The Art of Above The Guideline Rent Increases

February 7th, 2015 · Property Management, Rental Property

Awesome

I rent a lot of new condos, and it’s not always easy. Frankly the halls and lobby are dirty and dusty, some of the elevators don’t work, the amenities are not ready and a host of other not-so-easy-to-justify-those-condo-rent-prices issues. It seems that every year developers are occupying the suites that are finished with the common areas more and more unfinished.

Then there’s the other elephant in the room… competition from other landlords. A few years ago I saw the same suite I was renting for $1600 rented by another landlord for $1250. Considering there was about 10 close to identical units available for rent at the same time, I can understand the desire to “just get it rented”.

Bad time of year, competition, less than decent rental conditions all lead to landlords giving tenants some very good deals at times. Regardless one year later the landlord can increase the rent to help offset some of the good deal they were forced to give away by adverse market conditions.

Here’s some examples.

169 Fort York Boulevard – The Garrison

I rented this large one plus den for $1600 originally, the tenants stayed for well over a year and I gave them and above guideline increase to $1650. They moved out and we added a nice double french doorway to the den  and it now rents for $1700.

105 The Queensway – NXT2

I rented this large one plus den for $145o with a parking, again in mid construction, with some quite major deficiencies that still needed to be repaired. Once the tenant moved in, the washing machine was missing a part and the tenants had no washing machine for a month. It took numerous attempts to get the right part and was by all intents a major f-up that required daily telephone calls to address.  It was quite similar to  the dishwasher situation that had me steaming.

However the rent prices for the area were unusually strong and so I recently did a market survey and the area rents are around $1600 to $1650 for the same suite. The owner and I decided on a rent increase of $100 and we sent a nice letter to the tenant, explaining that the maintenance fees have increased, and that our market survey showed that similar suites were renting for $200 more than they were paying. We also sent the Above the Guideline Increase For Partially Exempt Properties according to Ontario law and the tenants are paying the increased rent. The owner did not want them to move because they are really decent people and because suite turnover cost lots of dough. Chances are you will end up with a month of vacancy and possible some painting and fixing of the apartment and there goes your brilliant rent increase “profit” for 3 years.

61 Town Center Court – Forest Vista

This gorgeous apartment again a one plus a den was rented at an awful time. When the owner was buying the suite we did a market survey and we agreed that we could get $1450 as it is a very lovely quiet condo building. The suite is very spacious. The amenities are fantastic and the place backs onto a park and you can throw a stone at public transportation. Unfortunately by the time the suite had closed and possession had turned over to the owner, a brand spanking new condo down the street had opened up for occupancy and there were more than 50 suites available in that building for several months.

Needless to say we had to change our pricing strategy, and the suite rented for $1300. The owner was looking around the area and over a year later prices have adjusted back to the original market conditions and suites in that building are renting for $1450. Once again we gave a nice letter to the tenants, showing them a market survey, telling them about the inevitable maintenance fee increases and telling them we want them to stay along with the Rent Increase.  They now pay $1400 and so they are getting a deal from prices in the area and the owner also gets to keep their good tenants.

225 Sherway Gardens Road – One Sherway

Somehow during the rental process, these tenants ended up getting free hydro instead of having to pay, and they’ve been there for several years now. We gave them an increase of $100 which just brings them up to par with what the other units we are managing in the same building have rented for recently. They are lovely people but have outgrown the apartment and are actively looking for another apartment. I know they are planning to leave, and I want them to cover their costs while they live there.

I love this building by the way and these tenants above are really fantastic and looking for a 2 bedroom in that building complex if anyone has one.

Best Practices For Above The Guideline Rent Increase For Units Partially Exempt

  1. You must use the Ontario Landlord & Tenant Board Approved Form
  2. Send a nice letter thanking your tenants and asking them to stay.
  3. Explain why you are increasing the rent, in most new condos there is a jump in maintenance fees after the condo is taken over by the owners and the new management company.
  4. Do a market survey first, some suites are not renting for more than I could get for them 3-4 years ago, tenants aren’t stupid, they can and will move out to the suite down the hall if you get it wrong.
  5. Give the tenant a deal, if prices have gone up $200 then raise the rent $150 and the tenant will still get a $50 below market rate apartment and the landlord will recoup at least some of the money they are paying out to mortgages and maintenance fees.

While many landlords do not want to risk losing a tenant, some landlords want tenants to pay closer to market rates for rent and are willing to take that chance. I have found that many tenants are willing to pay the premium price for a premium property and are reasonable when it comes to paying for the services they get.

I do love the challenge of renting and managing all these new condos, it keeps me on my toes. There’s always something new and interesting coming up.

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Reader Question – Should I Assume Existing Tenants

November 19th, 2014 · Landlord & Tenant Board, Property Management, Rental Property

 

"Woodfall's Law of Landlord and Tenant"

First reader Mike gives me compliments and then he asks me a question. This is a sure way to be featured on the blog. As a woman the easiest way to my heart is through flattery.

Reader Question About Assuming Existing Tenants

I’ve been following your posts for some time now.  Partly because I’ve been considering getting into landlording and partly because your stuff is just so damn entertaining.  Now I’m starting to get more serious about finding a rental property.  I’m new at this so it may take me some time to find the right one.  But I figure I can shorten my learning curve by talking to experts like yourself.

Here’s something I’ve been wondering about.  Should I be concerned about existing tenants?  They could be great or terrible.  In your experience is it better to assume the existing tenants or start fresh with your own?  Is it possible to do credit checks on them before putting in an offer?  And if I don’t want them can I legally ask the seller to give me vacant possession?

Mike in Toronto

Rachelle’s Answer

For truly good questions, there are no easy answers.  Lets go one at a time….

Should you be concerned about existing tenants?

  1. Yes, you should be very concerned.

In your experience is it better to assume the existing tenants or start fresh with your own? 

Again it depends, if they are good tenants or not.  It is easier and you will start making money right away. As a manager I have found that when you rent to people yourself, you rent to people that you can relate to and have some kind of connection with. The existing tenant has already been through the turmoil of a sale of the property and lots of showings and has possibly years of accumulated resentment against their former landlord. It’s a bit of a crapshoot. Some of the tenants will be very good, the hard part is telling which is which.

Is it possible to do credit checks on them before putting in an offer? 

Not that I’m aware of. Once you purchase the property, you should ask for and receive tenant files and information. You should also get a Tenant Acknowledgement from the lawyer. This is an official document stating if they have last month’s rent, how much the rent amount is and if they have any rent arrears.

However; nothing at all is keeping you from using your eyes, ears and mind to evaluate the tenants. Credit is only about 30% of the application decision in my process. First and foremost is my evaluation and judgement of the tenant’s presentation, appearance, appointment setting and attitude. I’d love to be able to do home visits on all my potential tenants but I can’t, it’s just not practical.  You will have a golden opportunity to do a “home inspection”  so you can see exactly how the people live, if they are clean, if their cat poos in or out of the litterbox and so much more.

How they treat their existing landlord and the real estate agent will tell you volumes about how they will treat you once you are their landlord. Watch, look and listen.

And if I don’t want them can I legally ask the seller to give me vacant possession?

Uh boy. Well you would have to tell the owner that you need the property for your own use. Good news is that I am not aware of any buyers getting in trouble for the previous landlord giving notice in bad faith. Technically you are only supposed to give notice if you are actually going to live there, but if you have any doubt that the tenants are excellent, this may be your only chance to get them out. Some landlords will insist that you assume the tenants knowing the problems that can happen at if the tenant’s contest at the Landlord & Tenant Board.

This only really works with small properties obviously. It’ll be a hard sell to explain to an adjudicator why you need two or three full sized apartments in a four plex obviously.

The Most Important Question

Why is the landlord selling the property? Generally you won’t find landlords selling great cash flow, trouble free properties unless they are dead (estate sale), retiring, buying other properties, getting divorced or making their problem tenants into your problem tenants. You cannot count on the real estate agent t0 tell you that you are taking on a trouble tenant.

There is another category of landlords who have just discovered they do not like being a landlord. This business is not for everyone.

Secondary Question

In every business transaction there is risk. What if the landlord is selling the property with their problem tenant in it?  What is your plan? Are you so strapped for cash that going even one month without rent will mean that you’ll have to eat baloney sandwiches for a month until the rent gets paid? Do you have a contingency fund for legal fees and do you have a solid understanding of what tenants rights are in Ontario? I always recommend that landlord go to the Landlord & Tenant Board just to see that part of the business.

My feeling is that if a tenant is so bad that it causes a landlord to sell a property, it is worth a significant discount on the price. I’ve dealt with some of the worst tenants that this city has created and it can take years and tens of thousands of dollars in legal fees and expertise to evict a tenant. For instance I know of one lady that has a beautiful unrentable main and second floor of a house for over a year, because her basement tenants have 4 unneutered male cats living in a one bedroom apartment. It smells disgusting. Now that owner gets to go to the Landlord & Tenant Board to prove a smell.

Another lovely lady I know had a realtor estimate that her horrible tenant would cost her $70,000.

Specific Red Flags

  • The tenant does not cooperate with showings
  • The tenant will not fill out sale related forms
  • Their home is unusually messy, smelly etc.
  • The tenant hates their landlord
  • The tenant complains a lot about minor maintenance issues
  • The tenant brags about taking their landlord to the Landlord & Tenant Board
  • The tenant seems “crazy” or “not quite right in the head”
  • The place smells like weed
  • The tenant suffers from Meth teeth or is drunk when you get there.
  • The tenant is a “victim” of anything.
  • So many more… but that’s a start.

As in most real estate transactions, Buyer Beware!

 

 

 

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Lousy Weather Makes For Lousy Renting

November 11th, 2014 · Property Management, Rental Property

Dandelion

If you’ve ever done any type of sales, you know which days are going to be good selling days. Bright sunny dry days are the best, even in winter.  Dank, humid, blathering days are never good.

You’re trying to present the place at it’s best and houses and apartments look better when it’s sunny out.

I have learned that I have an abnormal amount of cancellations during bad weather.  It’s depressing, but it’s a fact. You cannot control the weather.

You have a nice property but the weather is not on your side? Try looking and booking according to the weather forecast (a little bit) Remember we only need one good tenant anyways.

Happy Renting

 

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Becoming A Landlord Via Work Relocation

November 3rd, 2014 · Property Management

work

Would it surprise you if I told you that almost 50% of the landlords I work for are not investors? That they have been relocated for work related reasons? For years? Most of them have an attachment to their family home and sometimes leave quickly.

Thank god for email is all I have to say about that. There’s pretty much nothing that needs to be done that can’t be done remotely these days.

For these people my service is whatever they need it to be, from a toss me the keys attitude to very detailed instructions on exactly what needs to be done.

I take the trust people put in me very seriously. That’s what’s in the secret awesome sauce at Landlord Rescue. That’s why we keep getting more and more clients. People trust us and we do our best.  It’s not rocket science. Avoid bad tenants, collect rent and make sure the place doesn’t fall apart.  Rinse and repeat.

Real property management is boring as hell. If you do your job properly, nothing happens. Every time I send out an email update to a landlord stating that nothing happened I have succeeded. That’s why no one loves property managers, because nothing happens when we are at our best.

Happy Hallowe’en I hope nothing happens to you.

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Saving Money At Any Cost – Why it’s Dumb

October 25th, 2014 · Commercial Property, Contractors, Property Management, Rental Property

Dumb and Dumber (1994)

Here’s the problem with constantly asking contractors for lower prices. Someone will say yes and they will give you your money’s worth.

Here’s the other problem. You own the house. and. the. crappy. illegal. building. code. breaking. “renovations”.

You are not saving money, you are just kicking the can down the road.

I’m currently having a major issue with a renovator who managed to mess up a basement apartment that has actually been vacant for over a year. I got some quotes from decent contractors I have used before. They do nice work. The owner managed to find their own contractor who had a much lower price. Shortly after hiring said contractor the owner left the country. It was left to me to approve the final work and payment for the work.

It was awful. Now it’s my problem. Except fixing other contractors work is not something anyone wants to do for a reasonable price. So the apartment sits empty for another 2 months while we wait to find a price cheap enough to repair the mistakes of the previous “cheap” contractor.

Heating Adventures

That’s ok, because as it turned out, the heat doesn’t work. I send out my usual contractor (another landlord I work for) and as it turns out the hot water tank is being used as a boiler and also supplying the hot water. This is the result of a previous cost saving initiative. I called the contractor who did the initial installation and they do not want to come back because apparently they have come back every year and now they don’t want to.  According to the current guy this type of system will work for a few years then plug up.

This is also now my problem. Lucky me.

Meanwhile back at the ranch, the owner is telling me that they will sell the property this spring because it doesn’t cash flow. I call this phenomenon starving the goose that lays the golden eggs. There is nothing wrong with the property.

Working For The Contractor But Not Being Paid

The other day, I get a phone call from another owner. She’s headed out to pick up materials for her contractors. She works full time and has a couple kids and now she’s picking up materials. I told her to hire people who pick up their own materials. Get the wrong thing and the wrong amount and it’s your fault. Push the responsibility to the people it belongs to. She’s not getting a discount or being paid to do their work. Shopping and picking up materials is contractors work.

In most cases I install a lock box and the contractors go and let themselves in and out. The contractors I use are not crackheads from Kijiji. There is not a cost savings on the planet that is great enough for me to micromanage a project like painting a basement apartment. I’m not picking up the paint, standing over them, telling them how to paint, cleaning up their drips and generally putting up with bullshit.

Neither Should You. Are you sick of problems with contractors? Tell me your horror story in the comments…

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