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Today is not a good day for real estate in spite of many people thinking it is just an ordinary day. That’s because a lot of people cannot connect or know about all the different parts and how they work together. A lot of our system depends on every part playing nice to each other and when they don’t, well, consequences could be very bad. Some of these news items just point to a greater and more serious problem but the reactions to these systemic problems may escalate the initial problems.
This is one of the biggest frauds in the history of investment. That is syndicated mortgages. This is a complex scam that’s beyond most people and that’s how it’s engineered. The small investor doesn’t know he’s been scammed until the money is gone. Multiple corporate entities are used to obfuscate this simple fact until the investor money is long gone, everyone goes bankrupt. This current fraud is sold through the mortgage broker channel and so the brokers are often convincing people to invest money they borrowed from a HELOC.
This is actually pretty much the same scam as League because they offer guarantees and safety in Canadian Real Estate and their loans are only for A+++ developers. Brand Names in fact. They offer appraisals and letter of opinion from actual appraisers. It looks very legit, but it’s paper thin, property searches on these sites reveal that mortgages are not secure and can’t be secure. For example: Lake East (Oakville) purchased for $1,860,000 on 2015/05/28. Two mortgages are placed on the same day 2015/05/28. One is for $2,696,250 and the other is for $3,000,000. It’s hard to believe the site went from $1.8 million to $5.6 million in value in one day. This is Fortress and Centro’s idea of a “secured” loan for a guy who used a HELOC to make a great investment through his friend the mortgage broker. (Affinity Fraud)
Here’s a Fortress & Core partnership that went bust but the word on the street is that Fortress is finished because of another project they went bust on in Barrie and they lend to all these friendly local developers. Fun fact: you should see the terms of their loans to developers.
These Fortress guys make payday loan companies look like the good guys but why are people lending from them? The point is that money is scarce and without it buildings don’t get built. That stage from land to plan to sold is very delicate and a lot of developers have looked into their pockets and found some IOU’s and some pocket lint, but not enough to fund the buildings. So they “partner” with Fortress because they have no options or they are terrible at math.
Now Fortress sources its capital through mortgage brokers, Centro now defunct and it’s children BDMC and FFM Capital Inc. I can assure you that they do say this is totally guaranteed return. I met personally with a representative and they say this is safe and secure and even probably cures cancer and the common cold. Of course, even though it is very illegal to promote other investments that way, you can say whatever you like about real estate. Real Estate is better than movie theater pop corn with butter.
I dunno the exact date, but financing has tightened up for developers big time and it’s going to get a lot worse. This is why the growth of these risky third party lenders.
First was Urbancorp, then recently On The Go Mimico and now Harmony Village Sheppard but the news cycle hasn’t caught up with that one yet.
We can expect more bankruptcies in my opinion, this is just the tip of the iceberg.
Bankruptcies are a sign of of a healthy real estate market.
Another iceberg, in the wheeling dealing world of mortgages, there is the normal and the Brampton way. This is just the end result of paying people by commission and then expecting them to police themselves. There’s always a guy who can, for an extra fee “fix” things. It’s no coincidence that FSCO the mortgage services regulator, who is driving drunk and naked, is policing this and the syndicated mortgages. What the F is going through these people’s minds? Dandelions and Butterflies I suppose. They need to do their job, but first they need to build a time machine and go back to like 5 years ago cause the horse left the barn and the barn is on FIRE.
Today the mortgage fraud story is Home Capital Group is falling down a cliff and I’d say it’s a first of many cliff sliders. It all started with 45 mortgage brokers that were fired for falsifying information on mortgages. Don’t worry guys they all found jobs elsewhere and FSCO was looking at one of those funny puppy videos while it happened. That’s ok because puppies are fun and mortgage fraud investigations suck. Wynne-Wynne is what I always say.
Unfortunately, Home Capital Group and the other guys that lend to self employed people and bad credit people, are not going to be doing that for much longer, this is a large and growing segment of the population that may find it extremely difficult to qualify for a mortgage.
Well let’s just say 15% foreign buy tax, 13% HST and MLTT (land Transfer Tax) 25% tax on income with no carry over of expenses from year to year, and 25% capital gains tax. This is about as fun as using a wire brush to exfoliate. Never mind just send all your chinese pesos or mexican rupees or japanese krona directly the office of Chris Ballard Minister of Housing and Poverty Reduction Strategy.
Before a developer can sell a condo, they need to sell a whole lot of units, and there happen to be more developers going bankrupt, and foreigners aren’t going to buy and lenders are retracting in response to mortgage fraud so it looks like this might be a problem from the supply side, when developers even get to this stage. Financing the developments until they get from land to planning, to city, to OMB, to all the sales, to get construction financing just got a lot more difficult because of the mortgage syndication fraud/class actions/failures.
Landlords just got kicked in the nuts with a steel toe boot with the rent control exemption being wiped out. Nuff said.
Landlords just got kicked in the nuts with a steel toe boot with the rent control exemption being wiped out. Nuff said.
The path to the supply just got really complicated. The path for demand and presales just got really complicated. The path to the mortgage just got a lot harder.
Don’t worry it should be just fine. Real estate in Canada is bulletproof. Nothing to look at.
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I have read Bill 124, Rental Fairness Act 2017 and I have to say the news is really bad.
Remember when we could increase rents to reflect increases in maintenance fees and other costs? Well that just ended. I can’t say I’m surprised with the widespread abuse of the exemption to evict shitty tenants or to evict tenants when you want to sell.
I spoke to Jeff this morning, and he said he was not aware of anyone ever using the Above The Guideline Rent Increase for condo maintenance fee increases. Having said this, most condos used to be exempt but in my mind I doubt we will be able to apply to the board for maintenance fee increases no matter how much they are.
However for the older buildings most of which were both rent controlled and included utilities, they will no longer be able to apply to the Landlord & Tenant Board for relief. Despite the fact that electricity costs have gone up tons, forget about it. Tenants can look forward to submetering. Personally I’m a fan of metered units and I’ve evicted many tenants that can’t afford their electric heat.
I don’t even care, leases have been useless for the last 10 years. Tenants don’t have to follow rules and the Landlord & Tenant Board won’t enforce any clauses that don’t comply with the law. I had a one page lease for the longest time, now I have more pages to impress owners that don’t understand that leases don’t mean much. I have had some fantastic clauses I have added but enforcement… well as I send more and more tenants to collections in Small Claims, we’ll see how this turns out.
There’s like lots of when the tenant signs and when the landlord signs, but honestly for me this is a non issue, the tenants get the lease at before they move in, and I treat the lease more like a here’s what you’re supposed to do rather than an actually legal document. My commercial leases can be hundreds of pages but I doubt the Landlord & Tenant Board wants to kill that many trees.
Fun Fact: For over 20 years it’s been a part of the law that if your tenant doesn’t have a signed copy of the lease within 21 days of the lease signing, they were under no obligation to pay rent. Further when the LTB introduced the rule that you had to include the “information to new tenants” brochure in the lease, it was added to that law. So if you didn’t give out the package within 21 days of the tenancy there was no obligation to pay rent.
This application is terribly abused by landlords.
It’s finished. Now you have to live there for a year, and you have to pay the tenant a month’s rent to leave.
I suspect this will lead to a rise in the other types of applications as landlords use the proper (but more complicated) channels to get bad tenants evicted.
Good news is, if your application to evict based on your own use (because it’s your property) is denied, you tenant will have to pay you back the months rent you paid them.
The landlord will have to file an affidavit from the new purchaser that they require it for their own use. (Probably for a year?)
There is a new notice called the “Notice In Bad Faith” which came out a while back because there was so much monkey business going on with the Owner’s Own Use Applications, and tenants would move out and pass by their old place at a new rent $500 plus higher after a quick paint job. If seemed that tenants had to prove there was bad faith but an owner could give an excuse and win at the Landlord & Tenant Board.
Now if the landlord advertises the rental unit for a higher rent than was last charged to the former tenant it’s assumed that you gave notice in Bad Faith and you will have to prove that you didn’t. So good luck with that.
Remember a while back there was some bleeding heart stories about rent theives who were evicted being charged an extra two months after their tenancies were terminated because they failed to give proper legal notice? Ok, you can’t do that anymore. I think this applies to Met Cap only but whatever.
It’s now an “offense” whatever that means.
Elevators need to work and you can’t apply for an Above the Guideline Increase unless they do.
Fortunately we still have vacancy decontrol which means you raise your rent as much as you want in between tenants. Condominium ownership has become even worse. Most of the owners I deal with are cash flow negative as rents were flat for a long time, but now that rents have gone up landlords were raising the rents, hopefully to break even. That option is now gone. My strategy when a building goes up and 80 units become available to price competitively will have to be reworked because what if the tenant stays? Maintenance fees go up like $100-$200 when the building closes. Before I could just give a fair increase and be done with it.
The grossest injustice is for the old buildings with hydro included. They cannot apply for an Above The Guideline Increase based on electricity. That’s really unfair.
We now have the most draconian rent control in Canada. Quebec allows you to raise the rent according to your actual costs in your building. There’s even a net profit adjustment. Vancouver is like us and requires increase be set for the Guideline however a “move out” clause can be included requiring the tenant to move out on the date the agreement ends – both parties must have their initials next to this term in order for this to be enforceable. As a practical matter most leases have this clause and rent is renegotiated to market. Their rent increase guideline is not capped at 2.5% and is 3.7% this year.
Selling a condo has now become really hard and real estate agents are going to have to work a lot harder for their money and be showing the unit with the tenant in it. Wow they won’t like that and neither will owners. Selling a unit to get rid of a bad tenant will be next to impossible as requirements to get a tenant out even after the condo is sold require an affidavit and owners own use for a year and presumes guilt on part of the owner if the unit is rerented for more money.
Unfortunately I don’t see more purpose built rental housing because of the rent control cap and that would help stabilize the rental market long term and could provide a midrange product to market. Simple buildings, energy efficient, built to last, with a more family oriented apartment. Surely we don’t all have to build Jaguars? Surely we can have some nice Toyota Corollas, some Volkswagen Jettas and Suzuki Swifts in this rental market? Right now we are like Cuba in the rental market, every purpose built building dates to 1957.
We live in a global marketplace and even in Canada there are a lot better places to build a rental building. Honestly maybe part of the problem is that rents need to go up a lot more before it even makes sense to build rentals. Right now small investors are subsidizing condo renter’s rent with negative cash flow, but institutional investors will not under any conditions be prepared to take a loss on rent. It just doesn’t scale. Mom and pop investors have paid for this rental supply and they’ve been amply rewarded by capital increases. Unfortunately that leads to profit taking as investors sell to reap their long awaited reward.
As for the idea that this is a fair piece of legislation, there is not a fair anything in there. Here’s some things that could have been added to make it fair…
There is nothing at all fair about this piece of legislation, if you are a landlord I urge you to immediately email your MP, your MPP and the Minister of Housing. Here you can get the list of them on the tenant advocates website, they know how to lobby don’t they?
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Today I received the following email from a condo building where I manage a unit. I called this a Wynne-Wynne solution because like Ms. Wynne’s solution to implementing rent control, it won’t work in the desired way. It is hard to believe but some situations a little more complex than first appear. So the answer to skyrocketing rents is not rent control, just like the answer to blood leaking from a cut in your arm is not to remove the blood from your body by hiring vampires to suck you dry.
Just to set the scene, this is a large building where pets are allowed and it is in the city with bare sidewalk around the entire thing. Do you see anywhere for the pets that live in the hundreds of units to do their business? This is terrible, stupid design. It’s really bad. We are building thousands of units without thinking about what real humans and their pets need to live as practical manner. So the property manager sent out this email at the behest of the Condo Board.
Monday, April 24th, 2017
RE: Pet Urination / Defecation
The Board of Directors and Management have received numerous complaints concerning pets urinating and defecating on or around the common elements of the building. Most significant is the urination that is occurring within 10 feet of the front entrance of the building. The plants in the gardens out front are dying due to urination on them and is resulting in significant costs to replace them.
Please be advised that the actions of some irresponsible pet owners is resulting in the defacing of the premises and is causing additional cleaning costs. In addition, the presence of urine and pet defection is a health concern and this issue has worsened over time.
Allowing your pet to relieve itself on any part of the common elements of the building including the front gardens, building pillars and planters will not be tolerated.
Going forward, the Board has ordered additional Camera/Monitoring equipment in the areas of concern and has instructed security to use whatever means available to identify the individuals who are not abiding by the above request. In addition, new rules being put in place will result in the unit owner being assessed a cleaning charge and could result in a potential permanent removal of the pet.
We anticipate your cooperation with this matter
The problem is that the dogs are peeing and pooing in basically the ONLY available area when they get out of the building. There is only 10 feet in front of the building! Of course the pets do their business there. This is perfectly normal pet behaviour. Agreed it smells and it’s not really that nice. However instead of developing new solutions such as getting cheaper plants or sending pets out the back door to a pet pee area with replaceable sod or any positive solutions at all that take into account the perfectly normal predictable behaviour of pets… we are going to buy cameras. These cameras are going to be expensive, then once the offenders are “caught” they will be assessed a “cleaning charge” and legal letters (which cost unit owners around $500 each) and possible legal action to try to remove people’s pets.
This is solid proof: there are special snowflakes who live in buildings who should live as hermits in the woods because the action of living in a community with other people is painful and jarring and requires acceptance and patience and willingness to compromise. Because of our special snowflakes, every single unit owner will have to pay for cameras, monitoring for the cameras, policing of the pets, lawyer letters and possibly hundreds of thousands of $$$ of legal fees. This doesn’t even take into account all the ill will and resentment the pet owners and the Board will enjoy from hereon in. God forbid that any of these people catch even a whiff of excrement in their little bubble.
Can you even tell me how even the most well meaning resident taking their dog out is going to prevent their dogs from peeing on the front bushes? How is this even possible? Making a rule, doesn’t mean it’s even possible to comply with it. So I’m just saying this is not a smart rule and not a solution to the problem. All I know is you can pay for a lot of bushes for the cost of one camera.
The solution to bad design is good design, not warring with your residents.
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Tenant signed the lease and provided last month rent. They are set to move in in 1 week. I have received a call that they are now backing out. As the lease has been signed and last month has been provided are we able to keep the LMR (last month’s rent) to recover losses due to having to market the rental again so close to move in date?
So the answer has nothing to do with recovering losses due to marketing, but rather recovering losses due to actual loss of rent. Fact is 8 days before the first you are unlikely to find another qualified tenant and you may lose a whole month of rent due to this person backing out of their agreement. You may under some circumstance be able to recover even more damages as a result of the tenant breaking their lease, yes even though they haven’t moved in.
However if you are able to find another tenant within the time you have left, or even during the course of the month, then legally you have to refund the tenant the leftover portion. It is possible to find another tenant within the time frame to move in on the 20th of the month then you should refund them the difference.
Landlords are not allowed to charge double rent this is called unjust enrichment.
I had a tenant back out of a rental just this month. This was for a tenancy beginning May 1st
I want to say I had just about given up hope that the house would be rented by May 1st, most of the showings I had were for June occupancy. Local people rent larger houses more than a month ahead of time. However, I ended up getting a super lovely couple from Vancouver relocating for work and bingo!
If you’ve been reading my recent posts urging landlords not to lose their head and keep their business practices consistent with the fundamental principles of the housing business, you’ll be able to guess, that I don’t mess around with deposits. However; I’m definitely in favour of keeping deposits where there is cause. When I worked in buildings where there was a large number of applications and deposits, I did actually develop the practice of keeping application deposits when the tenants changed their minds, didn’t move in etc. Many of those tenants flaked out at the last minute and just expected the landlord to take the loss on the rent and wanted their money back.
I’ve had people come the day they were supposed to move in, expecting their deposit back, meanwhile we’ve kept that suite ready and empty for them for a month or even more. Like I said local people tend to rent over a month away especially for big pricey houses or apartments.
There is virtually 100% certainty that the landlord will lose their money if you cancel the day of move in and I don’t understand the idea that the landlord should give the tenant his or her money back when their erratic behaviour has caused the loss of one or several months rent. This would be rewarding bad behaviour and I absolutely will not, on principle, reward tenants’ bad behaviour. This has caused some serious life lessons for people and that’s ok because that’s how people learn. Don’t go around giving deposits unless you are 100% certain you want the place or car or couch.
Once your application is approved, that deposit is going towards last month’s rent. So let’s say, the tenant has problems because of a change of circumstance, such as losing a job or ability to pay the rent, then I would reverse my earlier decision and reject their application with their agreement and refund their money. (This has not yet happened because when I asked for proof, it was non existent) Usually tenants keep shopping and get another place they like more even when I am straightforward with them. When they come back to get their money, they make up a tear jerking excuse, but considering that everything in this world generates some paperwork, I want an independent verification.
In a way this way is easier, you get your money back if the residence is rerented for when you would have taken it.
Processing applications is work, you have to call landlords, check employment, run searches, check credit, check occupancy etc. Time is money because property managers and staff do not work for free. When you have to pay an administrative fee, that’s what you are paying for.
It’s almost inevitable that eventually Landlord Rescue Inc would be sued for return of deposit. We’ve been in business for over 10 years, and growing every year. It’s going to happen eventually.
In this case the tenant rented a big house in August for October 1st move in, now anyone who has rented knows that the big house rentals for family occur between June to September. September 7th, the tenants ask for their money back. The house didn’t rent for months and them rented for $300 less per month after the winter months.
Then they sued us. Here’s the decision, in our favour. The landlord hired a paralegal who led the case and honestly even though she was a nice lady, she didn’t believe we could win and thought we should just give the money back. I got Jeff to go for our company. The case law we all relied on was Musilla v Avcan Management 2010 and the appeal of that decision in Musilla v Avcan Management 2011 This case was the last major ruling on the deposit situation and basically the court decided that deposit agreement that specifically forfeit the deposit to the landlord are not valid if the landlord is able to collect double rent. So if your tenant leaves you high and dry and you are able to fill the vacancy, you have suffered no loss and retaining the rent deposit from tenant A when you are receiving rent from Tenant B is unjust enrichment.
As landlords we are still able to collect and even keep rent deposits if we have a loss in rent, but not if we don’t, which makes sense. In any case, read the decisions above and come to your own conclusions. All I know is that I changed all my rental applications to reflect the new rules when these rulings came out and combined with my property manager Dina’s brilliant paperwork and completely correct responses, similar to mine above, we were able to retain the tenant’s deposit.
Don’t mind my terrible redacting skills, but here is the decision in our case which you can download here.
Now I’ve said before, you might as well be sued for trying to do something right than doing something wrong and here at Landlord Rescue I’ve thought long and hard about our rental process and how to do it to be fair for everyone, including ourselves.
Our process is a serious one, we only need one tenant for each place, and we process applications quickly and respect the process of turning down applications so that tenants can move on and find other places. Because we process applications in the order they are received, it would be really difficult to sue us on discrimination grounds. Our process is first come first processed. Occasionally we will receive two applications at basically the same time, but usually one will be superior to the other and we will go on to check it first.
For the most part we will get only one application at a time, and evaluate that application and move on. No more showings are done, we are not accepting multiple deposits, we are very straightforward people and I can honestly say, I respect most tenants and I appreciate the time and effort it takes to follow our process regardless of if their application is accepted or not.
I urge other landlords to behave in a similar manner, to be professional and candid and deal with tenants in good faith. Just because some tenants are bad doesn’t mean that all tenants are bad, you are entering a new tenant relationship – leave your baggage behind.
In a case like the one we fought at the Landlord & Tenant Board, we were well within our rights to retain the deposit, the house was off the market for the best rental month of the year, and they totally reneged for their own reasons and the landlord suffered a serious loss. It is annoying for a tenant to back out of what we think is a done deal, but do your best to rent it out and hopeful get lucky.
Do not freak out and just accept the first tenant with cash and first & last, you must still be selective and sane and reject applications that need rejecting, and it is quite likely you’ll get some bad applications if you’re not renting at the optimum time. Despite the tenant wanting their money back, that doesn’t mean that you must accept crappy application so keep your criteria for acceptance in order, and do your best.
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