Two Tenants Ask Me Questions About Affordable Housing…

May 5th, 2012 · 29 Comments · Landlord & Tenant Board, Property Management, Rental Property

Hi everyone, I’ve been so busy that even if I cloned myself I’d be overworked. In the meantime though I have a couple questions from tenants about how the rents affect them and their difficulty finding suitable accommodation.

Vancouver Tenant Asks…

I was wondering if you could comment on rents in Vancouver…  Specifically 3 BR Plus, Detached, townhouses etc.  They seem to range from $2000 to $20000 a month… unbelievable…

Given that the the average total household income (before taxes) here is about 80K do you think there is a market for rents this high?  I look on Craigslist and where you would be hard pressed to find 20 detached 3 bedroom homes for rent just 2 years ago, there are thousands of them today..  Am I being hopeful in thinking this is going to put downward pressure on rents?

Are all these accidental landlords nuts?  Or are the rents justified?


Rachelle’s Answer

The selling price of Vancouver homes is astronomical and unsupported by any fundamental numbers. I expect to see a crash in Vancouver I just don’t know when. What you’re complaining about is specuvestors. These are people who buy homes praying for capital appreciation. After all the market has been climbing for years now. So far they’ve been right but one dark dreary day all these landlords  gamblers will be very badly burned by this mania.

I have never seen so many people think that property investment is the road to riches and I’ve never seen so many old savvy landlords sell. They are sitting on the sidelines in cash. They want to buy alright but they can’t find anything worthwhile. Funny thing about these old goats, they want to make MONEY. It reminds me of Warren Buffet, who wants to shoot fish in a barrel after the water has run out. They wouldn’t and don’t buy in this market. They’ll be buying later when prices come back to earth and you can make money on a rental property.

The facts are that renting in Vancouver is a gift as all these specuvestors buying at stratospheric prices and renting the properties out at less than 50% of the carrying costs. If you look at what these people are paying to buy these properties, the rents are way too low for them to profit from this business. The one trick pony is that the prices of these properties will go even higher than they are now and that’s how these landlords will make money. Unfortunately they can’t make money the way landlords used to by renting the place out and collecting the rents.

To answer your question about the proliferation of these landlords and the amount of vacancy I can tell you that it certainly will end up putting a huge downward pressure on the market. It’s the same here in Toronto. You see it really clearly in the condo market. I used to rent out a newer one bedroom condo for about $1200 five years ago but I would mostly rent them in 10 days max. Now I still them for $1200 but inflation means that I’m actually renting them for less today and they take much longer to rent to decent people. Rents in real terms are going down in Toronto even as properties go up in value. The problem with Vancouver is there isn’t a whisper of a chance that these landlords will break even on their investment. So they’re already in left field, it’s hard to say how long each landlord is going to hold out on their price and when they will reduce the rents. The rental market speaks to them but as far as I’m concerned they’re already crazy so it’s really difficult to predict what the nutters will do, how long they will hold out before they lower their prices and so on.

The other problem with renting off these people is they have no idea what being a landlord means, what their responsibilities are, and they just can’t wait until some bigger idiot buys from them at a higher price to rent it out for a greater discount to tenants. For someone like me who’s been around for years, the market in Toronto and Vancouver is obscene. It’s so far removed from the reality of what this business is about it makes me sick. If you can’t make money as a landlord from your rents, you should not buy the place. Period.

Speculate all you want but call it what is. The major problem as I see it is that these landlords are not being honest with themselves about what they’re doing. Tenants do get hurt in this market as they have to move over and over again, families do not have a stable home. This pushes more tenants into being buyers just because they want to stay rooted in one area. Once you have kids this becomes a real priority because you don’t want to be changing schools every year. I’ve even heard of landlords who will just sign a 6 month lease because they plan to sell.

Tenant On Assistance Asks…

I have a few questions regarding rental units cost and who the units are available to.  First if you have a minute, I would suggest you take a small peek on kijiji Thunder bay. It will help you see what we have for rental units in this city. we have a College and University, which  seems to make landlords jump at the opportunity to rent units geared to having only students renting each room  between $400 and sometimes up to $600 per bedroom!

I understand there is many students who can group together and afford these places… But what about the average people like myself ? I am a single mother working and I am also on social assistance. I’ve been on a geared to income housing list for just over 2 years. My last landlord kicked me out to allow his brother to move into the unit and now I am sharing a room with my  4 year old son in storage in a friends basement.

I’ve applied to a few places even found a potential roommate to help … but I have been denied at the units I’ve applied for. One told me that my credit rating wasn’t high enough.  I was unaware they could check your rating in order to rent a unit. If I had outstanding credit I would have just applied to buy my own house since mortgage and property tax is  far cheaper then renting. Even my social worker told me she bought a house for this reason and her friend who was also in social work had to get a roommate just to afford rent in this city.

Is it fair to charge so much for rent? The units are rarely  well kept in this city. I did live in Edmonton however there was a subsidy for lower income families where they would help you with the rent by up to $550! Here I get $100 and I cant find a 2 bedroom home for less then $800+ utilities and my budget just cannot stretch that high…  I would really like advice as to what I can ask landlords as far as trying to rent a unit.

I take very good care of my home and I am aching to find a suitable clean unit that can be safe for my son as well. I find it odd Landlords would rather jack up the price and rent to messy careless students for the school term then fix everything and start again, as opposed to having one long term person who will take care of the property and maintain the unit as though it were their own… I hope I am not rambling on… I am just so confused as to why its so hard to be able to find a safe place to live. Any advice would really help, I need to know  how to talk to landlords to let them know I am not going to ruin their investment.

Rachelle Answers

While I understand your frustration, I can tell you that it is fair to charge that much for rent. The problem you are encountering is far more than your budget.

Tenants who are on assistance cannot have their assistance garnished. Last year in the entire portfolio I managed 100% of the people who were evicted were on Ontario Works. In that year I have about $50,000 or more in arrears I can never get back. While I do have tenants on Assistance who do pay the rent, my policy is to avoid having to go through evictions because of the loss of energy, time and money. If 100% of the people who I evicted are on assistance doesn’t it make sense that I would avoid renting to them?

Furthermore of those evictions, many of them also had a social problem component. So in addition to not paying their rent, they had loud parties or damaged the place. In one case the police were called too many times to count for everything to loud noise to their guests fighting in the halls and even after a year of getting parking tickets, they couldn’t manage to park in their own spot. One was a drug dealer. In all cases the apartments were completely trashed when the sheriff gave them back to me.

A while back the government made it possible for landlords to get the rent paid to them directly. This allayed many a landlord’s fears about not getting paid rent. A short time later the government decided that the tenant could call and cancel at any time. I had one poor landlord who had a tenant coming from out of town who got the first month’s rent. When the tenant came to move into the apartment, she didn’t have the last month’s rent. She called her worker who apologized for not mailing it out and promised to mail it right away to the landlord. The landlord gave her the keys. A few days later when she didn’t get the check from Ontario Works for last month’s rent she called the worker back. The worker refused to give her any information because of the Privacy Act. It turned out that the tenant as soon as she had the key got the worker to send the money for the rent directly to her. The landlord never did get paid.

That’s why no one will rent you a place. Many landlords would much rather leave a place empty rather than rent to someone on Assistance. It’s just too risky, evictions take too long and the chances of getting your place trashed are high.

My advice is to work hard to get a job and get off assistance. Then you will no longer have this problem. It takes about 4-6 months to evict a person. In that time, the landlord still has to pay his or her bills, the mortgage, property taxes, repairs and so on. Once a landlord goes through this once especially if there is a social problem component or damages, they will much prefer to leave the apartment empty rather than take a chance on a tenant.

Once the government either takes responsibility for this risky group of tenants by making sure the landlord gets paid the rent and reimbursed for damages to the apartment or makes it far quicker to evict people limiting their loss, you’ll find it easier to get a place. The only way landlords can make some money is through rents. They are not going to subsidize your rent. It’s supposed to be more expensive to rent than to buy. That’s because the landlord has to make some kind of profit because they invested their money to buy the place.

I’m sorry if my advice is not what you wanted to hear, but that’s just the way it is. Assistance is no way to live, you owe it to yourself and your son to make a better life for yourself. Good luck.

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29 Comments so far ↓

  • jesse

    Wow Rachelle, that’s a serious smackdown on the Vancouver market. I can tell you that more than a few seasoned landlords are still buying and renting out, content with what they claim is a 5% cap rate on mint condos.

    Who am I to argue with them? They’ve been in the business for decades. They’re happy with 5% and think they have the pick of the litter when it comes to tenant selection.

    • Rachelle

      A true 5% cap rate means that the tenant is paying more than mortgage, taxes, maintenance, capital expenses, vacancy, any common area expenses and so on. Sure a “seasoned landlord” that bought 10 years ago might be achieving this, but then what is their return on equity?

      As a rule of thumb before even doing the traditional cap rate calculation you’d want to see monthly rents = 10% of the purchase price. In most cases that will then give you a final true cap rate of about 5%. That’s a spread of only 2% so it’s not like you roll around in $100 bills.

      Landlords and realtors have changed what cap rate means by not putting in any expenses. That’s just crazy talk, with one of those 5% cap rates in Toronto you’d be feeding your building roughly 22% over time. The fact that some months you might break even is just a teaser because over time those numbers will get you, unless of course you have the only house/building in the world where crap doesn’t get old and break, roofs never leak, appliances never get broken and the walls never need painting. Your 20 year old kitchen will surely attract the best and brightest of the tenant crowd as they all compete for your old decrepit apartment. Of course by then interest rates may have normalized.

  • Nat

    Just a quick question..if a retired person wants to rent an apartment what would you ask for in terms of their income vertification? I always check employment and income for prospective tenants and I like this person but want some kind of assurance that they can pay the rent… What would you do?

    • Rachelle

      I would just ask for proof of income, if they have investments or OAS or GIS they’ll have the stubs. People have that kind of thing to prove their income. You can also get their last year’s tax return.

      • Nat

        Thank you so much for the help! She did have some stubs to show me 🙂 I love reading your articles, they are so well researched and help me a lot.

        Also sorry I didn’t respond sooner, I did check off the notification of followup comments but didn’t receive it, I’ll just have to check in more often 🙂

  • Zerodown

    So the 1200/month condo should be worth 144k to get true 5% cap rate? Ouch.

    • Rachelle

      Something like that. Don’t forget if you consider that everything between the walls will get older and have to be replaced at some point or get damaged then it makes more sense. Not only that it’s going to get more expensive as time goes on. Condos get hit with regular maintenance fee increases and special levies all the time.

    • jesse

      Likely depends on the area too. An increased chance of getting good tenants does make a difference that would tend to allow a lower yield.

      I’ve heard anywhere from 100-150 for a price-to-monthly-rent ratio. For condos I think 150 is likely on the high side even with perfect tenants.

      Vancouver… most of the condos I’m seeing are over 200.

      Rachelle’s thesis is important: landlords are not doing the math properly and will be burned by a stream of “one-off” and unbudgeted maintenance events, and the occasional “tenant from hell” thrown in for an extra kick.

      • Rachelle

        It’s not a big deal if the capital appreciation is there because the “bad math” landlord can refinance or HELOC the money needed for repairs.

        Tenants will really see how bad it can get when this bubble bursts.

        Where will this money come from then? The average income in Vancouver is 80K, how’s this person going to subsidize the rent and pay for repairs. We saw how in the USA the real estate market collapse decimated the economy. We’re just as reliant as they were. What happens when your landlord loses their job?

        So while renting may seem like a genius financial move now, this whole propped up real estate economy will end and lot of people will get hurt. If you’re the tenant in one of these unsustainable properties, it may get to the point that the landlord simply can’t afford to maintain even the mortgage payments on the house.

        EI for example is $1600 per month. Now exactly filet mignon living when you have a couple non cash flowing properties.

  • Denise

    You Rock!!! I find you soooooooooooo utterly refreshing:) Keep on Keeping it real:)
    Sometimes TRUTH HURTS:)

    • Rachelle

      Yep the truth does sting a bit. It’s one of my mantras “you can’t save your face and your ass at the same.”

  • Devore

    The interplay between real estate prices and rents is an interesting one. As long as these specuvestors expect outsized capital gains, they may not be too concerned about renting, so they ask fantasy prices. If their carrying costs start going up, or price trends reverse, they will be more motivated to get someone paying rent to cover PART of their costs. Then you’ll rents for family-sized properties go down, which will eventually put pressure down the chain all the way to a studio.

    • Rachelle

      Most people don’t realize that in a flat market after 5 years of mortgage payments you’ll barely have enough equity to pay the realtor. So they’re all gambling.

      • Dom

        And the consensus, at least up until recently here in Vancouver, is that the “investors” help keep the local RE market buoyant. As soon as the market shows the first sign of cracks, these investors will attempt to escape as a herd, all at the same time, and make the resulting price drop more severe and prolonged than it would otherwise be.

        Thanks for the great articles.

  • xyz

    Hey thanks for the response!! I’m seriously considering sending this post to all the airhead landlords on Craigslist…LOL

  • Arshes

    Read this on Moneyville.–how-to-avoid-renting-to-a-tenant-from-hell

    After reading it and the link to the article about the tenant from, i was thinking do you report tenants that do not pay to any of the credit bureaus?

    • Rachelle

      Hi Arshes,

      There are a couple ways to do this. If you use TVS you can report payment history on your tenants. You can fax in Landlord & Tenant Board judgments to Equifax, or you can use a collection agency. Some of the landlords I work with are really good at getting their money back by filing at Small Claims. Those Landlord & Tenant Board Orders can become good if the tenant is working. It is a bit of a process but one every landlord should learn.

      The Orders are good for 6 years which is a long time and people’s lives do change over time. It’s worth it if you can find the tenants. Google is your friend.

  • Joe

    How do you end up with so many people on assistance in your rentals? Assistance barely provides more than $600/mo and that doesn’t get you very much these days. Even people on disability can barely qualify for most rentals.

    • Rachelle

      Good Question Joe, the answer is twofold. First in one of the buildings I manage the previous property manager had a promotion where your last month was free. This attracted a lot of people who were on assistance and not good money managers. Second if the person on assistance has children they can afford the apartment. In our units the rent is affordable for a person on OW and the building is nice. The problem is utilities. We are gifted with electric heat and in the winter the bills can get high. Toronto Hydro sees fit to send bills every two months making budgeting that much tougher. So even if it looks like the person on OW with a few kids can afford the place, in reality they cannot unless they are very diligent money managers.

      I’ve also managed a few places where the only people who came to look were on OW. I managed a 24 unit townhouse complex in South Oshawa. 95% of the people who applied were on OW. What are you going to do? Burn the place down or do your best to pick from the people that come? I hated those applications but at least the owner was aware of what we were dealing with. I like applications where you don’t even have to think about them they’re so good. 700+ score, working, no problem. Had I stood my ground in that place, it would have been empty! Credit was crap, not working, you pick the best from the bad. Still I did surprisingly well there with picking decent tenants. I think I had one eviction or two there in a year. So not too bad considering that 8 units were empty from the get go and then all the moveouts about 1 per month.

      Unlike an investor, I don’t get to pick the location ever. I just have to deal with the cards I’m dealt.

  • Alan

    Seems like vancouver is seeing the rental boom just as we are in america. Everyone is going from one side of the boat, to the other and it is getting to be a crowded market for rentals.

  • Merridith

    Hope you are just working hard accumulating more stories…….just found your blog and love it. Emailed the link to my sister who runs a couple of mobile home parks. Nothing has been posted for a month.
    Have you quit?

  • Merridith

    Hi Rachelle:

    Have you seen this blog?
    There might be some business opportunity for you here…..with many desperate landlords clustered conveniently in the same buildings….. (I think I managed to figure out you are somewhere near Toronto…..but since I’m not from your area am not sure)