Recommended Real Estate

July 26th, 2015 · Property Management, Rental Property

TownhousesSo George a reader of the blog asked the following question in a comment.

Question

Condos rent like crazy it seems, but appear to be poor investments compared to multi-unit purpose built buildings.  On the surface, they have very little room for error or interest rate changes and an extremely low cap rate. Is this still correct or have times changed?  Congratulations on your booming business!  Competence and diligence always conquer.   Your blog is a wealth of information for newbie investors.  Thanks!
Do you believe  condos a good entry point into the market?   I have been trying to get into real estate investing for years but lacked the confidence until recently. I have a home suite that is going very well, but have been looking at duplexes (not up/down ) and quadraplexes.  (I have shied away from condos). Admittedly their cap rates are very low as well.   I have just become confident enough to take the plunge after reading several books, using your cap rate calculator (that’s an eye opener! ), finding some good blogs ( yours, million dollar journey, and canadian money forum in particular) that have veteran insights.  I don’t like REITS as I think they are just another stock. I ‘m curious about your view as a rental specialist.

Answer

A sound argument could be made that the same applies to multi-unit purpose built buildings as well. The cap rate is extremely low and does not usually include deferred maintenance or capital projects required. Condos do not have such a luxury, the reason cap rates are low is because of maintenance fees and reserve funds. So from day 1 you are saving for the new roof that’s getting old rather than waiting till it starts to leak before “discovering” that old roofs need to be replaced for example. I think there are a lot of factors to consider when calculating the cost of building operations that many people do not consider.

My Favorite Investment Property

I’ve had the opportunity to look at and evaluate performance of rental properties over the years and my favourite kind of property is the lowly townhouse.  There are a few costs to look at from a management perspective as a rental property.

  1. Landscaping and gounds maintenance
  2. Exterior maintenance, siding, roof, etc.
  3. Vacancy and turnover
  4. Lower Purchase Price

Landscaping and Grounds Maintenance

In most of these condo townhouses, landscaping is provided as part of the maintenance fees, but you get economies of scale. It will usually cost between $100 to $ 200 per month for these services if you don’t do it yourself as the landlord. Tenants are not required by law to do it and if you do try to get them to do it and the Landlord & Tenant Board gets a wind of it, they can get an abatement of rent.

Exterior Maintenance

Roofs, siding, windows, fences are all usually included. This is part of your maintenance fees. The condo boards are pretty good at keeping the place looking uniform and preventing “that guy” from painting his house pink.

Vacancy and turnover

These properties tend to be fairly stable, people stay for a longer time, in most cases they are 3 bedrooms and your target market is a family. Most families are concerned with their children’s school etc. and do not move as often as young professionals in one bedroom condos. Many times, your property will stay empty between tenants at least for a little while so less turnover equals less vacancy equals more money for you.

Lower Purchase Price

Townhouses generally have a lower purchase price than detached houses, but provide a similar level of rent but for much less capital outlay. You also don’t have to deal with basement tenants and the epic tenant fights that occur.  So you kind of dodge a bullet there.

All in all, in my opinion you get most of the benefits of the detached house for less money and you enjoy high quality stable tenants paying relatively high rents.

Townhouses are my favorite rental property for all these reasons.

Have a happy week!

 

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How To Avoid Problem Tenants

July 14th, 2015 · Property Management

An old tenant house with a mud chimney and cotton growing up to its door, which is occupied by Mulattoes, Melrose, La.  (LOC)

How to Avoid Problem Tenants

A problem tenant who is always late with his payments and doesn’t think twice about trashing the house and vanishing leaving behind repairs worth thousands of dollars is every landlord’s nightmare. So as a landlord, how do you protect yourself and your property from the tenant from hell?

  • Rely on your first impression

Your first impression or gut feeling about a person is bound to be right almost always.  An unkempt appearance, impolite behaviour or insistence on an upfront cash payment for six months can all be signs of something amiss. Don’t get into a rental agreement with the first person who shows interest just because an empty rental home is going to hamper your cash inflow. People who insist on an upfront cash payment for an extended period often do so because they don’t want you coming around the house for the next few months. And if he seems uninterested in his own personal grooming, then it’s highly unlikely that he’ll look after your property.

  • Identity proof

Ask them to show you their drivers license as proof of identity. Have they put their real name on the rental application?

  • Ask for references

Every tenant’s application should include at least two references, one from their employer – to verify that they have a job as they claim and another from a previous landlord. If possible, try to contact their employer directly instead of using the phone number they have given you to confirm that your tenant works for them. There have been cases where landlords have been misled by tenants with the help of friends posing as employers.

  • Verify credit history

Ask your prospective tenant to give you written permission for a credit check. A private screening service should be able to perform the credit check and collect the necessary information, including whether the tenant has a history of late payments, whether it was a one-time occurrence or when they happened. Though this will incur a small fee, it is well worth the expense and can save you from a huge loss in future.

You can also ask them to show you a copy of their bank statement or pay slip. You do need proof that they can pay you the rent on time!

Can he provide a rental guarantor? This is especially important if the applicant is young, newly employed and doesn’t have a long credit history. Don’t forget to make sure that the rental guarantor has the necessary financial standing to make good on the rental payment if your tenant suddenly decides to vanish.

  • Check out their current home

If they are currently renting a single family home, drop by to find out how they have maintained the property. A quick chitchat with neighbours can give you a great deal of information on their partying habits and whether they have had problems with other residents.

  • Proper documentation

The importance of a well-defined tenancy agreement cannot be overstated. If in doubt, start with a short-term lease for six months. All correspondence between you and the tenant should be documented and saved to avoid any misunderstanding.

Kurt Jacobson is a surfing enthusiast with a background in real estate. Having moved 10 times in the past 7 years, he thrives on helping others learn from his experiences. When he’s not out shredding waves he writes about rental homes for www.rentfinder.co.

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Be Informed Before You Buy A Condo

July 13th, 2015 · Rental Property

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Dear Landlord – You Cannot Rent This

July 13th, 2015 · Property Management, Rental Property

I’ve seen more than my fair share of rental apartments. Most people would not believe some of the “apartments” that are on offer. After last night’s listing of an “apartment” for rent… I’ve been inspired to search my memory for the worst landlords ever.

Last night I approached a beautiful house with anticipation. Fantastic neighborhood, three car garage, separate entrance. The apartment is above the garage. So far it’s gorgeous. We enter the kitchen and there is no stove. So I say “There’s no stove”. The owner tells me that her bedroom is on the other side of that wall and she doesn’t want cooking smells to bother her. But apparently there’s another stove. You just have to go down two flights of stairs, across the house 40 feet. Oh and it’s shared with another person. A room. That she also wants me to rent.

I tell her that I don’t rent shared accommodations because they are a cause of endless problems. (I told her this before)  She tells me that if I think it’s going to be a problem it’s going to be a problem. I agree. Not even 10 minutes later, I leave. I notice a lock box on the door on the way out. I look it up and there’s a listing and the place has been available for months with a real estate agent.

The solution is obvious, there are two very nice self contained apartments. Put a stove into the apartment and rent it. It’s not really rocket science. If you just want the money and can’t be bothered to offer a reasonable service, you probably shouldn’t rent it.

Laminated Nightmare On ??? Street

Laminate Backsplash

Laminate door

So this particular house was also in a really promising mature neighborhood. One of my employees took this on and after she told me it was “rough” I went to take a look. There also happened to be a Koi pond in the backyard, with no Koi, only algae that the landlord would allow the tenants to use for their Koi. Most people would call it a “death trap” or “pit” but you must be creative with rental listings.

You must also be creative with building materials and as you can see, laminate has many uses. Backsplash and front door liner? When I suggested the place needed some renovation, he told me that I was just telling him he needed a contractor because I was taking kickbacks from the contractors.  I wasn’t far from his house and I put his keys right in that handy dandy mail slot you see right in that door.

The pictures do not really convey how fugly this place was and until they invent Smellovision you’ll have to remain ignorant of the odour of old cigarette ashtray and dirty socks that permeated the place.

Religious Requirements

There’s not a rental agent on earth that can rent your basement to someone who does not drink or smoke on your property.   If you tell me that you’re going to evict them if they smoke outside on your property and that you’re going to check to their recycling for alcohol containers, well, I’m not renting your apartment. It’s hard enough finding decent people to pay the rent, if you have very stringent requirements on top of that your best solution is to find someone from your church or social grouping.

I’m not allowed to be discriminatory in ads and I don’t want to discriminate period so looking for the needle in the haystack with these kinds of rentals just isn’t for me. If the owner wants to spend hundreds of dollars and months of time weeding through applicants to find this miracle tenant, that’s ok. When you hire a service we do our best for you, but the numbers don’t lie, 50% of Ontario tenants now have pets and about 30% smoke, this leaves a measly 20-40 percent of people that are looking for an apartment that you will accept. Then add another 80% that will be totally turned off by your strange request and you have long months of paying for ads, showing your place and having people walk away. No Thank You.

Here’s another example of “kind of” discrimination posted here for eternity for when the ad comes down eventually.
“4 bedroom house with double car garage for Rent. Whole house is available for $1,700. Large Master bedroom with full ensuite and walk-in closet. Family room with wood fireplace. Small Deck in fully fenced backyard that backs onto Rouge River Conservation lands (walking trails etc). No houses behind for privacy. Good for nature lovers. 2 car garage (with remote control door) + 2 more car parking in driveway (4 car total parking). A/C. Fridge, Stove, Washer, Dryer, moveable dishwasher. Laminate floors throughout. TTC bus stop on street to Scarborough Town Centre and rush hour Express Bus to Kennedy subway station almost at your door. Not too far from 401 or north to 407. Renter to cut lawn, and shovel snow. Available : June 1st 2015. Showings : Cant show till next week as current tenant is packing stuff up. NON-SMOKER (due to owners allergies)NO DOGS (for religious reasons). All nationality friendly. Muslim friendly. Close to Islamic Foundation of Toronto Masjid on Nugget/Markham Rd. NOTE : I’m not renting to the first person with “cash in hand” or 1st person to apply. I will be looking at all applications and want to find the best family for my house. Will be doing a full Credit Employment References Check. Note 2 : Owner is a Registered/Licensed Real Estate Salesperson , I’m renting it privately (not on MLS), but have to declare that I am registered. Feel free to call (or text).”

This ad can be interpreted as discriminatory in my opinion and it would be just a discriminatory if it said “Christian friendly, St. Jude’s Church of the Vacant Property.” Asking about anyone’s religion is a big no.

Misleading Advertising

I can’t tell you how many times prospective residents tell me that the houses I am showing look exactly like the pictures I take. That’s because for the most part I take the photos with my own phone and then post them. I don’t know what other people are doing. Maybe they are taking pictures out of Home & Garden Magazine or something.

You should probably take pictures of the the house you are renting not some other house. You should also avoid taking photos that make a condo bathroom look like 500 square feet. If you want to know how to take terrible pictures, you should check out this Terrible Real Estate Photos website for some tips.

I really don’t understand landlords who just want to trick people into visiting the property. You get paid if someone rents the place, not per visitor. It’s a rental not a museum. People notice when you say it’s a one plus a den and the den is non-existing or a 6 inch indent in the wall. (Lanterra @ 12 York St. & others (you know who you are))

The Landlord’s Job

The landlord business is much more regulated than other businesses.  To compete in this market you must have a quality property in good condition, to attract good tenants. If your place is not up to standard, you’re at a much higher risk of vacancy and deadbeat tenants. God help the landlord looking for the tenant who agrees to fix the place up in exchange for a deal on the rent. No matter how low the rent, the landlord is always responsible for maintenance.

I’m Not A Perfectionist

I was accused of it, but asking a landlord to up their game to get the AAA+ tenants is just good business. I’ve helped too many landlords who get sued at the Landlord & Tenant Board to think there is any business sense in renting sub standard properties.

Happy Fixing Upping!

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Illegal Sublets & Air BNB

July 11th, 2015 · Property Management, Rental Property

Mat Zo - Osaka joule Damage Control (night club event photo)

A concerned condo owner called me yesterday about an issue I also had to deal with. Illegal subletting by tenants trying to cash in on Air BnB & Kijiji & other websites and renting a room, the entire apartment, their terrace or even their living room couch to other people.

Most condo corporations have a rule that you may not rent your place for less than six months, which makes even short term rentals a problem for owners. However if the owner is doing short term rentals at least they have a financial interest in the place. The tenant renting their own place out doesn’t.

My tenant who was doing this did not give a second’s thought to the other nearby residents of the building when he booked a birthday party on his 1000 square foot terrace. He didn’t care when a girl came to the concierge desk requesting access because she thought her sister was being raped  during another party. He couldn’t even bother turning over the keys himself to his clients preferring to let the concierge do that or he just left the door open.  Another time security called me because “a friends” dog escaped the apartment and was roaming the halls. It also did its business in the hall while the concierge called around trying to figure out who owned the dog.

Act Fast!

So you must act quickly to prevent the continuation of this kind of behavior, otherwise the condo corporation will begin to start sending you lawyer letters and they cost $500 each.

You would use an N-5 to document the times and dates and any ads you could pull off the internet. My owner from yesterday found 21 reviews online on her apartment since March. How many people didn’t bother to review? So this is something you’d want to print off as evidence.

Teamwork

You’ll have to work with the property manager of your condo to stop the behaviour. They don’t have to deal with your tenant, they have to deal with you and it’s your job to keep them informed of what steps you are taking, so that they are satisfied you are taking the necessary steps to deal with your tenant problem.

Condominium Act Trumps Residential Tenancies Act

Being a landlord is one of the most legislated businesses ever and rules that could never be enforced as a residential landlord, can be enforced as a condominium. As a landlord, it’s not fun when those acts collide because there you are in the middle between a rock and a hard place. This is one of those times when using a professional manager can really pay off.

Good Luck!

 

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