Mortgage?

A Reverse Mortgage is a loan available only to homeowners 55 or older. The amount you can borrow is based upon several factors including your age and the value of your home.

What's the difference between a Reverse Mortgage and a traditional loan?

There are two main differences. First, unlike a traditional loan, you can get a Reverse Mortgage regardless of your income or credit rating.

Second, you are not required to make any payments on a Reverse Mortgage until you choose to move or sell your home. (However, you can make payments on the loan if you choose to do so. You’ll even get a discount on the interest rate if you do.)

When you do decide to move or sell, the loan is repaid from the proceeds of the sale of the home. After the loan is repaid, all remaining money belongs to you and your estate.

How much equity (money) will be left in my home after I repay the loan?

On average, homeowners have well over 50% of the value of their home left to enjoy after repaying the loan. This money belongs to you. The exact amount will depend upon several factors, including: the amount of your loan, the value of your home, and the amount of time passed since you took out the loan.

Repost by Steven Porter, REMAX Aboutowne Realty Corp.

More Canadian real estate being scooped up by foreign investors

Foreign investment proved to be one of the main drivers in the hotel sector last year, says a new report.

According to Colliers International, investors from outside the country bought $857-million worth of hotels in 2013 — the highest level for foreign investment in the sector since 2007.

The foreign investment figure was driven by one of the largest transactions of the year, the five-property Westin Canadian hotel portfolio which was responsible for 89% of all foreign purchases in the year. The winning bid was from an affiliate of U.S.-based Starwood Capital Group and backed by Middle East investors.

“This transaction had a significant impact on overall pricing and metrics for the year given its size and scope,” said Colliers, in its report.

Overall, it was a pretty good year for hotel investment with the $2.02-billion activity doubling the annual average of $1-billion over the past five years. There has been $16-billion in activity over the past decade.

“Much of this increased liquidity entering the hotel market is due to the entry of private equity vehicles, bringing with them massive amounts of capital and legitimizing the hotel asset class within the Canadian commercial real estate realm,” Colliers said in its report.

Institutional buyers have been net buyers of $2.9-billion of real estate over the past decade, the largest change in the structure of ownership. Public companies have been net sellers of $2.4-billion in real estate over the same period.

The price of a hotel room also continues to rise. The average hotel room sold for $133,000 last year, a 59% increase from a year earlier. Even removing some of the larger strategic deals, the average price still grew by 28% to $106,900.

G. Marr, Financial Post

Repost by Steven Porter, Broker - RE/MAX Aboutowne Realty Corp., Brokerage

Economist expects market to 'cool gently'

 Another economist has thrown his hat into the mix of forecasters who believe Canada’s housing market is set for a slow and modest correction.

“Rival views of the Canadian housing market portray it either as an overvalued bubble about to burst or, conversely, as being only slightly overheated but having basically sound economic underpinnings and thus likely to cool gently,” Robin Wiebe, senior economist for The Conference Board of Canada writes in his latest housing briefing. “The Conference Board of Canada embraces the latter scenario.”

The 22 page briefing, entitled “Bubble Fears Overblown,” considers mortgage costs as well as housing prices when determining the health of the market. It also argues sensible lending rules and underwriting have safeguarded Canada from experiencing a similar downturn to the one suffered in the United States.

Moreover, an improving Canadian economy is expected to bolster the housing market in the near future, according to the Conference Board of Canada.

“Canada’s firming economic prospects feature balanced housing markets, improving consumer and business confidence, and a stronger U.S. economy,” Wiebe writes. “Advances in both employment and real gross domestic productive forecast to pick up in 2014, while the unemployment rate is expected to drop.”

While he admits several markets are due for modest housing price corrections, Wiebe also argues mortgage rate increases and population growth and employment gains will soften the blow caused by slight price drops.

The housing correction is also expected to be gradual, based on the mortgage terms selected by most homebuyers.

“This locks in their monthly payments and cushions them from rate increases for at least a few years,” Wiebe writes. “When they do face renewal, they will have more principal in their residence, because low mortgage interest rates mean that a larger portion of their monthly payment covers capital reimbursement.”