Why Rental Condos are NOT a Solution to Affordable Rental Crisis

May 19th, 2017 · Landlord Advocacy, Rental Property

When I first got into this business, we had rental buildings and we did not treat our tenants very well. We had actual low vacancy and people had to save a 25% down payment which took them years and years. We did not maintain buildings because we could not increase the rent, and so the only way to make a little extra coin was to not maintain the buildings/common areas etc. I worked in a few buildings where the standard response to regular maintenance was to wait for the City to order the work.

Then condos came along and for the most part, people who wanted to live in an apartment lived there. They were really luxurious, had very nice amenities, lots of community space, decent square footage. You could be right downtown and not shovel snow. Most of these are extreme lovely buildings and gorgeous places to live. They were designed and bought by people who intended to live there. A good example would be the Empire Plaza downtown.

However today the maintenance fees for these lovely buildings is very high. The reason for that is that buildings cost a lot of money to maintain especially luxury buildings. If you are a condo owner where there is 200 suites, you own 1/200th of the boiler, chiller, roof, pool, common areas, office and none of those items are cheap and easy to maintain. Over time the true cost of building entropy is discovered. No more teaser $200 maintenance fees.

The condo structure lends itself to abuses. Property managers running away with the reserve fund, Condo Board members who don’t own units. An improperly run condo can be a nightmare of epic proportions. The poor unit owners have to pay. It gets even stupider when the condo board starts to wage wars on unit owners or litigate like morons without considering the cost to unit owners even if they “win”

When even Urbanation admits that condos are cash flow neutral the first year of release, you know we are in big trouble.

In fact the only reason for an investor to own a condo is to sell it after the price goes up.

We are so lucky that Mom & Pop & Foreign investors have provided this housing resource to tenants at great expense to themselves. Otherwise we would be in such deep trouble from the lack of supply of rental apartments.

Let’s face it, condos crack cocaine for developers. You build the building as cheaply as possible, sell units off and walk away. If something is wrong like say all the glass starts falling off the building, you just trust your property management buddies to cover for you (You got them the job in the first place) The individual unit owners are isolated and probably don’t have the deep pockets required to sue you for lousy workmanship or fraudulent advertising.

Compare this to a landlord who will contract you to build for them. You will have to build to their specs. I worked in rental buildings that were over 40 years old and we had to change the hot water pipes because they were worn out. Condos… one was 8 years old and all the pipes needed replacing. There’s a definite chance that the landlord will hold you accountable and not pay you if the glass starts falling off the building. You will definitely be sued. The contract between landlord & builder is one of equals. Usually the buyer of the condo is at a considerable disadvantage. They just don’t know as much as the developer, can’t afford expert legal help, and  the traditional pre-construction condo contract is completely in the developer’s favor.

I once knew this landlord, he hired a guy to pave his driveway and signed a contract that said they would install 6 inches of asphalt. The guy did a very nice driveway, but the landlord made a hole in it and discovered only 4 inches of asphalt in several spots. So he didn’t pay the contractor until he put the required amount of asphalt on his driveway. This is a guy you want in charge of the building of high rises that will be there for hundreds of years.

All this to say we need real rental buildings. Affordable living for regular people. Like the ones we used to build but newer, no security, no pool, and an illegal immigrant cleaning the hallways and a super being paid like crap.  One property manager for 10 buildings. I’m sorry people but you can’t afford to live in a condo. Most of you can only afford to live there because your landlord subsidizes your rent $500 or more per month and that’s for a very average building.

That is the facts. The numbers. I have had about 10 percent of my owners sell since the beginning of the years with another 4 listing this month. Every tenant evicted. This was terribly predictable and sad. Frankly a lot of owners kept hoping rents would one day rise enough for them to break even. With the introduction of rent control on all units, they know they’ll never break even. So cashing out is the only answer that makes sense. Kathleen Wynne & John Tory are philanthropists but how many non cash flowing condos do they “invest” in? None I’ll bet.

On the other hand the true speculators don’t care about rent or tenants or being good landlords. They just care about covering part of their expenses until they sell.

This is failed housing policy. They should write case studies about all the Failed Toronto Housing Policy. First of all it’s hard to believe there is a plan, but if there is, I’m pretty sure the planner was a squirrel on meth. While condos may provide some rental housing, it isn’t rental housing and it isn’t affordable.

For many years, the Canadian goal was to get everyone their own home, even poor people should live in palatial surroundings. The most overhoused people I ever met was an Indian couple in Brampton, they had a huge house with 7 bedrooms and only a couple rooms were even furnished. The sad part was that it was so cold they were wearing their winter coats inside to save because it was “too expensive” to heat their house. It was a lovely house but they needed a one or two bedroom house, not a huge 7 bedroom monster.

Since then I’ve seen a lot of young couples way overhoused in 4 and 5 bedroom houses in Markham & Vaughan & Brampton. They actually did need a condo and not 4000 square feet of “forever home.”  The skewing of our ideas about investment in housing is caused the lack of economy. The ridiculous amount of appreciation fueled only by ever increasing debt and our collective agreement that real estate acquisition is the pinnacle of Canadian achievement is a symptom of the problem.

This is wrong headed and foolish. You need a reasonable place with no roof leaks and heating. You do not require 7 bedrooms, 2 family rooms, one living room, one dining room, one large eat in kitchen and a main floor office, with 6 full bathrooms and two half bathrooms and a finished basement with fireplace for two small senior people or a young couple.

Meanwhile my friend Scott Terrio the bankruptcy trustee is tweeting stuff like this. Yes we are a hoot at parties, me with my eviction talk and him with his talk about the people who he sees (and saves) who are so mired in debt, they don’t know what to do next. Ok well maybe we don’t get out much, but he tells me he’s never been more popular. This is not a good sign people.

The point of all this blog post is that we need actual new rental housing for people who rent for whatever reason, like all those millennials who don’t want to give up their avocado toast for 587 years so they can save up a down payment to buy a house. Eventually all those old people are going to need to live somewhere. Last time I checked the monthly GAINS payments are on top of the federal Old Age Security (OAS) pension and the Guaranteed Income Supplement (GIS) payments is a pittance and together that doesn’t quite pay the maintenance fees on a lot of condos although if you get a widows pension you might be able to rent a bachelor in Parkdale. The cockroaches are free and make a delicious and nutritious snack that is keto approved. There are other people who want to rent too, like students, or freshly divorced people, or people who work at a grocery store.

Condos are not the answer because they are not purpose built rental housing. It’s too expensive, unnecessary, and unstable as owner’s buy and sell and tenants are continually uprooted.

To be fair the city and the province did do quite a bit when they evened out the tax structure for condos compared to rental buildings. In the City of Toronto an old multi residential building pays 3 times the property tax burden as a similar condo. For new rental buildings that has changed, and there’s that minimal $125 million fund for development at the Ontario Government, but that’s a drop in the bucket. As a society we need to decide we need rentals because we need housing for many stages in our lives and not all those stages require a property purchase. Our government needs to acknowledge that condos were never designed to be rental housing and that the buildings don’t even function as a condo entity when too many uninterested investors own tenanted units.

Our emphasis needs to change and change fast, because we really need decent affordable housing for families and students and people in our communities. These days I’m renting a lot of nice mansions in the $2500-$3000 range. But a townhouse under $2000 was listed last Friday and rented by Sunday. We definitely need more supply of the under 2K three bedroom townhouses or even apartments.

Just to be clear I’m not talking about subsidized housing which is the purview of the City of Toronto Slumlord Toronto Community Housing Corporation. I’m talking about places for working families with kids and jobs that don’t pay that well. We can’t all be millionaires and we certainly don’t all start that way. There needs to be money for rent, food, toys for the kids, Netflix and maybe a latte or a glass of wine.

People do not need pools, security, concierge, fancy property management, and 24/7 cleaners. They can’t afford it and the cost of all that crap must come from rent. The idea of some philanthropist landlord coming in to save the day has a die a quick and humane death. You might be able to convince some stupid mom and pop investor to buy a condo, but every investor I worked for in the first 10 years of my career is out with pocket fulls of cash. Out. They won’t come back in until they can make money. Period.

I also want to point out that these landlords are not unsophisticated investors like these idiot home buyers/bag holders lining up in a frenzy in the outskirts of Brampton buying out oversized overpriced mansions on postage stamp sized lots. I remember, once getting annoyed because the owner of our building had to pay out 6% interest on last month’s rent deposits when you could only get 2% in a bank account, and he told me not to worry or get too angry on his behalf because he was making 12% in the stock market. Clearly these people have options, if you think for one second they’ll go back into the landlord business without making a decent return, I have some news for you. They’re not.

Fun Fact: The only reason to be a commercial landlord is to make decent return and it has to be relatively guaranteed. If every level of government does not accept and recognize and smooth the way to what should be the goal, we are screwed, landlords will not build and mom and pop landlords are selling and evicting at record levels. The tides have turned.

Ironically encouraging purpose built housing may actually smooth the economic disaster on the horizon.

Govern Yourselves Accordingly.

 

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What to do if you have a mortgage with Home Capital Group

May 18th, 2017 · Mortgages

You may have read a lot of stuff recently in the news about Home Capital Group. You have a mortgage with them. What does it mean? What can you do?

  1. Don’t believe the bullshitters like Stephen Poloz who say that it’s fine. Maybe it’s fine for him, but it isn’t fine for you. You may be in deep trouble.
  2. Home Capital Group will not be able to refinance your existing mortgage.
  3. You will pay more elsewhere if you can even get an elsewhere. Lenders are being more careful

The sooner you start the better off you are.

The bulk of Home Capital mortgages are one and two year terms, you need to start planning now. The optimum solution for you is to become the type of borrower an A lender will accept. You will get cheaper rates.

Sorry about the terrible quality but it’s a screenshot of a blog comment. (Thanks to Perpetual in Toronto for the picture)

“I can’t see how DLC (Dominion Lending Center) is or any other company is offering support. Business is not”as usual” for Home Trust and the money they claim to have in security means nothing as they cannot close a deal for me after issuing a commitment for $225,000??? The deal completed and instructions sent to solicitor and now I am hearing from them they likely will not have the money until June! I’m now scrambling to complete this deal with another lender before the clients go to the branch. Be careful with deals sent to HT…what does past lending experience have to do with what is happening now? ”

Home Trust is almost certainly history. Their latest company statements have said they may not be a going concern and that usually means bankruptcy. So you’ll have to likely move your mortgage elsewhere.

Prepare to Pay More

So it’s not dramatic but you may have to pay .25% or .5% more on your rate. If lending tightens up even more, you may have to pay even more interest.

Get In Touch With Your Broker

You’ll want to touch base with your mortgage broker. They will best be able to direct you. I know two good decent mortgage brokers. One is Bruce Joseph from Anthem Mortgage and the other is Jake Abramowicz of Mortgage Edge  They may be able to help and will be honest with you about your prospects.

My Friend – The Overextended Landlord

One of my friends called me the day after I mocked Stephen Poloz for saying the Home Capital Group is contained.

She’s a landlord and because she owns quite a few properties, her debt service ratio is not acceptable to a regular bank. In her lust for property she may have bought a few two many.

All her properties are cash flow negative because they are in the GTA area. However, I’m pretty sure she’s a paper millionaire, with the way home prices have gone up. What does that mean? She still shops at Walmart or cheaper because it’s all equity gains trapped in the houses.

She called and she has a mortgage up for renewal on her personal residence. She’s paying 3.99% and now she needs to renew at the end of this month. She got an offer for 4.25% and grabbed it on the advice of her mortgage broker.

Finally she promised me she’s going to sell 2 properties. In fact, she probably has to, because those properties are coming up soon for renewal. (We’ll see, she’s promised me before she was going to sell something) Problem is all the properties are cash flow negative except for the one condo she’s owned for over 10 years and the maintenance fees keep going up so it’s not cashflowing a whole lot.

My friend and her husband have good jobs and have never missed a mortgage payment. The problem is that with a new lender you will have to requalify. What if you declared bankruptcy or lost a job? This could cause problems. There is a possibility that some of you may have to sell your homes, or work hard to get a mortgage.

You want to plan ahead, touch base with your mortgage broker, maybe sell a property, consolidate your loans, shrink your debt and figure your shit out.

When my other friend lost his mortgage with Accredited in 2010 (Lender from the states that stopped renewing mortgages) he had 30 days notice and in his position it was not enough leeway to get him in a decent position. He wound up taking a mortgage from a private lender, and another mortgage from TD Canada Trust but ultimately his payments went from $1300 to $2000 per month and when he finally sold his house, he had to pay a $35,000 mortgage breaking fee for the private lender and he wound up with most of his equity gone.

Private Lending – Read the Fine Print

If it turns out that you need a private lender, people please read what you are getting into. Take that contract to a community legal clinic if you have to and have someone look over. There are a lot of predatory lenders who love when you mess up your payments. Seriously.

Don’t Wait Until the Last Minute

One of the things that upset me about my friend was that Accredited knew for several years that they were not renewing mortgages, like Home Capital they were a B lender, they could have sent out a letter letting people know a good while in advance, but they sent out letters just 30 days before the renewal. If my friend had more time to plan, he could have sold his house or found some better terms for his renewal. 30 days is not a long time when it take a few days to get an answer back.

For now, homeowners are getting mortgages elsewhere, a little more expensive maybe, but still getting there. You will still have to qualify and that is a big deal, some people like my friend may have had a serious important change in their circumstances. In his case he declared personal bankruptcy because he was sued by a person who claimed he had set their roof on fire. (He was a roofer) Other people may have lost or changed jobs or had another major change.

In the past your renewal was the worst rate you could be offered but as long as your payments were paid, you had the certainty you could renew your mortgage. Now that is not true. In fact, credit is almost certainly tightening, which may cause serious problems down the road. Certainly if you dream of buying an income property, or cottage you may just be dreaming. Which is not bad considering the prices are insane.

Don’t Panic but Get Thee To The Mortgage Broker ASAP

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Poloz Dream Thinking – HCG just a start of unravelling

May 15th, 2017 · Canadian Real Estate Carnival

In a act which can only be compared to putting a bandaid on cancer, Stephen Poloz assured the world that Home Capital Group is unique and the situation is contained.

Stephen you need to get out more, and talk to people who aren’t going to echo your group think.

First of all, let’s start with Home Capital Group. The banks started the run because their financial advisers/advisors withdrew all their client’s money over the $100,000K CDIC insured limit. This was not Grandma & Grandpa running down to Oaken to get their money out.

HCG is finished. They have no business and everything else is just continuing CPR long after the corpse is dead because no one wants to tell the family the guy has passed away.

You need to figure out the Bezzle

All the policy makers need to go to the unpopular guy in the office that makes everything work, and figure shit out. You need to take your giant Canadian moose heads out of the snowbank, and stop wish thinking it’s over. It’s barely started.

On some level we all know the bezzle is there, lurking.

  • It’s on all the signs at every intersection, offering 2nd and 3rd no credit check equity mortgages.
  • Frenzy of people buying homes
  • It’s in the complete failure of FSCO and the victimization of countless small investors in the syndicated fraud crisis. This is just barely even started.
  • It’s in Home Capital Group
  • It’s in general income verification fraud that happens on a ton of mortgages
  • It’s just like almost every ad on TV is about real estate, real estate investment.
  • Half or more the newspaper is real estate.
  • Listings are spiking and sales are down.
  • Credit is tightening.
  •  People are just kind of waking up and seeing that houses are way over priced.

Mr. Poloz, We’re on a rollercoaster, you’d better stop hiding and start driving

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Home Capital Group, Equitable, Intertain, Badger vs. Cohodes

May 14th, 2017 · Mortgages

This below presentation was amazing! During the presentation, Marc mentions a handout and you can download it below.

This above presentation was amazing! During the presentation, Marc mentions a handout and you can download it below.

Grants Presentation v10.pptx copy

Newest Short is BAD

You can read all about the logic behind the newest short Badger Daylighting Ltd. (Stock Symbol BAD) <Really stock symbol BAD? at Marc’s new website Turn Out the Badger Daylight.

“The truth may be puzzling. It may take some work to grapple with. It may be counterintuitive. It may contradict deeply held prejudices. It may not be consonant with what we desperately want to be true. But our preferences do not determine what’s true.” Carl Sagan.

 

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Interview with Marc Cohodes

May 10th, 2017 · Mortgages

Imagine my joy this morning when reading the latest saga from Home Capital Group by Terence Corcoran. I hope they are paying him extra to take the ridiculous and completely wrong position that everyone except Home Capital Group is to blame for its latest round of problems with disclosure, with its share price, and its lack of honest dealings with the public.

Nothing has changed over there. “They have changed their business model” and “They have sold Billion Dollars worth of Mortgage Tranche” but we don’t know who bought the mortgages or at what discount. They may well have have sold their mortgages to Dollarama for crying out loud, planning to offer 1$ pieces of their mortgage book to more of the unsuspecting public. That’s the whole point we don’t know and it’s a publicly traded company and we should know. That’s been the underlying issue since 2014. One think we do know, their deposits are still escaping.

Meanwhile even the province is joining the coverup over at Home Capital Group with the appointment of Alan Hibben to the Board amid protests from OPSEU.

Anyways I did a bit of an interview with Marc this morning. Enjoy!

Highlights

    • Marc Cohodes explains what short selling is using cattle pricing.
    • Free markets need shorts to oppose
    • Free Speech Is Important even if it’s not positive.
    • Focus on the message rather than focusing on the messenger
    • Home Capital had a bad quarter in 2014 in a great market
    • Regulators not doing their job except OSC
    • Marc Cohodes has Superpowers
    • Congratulates New Head of OSC Jeff Kehoe on Action
    • Recharge & Home Capital link
    • What is Operation Trillium?
    • How deep does the mortgage fraud go?
    • Vice Article on Home Capital
    • Flawed business model
    • Mortgage Syndication Fraud
    • Fortress Is Ground Zero For Mortgage Syndication Fraud
    • Money Laundering
    • Chickens are good.

Where to Find Information on Properties & Mortgages

Speedy Search

Ben Rabidoux Patriot

This guy really is a hero. Here’s the Maclean’s story about how Fortress tried and failed to shut him up. He’s also a good fisherman. You can contact him here.

Twitter

You can follow Marc Cohodes @AlderLaneeggs

Or me, @LandlordRescue

For some amusingly misguided stories about Home Capital Group @terencecorcoran

Many Thanks All, and extra sprinkles if you listened to the whole interview

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