Attention: Landlord Cash Cow Is Dying

April 8th, 2012 · 13 Comments · Landlord Advocacy

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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!

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13 Comments so far ↓

  • jesse

    No respect, Rachelle! No respect

  • Mr. Cheap

    I’ve actually gotten out of the landlord biz (sold my condo), mainly for these reasons.

    If cap rates improve dramatically, I’d certainly consider purchasing again in the future, but with the current state of affairs, residential real estate doesn’t make sense as an investment.

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  • CanuckLandlord

    I agree with this post. Landlords need provincial and a national association. There needs to be a group that will lobby the government on our behalf.

    I’ve been saying for a while now that the bad tenants will eventually ruin it for the good ones.

  • Devore

    Interesting… along the lines of some of the things you’ve been talking about:

    http://www.ottawa.ca/en/home_page_feeds/publicmeetings/index.htm

    “Proposed Noise By-Law Amendment – Bells, Horns, Shouting

    Consideration is being given to the possibility of amending the Noise By-law to make tenants or lessees of residences generating noise, such as shouting, more accountable for the noise. Persons who would be held responsible would include the owner of the residence if he/she lives there.

    Basement suite landlords beware?

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  • Ajay

    You are right on.
    I am from US.
    There is no money in landlords.
    I bought one condo after prices went down by 50% paid cash for it.
    Still only make 6% return on it and that if I have tenant renting all the time. Any maintenance or repair or unoccupied take profit off 6%. so if I include that then the return is more like 4%.
    Plus you have to pay income tax on it. You tax go up every year. Your maintenance fee go up every year. And you can’t raise rent much or not at all.

  • CJ

    As a former small business owner and current renter, you have my sympathy, Rachelle.

    Deadbeat tenants shouldn’t be given special protection just because “they need a roof to live under.”

    Renting is a privilege, not a right, and as a tenant I don’t want to get stuck next to an awful neighbor any more than a landlord wants them as a tenant.

    FYI: we love our landlord. The guy does a great job looking after the place and, by extension, us.

    On the flip side of a “Landlord Association” how about a “renters database” to track the good, bad, and ugly tenants so you can avoid them before you hand over the keys?

    I know of one rental agency that runs credit and background checks before renting out. That’d be a good start too.

  • Just In Time

    When rent controls began (my experience is from Manitoba) they were very one sided.
    However rather than looking at tenancy as being a priviledge we should look at it as different evolving business models.
    Tenancy is competitive.

    Do you rent to a tenant who is home all day (assistance or pensioner) or rent to a working tenant. A working tenant respect quiet hours, doesn’t matter when home bound people sleep. Would you accept the same amount of rent from both? Home bound are more costly, national average for a room and one meal a day (think care home, boarding) is $1,400 – 2,400 per month. Local meal plans are available for $8 @day, therefore subtract $240 @ month from rent. Competitively then a different business model is required for non-working tenants. They require more resources to deal with complaints, they may attempt to monopolize your time with conversation, they may involve themselves in third party resources which attempt to better their lives and have you involved to do so.

    Landlords often are seduced by tenants claiming they will cut grass or shovel snow. Landlords don’t get it, you cannot get something for free. A better business model is to do it yourself or hire a service. There is only one deal a landlord should have with a tenant – rent. The inclusion of services in the rent is moving the rent upscale. The tenant cannot ask for a rent reduction because it did not snow or a cold summer meant the grass was cut less.

    The landlord is responcible for providing service availablility (water, electric, gas, phone, cable). Tenants are responcible for consumption of services, consumption of services is not rent, separate deposits or retainiers are often used by utility providers when dealing with new customers (phone is often 6 months deposit). Brokering service consumption is a different business model than rent. Tenants previous utility payment history would be due diligence, tenants application can include signed permission to access previous history and agree to utility providers credit provisions extended to leasing costs (not part of rent).
    What normal businesses enjoy is very specific to the business model. ie. A painting contractor can work in a range of full payment on completion to full payment up front. Each will find business, each will have problems. A cab or delivery will need to be paid at the same time service is rendered. A lawyer retains funds to bill against by pre-signed agreement (useful hint). Look through the yellow pages and you can understand the range of business models at play. Landlords should also recognize their need to make sure their business models fit their needs. If you want to rent to certain market segments do not think one model fits all, 55 plus (condo like)is different than family (co-op protection).

    • Rachelle

      I’m in Ontario and my thoughts are that depending on the property, the landlord should be allowed to make a deal with his tenant that they are to mow the grass or rake the leaves. This mostly applies for single family dwellings or small income properties.

      In my mind if I’m paying a premium for a private house rental I don’t want my landlord coming around to mow the grass when I live there. A service here in Toronto costs about $200 per month.

      Regardless of what I think the landlord is responsible for grass mowing and other property maintenance.

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