Don’t Negotiate With Terrorists – Landlord Edition

July 7th, 2015 · Property Management, Rental Property

ICH BIN TERRORISTI think I’m one of the only property managers out there that will actually take on a problem tenant. As any owner or manager can tell you, these tenants can use up 90% of your time and mental energy. I am not immune to head games, annoyances, false reports, intimidation, bullying and other issues that come up during these tenancies but I do have experience in dealing with these situations without completely losing my mind, so there’s that. After you’ve had every con in the book run your way, you get kind of vaccinated to a lot of these people.

Paralegals call these characters “professional tenants” and they tend to be excellent at extortion. Recently, I’ve dealt with two cases in which the tenant wanted $29,000 in damages. Considering the Landlord & Tenant Board limit is $25,000 in damages I knew the landlord would get at least $4000 off.

While these tenants are completely vexing we give them power by engaging in their BS. Just today I was stood up for over an hour at a property waiting for the tenant to show up with a $6000 money order that will likely never come. It’s all about extend, and lie and scam. In some cases bully, threaten and intimidate.

The trick is that even thought you can be emotionally engaged – never stop the process of eviction (unless you are ordered to) and get your N-4’s out fast. This tenant got an extra long grace period before she got her N-4 because she claimed she was in the hospital and had a miscarriage. She got her N-4 on the 15th. Now some managers would say I’m a softy for waiting even that long, but if you ever wanted to destroy a landlord & tenant relationship, sending an eviction notice while someone is in hospital with a miscarriage is probably a great way to do it. I’ve also heard from private owners that have waited for months and months before giving the N-4 and starting the legal process.

You must retain your humanity but this business will change you. I guess one of the times I realized that I had changed on a core level was when a tenant told me her daughter had died and I didn’t believe her. I had to go look it up from an independent source. I seriously thought I was a monster. I wish I had a dollar for every bullshit story or excuse I heard. I’d be rich beyond my wildest imaginings.

Regardless, now I’m 99% sure this tenant told me she had a miscarriage just to get some extra time/free rent from me. So why don’t the bleeding heart anti-landlord people ever bring up people like this horrible woman when they are telling us all about how the poor people are the ones who suffer? This lady and her husband work and there is no excuse, they are just predators.

Tomorrow the sheriff.

 

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Is Your Property Ready For Inspection? Halloween Edition

July 5th, 2015 · Property Management, Rental Property

Belgium-5631 - Coffin of Laurent de Laroche

I just got an email from a reader David Luton and he offered me the copyright to story he wrote about a property inspection he did.

The Inspection- A True Real Estate Story For Halloween

It started off as a normal real estate investment opportunity.  It was a commercial property in the country. It was along a main highway in eastern Ontario with a couple of acres of land.  Additionally there was a rather old farm house that came with the property that dated from the time the property was originally settled.

We were informed of the opportunity by an alert real estate agent with whom we had occasional dealings.  The agent had an exclusive listing on the property that had been originally sold to another investor.  The other investor had done all of the normal purchase and sale work and had a signed conditional deal.  The two conditions were financing; and subject to inspection.

Unfortunately for the agent the other investor had over extended himself and was unable to get financing.  Thus the unlucky agent faced the prospect that the deal would fall through after his work. Like all good agents; however, he lived by the old philosophy; ‘When the going gets tough, the tough get going,” and he went out and found another buyer.

The terms were fair, there was a good tenant who was willing to sign a lease, and even the financials looked okay.  (A 10 cap, after allowing for repairs, for the professionals).  The property itself even had long term capital gains potential.  It was located in a rural township, but right on the commercial outskirts of a growing town that was expanding toward the rural border.  Several big box stores were coming in on that side of town and it was obvious that this was the side to be in.  Income, capital gain potential and a good commercial tenant what more could an investor want.

The only facts we could not verify quickly were the residential tenants of the farm house.  We were told that they traveled a lot, and usually slept during the day. Apparently they were usually around only after dark.  A general comment was also made that they were a rather strange bunch. That should have given us a warning us of what was to come.

The previous purchaser had negotiated well.  It was obvious that some maintenance had been deferred but that was to be expected.  The owner who had retired was getting on in years and had moved several thousand miles away to warmer climates. I am sure that is why we were able to get the purchase price we did.  The purchase price and 10 cap expected return was after the previous purchaser’s expected allowance for repairs.

Being old fashioned conservative can work for you.  We just get our pound of flesh in a different way.  The advantage is that the real estate community knows you have the horsepower to move when it is necessary.   When you put down a third of your own equity into the property, you can get your financing okay fast and by phone.  This was one of those cases where a quick phone call resulted in a fast yes.

We had to move quickly but a premade deal doesn’t come along very often.  So we said yes, signed the paperwork and laid down our deposit and ended up with a conditional purchase.

For the seller we give a sweetener to seal the deal by removing the financing condition and give an increased large down payment.

I have a philosophy that money talks in real estate deals.  Thus if I want a property, I often use a large deposit payment as a signal to the seller that we are serious.

In the overheated market of recent years its things like this that may make all the difference.

Now all that remained was the inspection.  In buying country property I find sellers are funny when it comes to inspection.  They sometimes seem to take offense to the fact that you want to carefully look at the property.  I have had sellers walk away from a signed and agreed commercial deal because they refused to allow a proper inspection.  They insisted that the property was sold “As is as is”.  I walked.  If I want to bet on the gambling table I will go to Las Vegas.

To inspect country property you often have to use different resources.  In a case like the one the property was on well water and septic so the above ground inspection is performed separately from the below ground. Little did we expect what we would face coming from below the ground in this case?

For the below ground I often want to do the inspection before I bid.  I find the inspection cost is very modest compared to what you may find particularly if the septic system has to be lifted and replaced.  It often is classified as contaminated waste and we all know what the cost of handling this is.  This leads to the funny request of a seller, that I offer to pump out his septic system for free, even before an offer is on the table.

I know most purchasers would not be caught dead with a septic pump out truck operator. My advice is swallow your pride.  My paternal grandmother came from a long line of highland Scots.  They have a saying that applies,” He who pays the piper, calls the tune”.

In the case at hand we decided to do the building inspection first.  I use a specialist who can inspect both commercial and residential property.  Our problem was the farmhouse.  We were unable to contact the tenants, so in accordance with local law and practice we posted a notice on the door, waited 24 hours, and arrived for the inspection.

We did the commercial building first.  Normal concerns; some roof work was needed but after 20 years with a tar and pea gravel built up roof, we had expected it and priced it in.  A couple of plate glass windows were fogged but again already budgeted for.

Finally after a coffee break we went to the farm house.  We knocked on the rear door which opened onto the kitchen.  We got no response, and using the key supplied by the owner we went into the kitchen.  Let us say we were surprised with the paint scheme.

We next proceeded to the main bathroom.  Stranger and stranger.  I have been in a lot of bathrooms over the year but this is the first one I have seen painted “BLACK”. Even the bathtub was tiled black. If I ever had to replace the tenants I knew where I would advertise for a new tenant.  A goth would love the place.

At this point my inspector wanted to go to the basement.  He had some concerns about the wiring and wanted to look at the electrical panel.  He was right; knob and tube wiring which is a major concern as most insurers will not insure it.  This was one factor we had not allowed for in our pricing as it is only possible to see during an inspection. Replacing the wiring in a house is expensive.  I had a contingency fund for unexpected expenses but this would exhaust it.

While in the basement we decided to inspect the rest of the basement for leaks.  The basement was old and musty.  Everything was covered with cobwebs. While my inspector concentrated on the furnace, I looked over the rest of the basement.  Over in a corner I saw it.  Like all things you do not expect at first I did not believe my own eyes.

I called my inspector over.  In thirty years in the inspection business he had never seen anything like it.  “A coffin!!!!”   It being daylight of course as was to be expected, it was closed.

In recounting the incident to my lawyer later, I asked him for a professional legal opinion.  “Was the coffin a chattel or a fixture?”  He replied that he considered it a fixture because it was unbolted to the floor, but that he understood that the rules may be different in Transylvania.

Normally we do the property management for our own buildings. In talking to the real estate agent who was enquiring how the inspection went, I asked if he knew of a building management company that worked after dark.

We never did buy that property.  In a later inspection of the septic bed the nice row of cedars turned out to be growing right over the septic system.  There were a couple of other issues that we decided were too expensive to fix for the price.  The owner unfortunately would not budge.

Was the coffin occupied? Only two people know for sure; myself and the inspector.  Was it part of the act of the two so called ‘musicians’ who were the supposed tenants? Or was there a more sinister secret?

Come to think of it though not long afterwards, my wife of 30 years started to complain, that she was having difficulty sleeping during the times when the moon was full.

Thanks David

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Getting over Bad Tenants

July 5th, 2015 · Landlord Advocacy, Property Management, REIN, Rental Property

 

anonymous worship

What happens to Landlords after a horrible tenant? The bottom line is that you’ve been traumatized. You’ve had to deal with a deadbeat for months, you’ve been through the wringer of the Landlord & Tenant Board, learned to fill out forms, appeared before the adjudicator and generally been totally stressed out.

The aftermath

Finally they’re gone, maybe the sheriff came and threw them out on the street, you’ve got your place back and you can finally breathe a sigh of relief. Or can you? Most times this kind of situation will be totally unexpected, no one ever mentions this part of the business at REIN meetings, or in books about how you can get rich by buying properties. In many cases your place will be trashed and be full of their leavings, you’ll probably need to paint and renovate. Your previous deadbeats may have vindictively damaged the property and punched holes in walls, smeared feces and more.

Now you have to get ready to rent again, it’s disgusting, it’s going to take time, it’s going to cost money.

Self Blame

Many landlords will replay the incidents over and over in their mind trying to make sense of what these people have done. You may blame yourself for renting to them, being taken in by a smooth line or not catching something on an application or ignoring your gut. You may review every conversation you ever had especially if there ended up being a lot of conflict. You may wonder what if I did this or that or said something different. Maybe if you were nicer then this would not have happened to you.

It’s not true, you didn’t do anything wrong except to rent to them. Your screening process failed you. True deadbeats will go to any length to get into your place. Con artists are good. That’s why even after all the security measures banks put in place my debit card has been ripped off three times. Fraudsters are great at what they do. Don’t blame yourself.

Look where you can improve and try not to dwell on it. You may have made mistakes, but don’t be too hard on yourself.

Other People Will Blame You

Everywhere you turn, people will blame you for not doing your due diligence regardless of if you did or not. For the most part people have a stupid idea that the people who are getting behind on their rent are people who are desperately poor or single mothers or fallen on hard times. This is actually a lie. The above people may get in trouble with rent, but they will recover and either move on to more suitable circumstances, such as living with family or friends.

The people we are talking about are predators who will sit in your apartment/house and not pay a cent until the sheriff comes and even longer. Sometimes they are working. Certainly if you can’t afford the rent on a brand new condo, you could compromise a little and rent something you can afford.

They are irresponsible because they can be. They are protected by the Privacy Act and the bleeding hearts at the Landlord & Tenant Board. Even the assholes at Transunion won’t even register a Landlord & Tenant Board judgement on these deadbeat’s credit reports. (I don’t use them anymore) In spite of the hundreds of thousands of $$$ in money landlords spend on credit reports neither Equifax or Transunion has a decent solution for landlords. Other companies that like Rent Check and TVS rely on landlords self reporting bad debts.

For the most part we are all blind when picking tenants, I hardly care if a tenant pays their credit card bill. I cannot rely on other landlords to tell me if they are deadbeats but I know that these bad tenants will be passed along like a hot potato from Landlord to Landlord.

All of transitions the responsibility from the tenant, to the landlord.

Happy Sunday!

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Acorn and Rent Safe Program

July 4th, 2015 · Landlord & Tenant Board, Landlord Advocacy, Property Management

Acorn with "big brother" Piccolo...I was interviewed by Global TV’s Mark Carcasole last week and thought I would expand a little more on my thoughts. Basically Tenant’s Rights Advocates Acorn have a nutty idea to charge buildings $5 per unit ($5 x 300,000 = $1,500,000) to post signs at building entrances

The city already has the Multi Residential Building Audit program which is a lot more effective than putting up signs. City Inspectors go to the building and give all the residents a sheet to report their problems and the owner has 30 days to fix it or fines are levied. Some of these problems have never been reported, but as management you have to go through the entire building with a fine tooth comb. One day the City of Toronto hypocrites will even go visit their own cockroach and bedbug infested slums and work on those problems instead of spending huge chunks of their budget on their headquarters.

While you can get me into a long conversation about the enormous problems with the City of Toronto’s housing policy you cannot begin to address any of the issues with housing without discussing money and budget and property taxes.

Tenants Actually Subsidize Home Owners.

Property tax rates in the city of Toronto on Multiresidential buildings are 1.7265482% and the tax on homeowner properties are 0.7056037%. The taxes on your average $1,000,000 house in Toronto would be $17,264 instead of the $7056 they currently are if homeowners paid the same rate as older multiresidential buildings.

Property developers have refused in the past (like any sane person would) to build rental buildings because of this inequitable tax system. Recently we have heard that condo sites  like Kingsclub are converting to residential rental. Guess what? Toronto has changed their policy for new buildings and the tax rate for new rental buildings is 0.7056037% (exactly like homeowners and condos)

To make this super clear, tenants living in homes, homeowners, condo owners and new rental building tenants will all pay the lower rate but the people living in run down bedbug infested, cockroach havens older buildings that require capital improvement (subject to legal rent increases) that represent most of the affordable housing in the city are paying the much higher tax in their rent.

But if the property taxes were reduced wouldn’t the “greedy landlords” just gobble up those reductions? Actually no. By law whenever the city reduces property taxes, all tenants in the affected building get the rent reduction on their rent.

So Acorn get cracking and deal with a real issue. Tax equalization for all residents of this city. It’s untenable that the fat cats at the city of Toronto are flapping their lips about the awful greedy landlords and their horrible building maintenance while simultaneously failing to maintain their own social housing at Toronto Housing and gouging the poorest of the poor in the old multi residential buildings.

Not Stupid Signs – Fair Taxes.

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Surge in Condo Vacancies Concerning…

June 13th, 2015 · Property Management, Rental Property

Construction buildings

Almost every day, I see more real estate reporting that props up the existing real estate market.  I read this troubling article on BNN essentially dismissing the statistics.

Here’s the problem if you read their article “National Bank says more than 2,800 condos were available last month to be sold or rented based on information collected from the Canada Mortgage and Housing Corporation and the Toronto Real Estate Board.”

When I looked at realtor.ca last month I saw that there was 4600 condos for RENT alone, and another 20,000 vacancies on kijiji. So some of those may be duplicates, and some may be still occupied and my numbers may be slightly skewed but if I was a vacant apartment counter for CMHC right now, I’d be putting in extra shifts to cover my ass right about now. Reported numbers are ridiculously, outlandishly, outrageously wrong.

As we head into July there are 12,000 rental listings on kijiji.ca alone and another 10,000 for sale. Now not all of those 12,000 rentals is a condo but a whack of them are.

Just for today 919 rental vacancies were posted on toronto’s craiglist. Not all of these are condos either.

Rentcompass.com a site that deals only in mobile listings has 1993 listing in the city of Toronto. Not all of these are condos. What is the percentage of condos for rent vs. purpose built? I don’t know but I’m not the appointed condo counter outer either.

Visual Evidence of Condo Market Saturation

The real issue is now that as I travel around the city renting condos and working harder to get less rent with more intense competition, I see site after site in the process of being built and even more developers trying to sell more and more sites. But I don’t see the influx in people, or the increase in wages or the housing required to house families being built.  It’s a good thing Finance Minister Joe Oliver is in denial not worried.

But my favourite of all is this graph by Ben Rabidoux on twitter Ben’s Graph which shows the most recent numbers on unsold condos by developers. You can follow him @BenRabidoux or even better hire his company to give you insight into the Canadian Housing Market.

Urbancorp Works In Mysterious Ways

Which explains why Urbancorp is selling off its condo sites as rental apartments and also having a hard time issuing checks to buyers that bought townhouses but backed out when the project changed.

Driving around Toronto, anyone can observe the vast proliferation of condo sites for sale. It seems like every street corner has a building under construction or a site being advertised for sale or advertisement for a condo for rent.  This entire city is a mad hatter’s dream of construction and street closures.

A few weeks ago, I spoke to a guy who bought one of those ubiquitous one bedroom condos with a view of the lake, if he had made any money at all, I would have told him to sell, but between the HST (13%) and realtor fees of 5% he would take almost $50,000 loss on his $300,000 “investment.” It went up about $10,000 in value since he bought it 4 years ago.

The rental market seems to be a little slower than usual for this time of year, but I’m renting condos within 30 days but only if they are priced properly.

As Torontonians, we are like goldfish who cannot see the water we swim in. Our current condo market is shocking and unsustainable. I cannot imagine a future that doesn’t include a giant catastrophe for the condo industry that will cripple our economy and make my friends and clients suffer tremendous hardship and pain.

Download A Free Cap Rate Spreadsheet

In 2010 I wrote a post on Million Dollar Journey called Landlord Math – Cap Rate and Return on Investment and a few friends and I created a simple spreadsheet you can use to plug in the expenses and price and estimated rents of your investments.  In this way you can evaluate the fundamental strength of your income property. A property creates income by charging rent. A part of that spreadsheet is a field where you can reverse the numbers to find out what purchase price you should offer using your stated return. I was shocked to see that a condo I had used as a sample was worth only about 30% of it’s purchase price.

For more about what happens to the market when this all goes sour, have a look at this evaluation of our unsold inventory by Wolf Richter.

Finally I’m really impressed with Maclean’s magazine. A cornerstone of our family reading since I was a child, it does not disappoint, with it’s latest issue sounding the alarm about housing.

Happy Saturday???

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