They Aren’t Rent Increases!

April 6th, 2017 · 5 Comments · Kids & Family

I haven’t been writing that much lately about the controversy of rent increases above the guideline. There’s recently tons of stories about how tenants are getting huge rent increases in condos and there is no regulation to limit the amount of the increase.

I wrote an article myself a long time ago now about how to go about doing these rent increases and keeping your tenant.

First of all, I can’t help but be angry at the realtor press, on one hand they spend all their time fanning the flames of how awesome the condo rental market it and how busy it is and how Urbanation says this and that about the rental market. I am so sick of them. They are far from impartial their ownership is related to Urbancorp the recently defunct developer and it is my belief that one of their principal is a Realtor as well.

  • First of all MLS and realtors have a fraction of the rental listings downtown. For instance kijiji currently has 12,000 listing and realtor.ca has 4000 listings in the GTA. Kijiji is only one of many many listing sites. Virtually none of the realtors rent in purpose built rental buildings.
  • Realtors don’t want to rent anything close to affordable housing. Their statistics are there fore skewed towards the more expensive listings.
  • Lots of the places on MLS are for sale and for rent so not even legitimately on the rental market!
  • Articles about rental bidding wars, again fanned by the press. If I have a bidding war it’s because I didn’t do a proper market survey. It’s great when I can get 2-3 people to show up at the same time.

A few years ago I posted about how the vacancy rate for condos is completely and totally inaccurate because we have no idea how many condos are in the rental market. Using the numbers of condos built as the amount of condos for rent is misleading and inaccurate. The bulk of condos built are occupied by the owners. How many of the others are occupied by renters?  we have no idea.

If we know that in Toronto 4000 condos are for rent but we have no idea how many are rental properties, you can’t determine the vacancy rate. I’m waiting for someone to actually rectify this large gap in our knowledge but so far, no dice.

RTA & Rent Increases Exempt from the Guideline

You can raise the rent as much as you want but if you raise it too much you lose your tenant. You have to paint, you have to rerent, you have to get a new tenant who is an unknown quantity and it’s not generally a paying proposition for 2-3 years. That’s a bad deal for owners.

So why are so many of these rent increases happening now?

Negative Cash Flow

Almost every condo owner I know is putting money into their property on a monthly basis. $300-$400 per month and I even have one who is putting in $600 per month. Yes, their equity is going up but you don’t get to spend that money until you sell.

All these condos are not part of true “rental stock” they are temporary rental stock just waiting for the owner to cash out and get his money out. They’ve been paying into their investment for years and they may just be done. Don’t forget there are a lot of rent thieves out there and every landlord victim almost always sells.

Tenants don’t even know that their landlord is putting hundreds of $$$ per month towards their true housing cost and if they do they don’t care.  Instead of being super nice to the people who put thousands per year towards their standard of living, they think that’s normal and even desirable because their landlord is “rich” Unfortunately the only way to crystalize those paper gains is to sell.

Selling a Condo and Eviction

I wrote an article about that how in Ontario if you want to sell your condo, you have to sell it with the tenant in it. If you have a tenant who doesn’t want to move or who is a jerk about showings or even exists on the actual law being followed (Which is that you have to deliver a written notice for every specific showing, and now you can’t take pictures) you’re screwed.

Also a lot of realtors don’t want to even take a listing with a tenant, lots of agents don’t bother with showing units with tenants, you can’t stage it to get maximum profit, and if the tenant is dirty, smokes, smokes weed and is generally an average person and not an OCD clean freak on a daily basis the owner is going to leave a bunch of money on the table when it comes to the sale.

The tenant has no skin in the game, chances are after the sale they get evicted so what’s in it for them to deal with tons of strangers traipsing through? Nothing good that’s what.

Bad Tenants

Lets say you have bad tenants sometimes they pay rent, but late and maybe they smoke weed and party too much and leave pizza boxes in the garbage room and you get calls from the condo board.

Let’s say you have an entitled rude tenant who doesn’t cooperate with reasonable requests.

Using the Above The Guideline Eviction

You just give them a $600 monthly rent increase, and they either pay or go. So most of these increases are not to get tenants to actually pay $600 per month more, they’re being evicted for some other reason. That’s all.

We’ve created a market where money is not made on rent, it’s made on capital appreciation, but forgot that tenants are going to have move and have unstable housing because the entire market is being subsidized on the back of mom and pop investors.

The answer to that is a clear path and incentives to purpose built rental housing. The most dangerous thing we could do is put in rent controls because the solution is sustainable stable rental buildings. For that to happen, policy makers need to figure out the path to incentivize rental buildings. From the get go, condos were always stop gap measure designed to promote home ownership of a luxury product for people who didn’t want to shovel snow and wanted to be part of a community. As an investment? Terrible. As a rental? Terrible.

On an unfortunate note for tenants the new rental buildings, will not be subsidized, there will be no security, no pool, no gym. All that stuff costs money tenants can’t afford to pay for.  Buildings that have two and three bedroom units as a majority of the rentals with a childcare and a convenience store and hair salon downstairs.

Happy Day!

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5 Comments so far ↓

  • Ali Akhtar

    I had been hearing that tenants are evicted this way so owners can put it on Airbnb?

    It seems like Airbnb suddenly has made rental yield attractive on units and for this reason rents and prices have increased dramatically this year.

  • H. Marshall

    Your views, based on your professional experience, is what the politicians and condo investors need to hear.

    Only one thing I disagree on. A huge number of condo units downtown, CityPlace, Liberty Village, Yorkville area are rentals. Same if the condo townhouses & towers are close to colleges & universities. Up to 60-90% in some buildings where I have talked to the board directors.

    Short-term rentals are also a big problem in some buildings.

    Your point about condo rentals being temporary rental units is valid. Many renters stay for a year or two and then move on. The elevator moving pads in a few condos are never taken down.

    I also think you are right about rent controls being a bad idea.

    • Rachelle

      This rental issue is a short term one, because of the way condos work, people who bought condos off plans will rent once or twice and sell, they will usually sell to owners. Buildings that start out with a high percentage of rentals will eventually over the years transition to owned units.

  • Potato

    I can see it now: a purpose-built rental with skip-stop design to give a two-storey “homey” feel to 2/3/4 bedroom units, bare bones amenities outside the units (perhaps some green space, swings, and picnic tables).

    But won’t happen as long as the land is so much more valuable with a tower of 600 sq ft speculator-owned condos on it, with all the amenities that come with a mark-up, and an unending sea of people willing to take the risk and pay for it…

    • Rachelle

      See builders don’t care who they build for, a developer or a landlord. Some of the institutional investors will buy rental buildings as long as they can make a return.

      But when the city is charging 60K development fees per suite, a rental building can’t even get off the ground.

      That’s what government is for to regulate unfettered capitalism and make doing the right thing profitable, but first they must stop gorging themselves at the the table of condo fees, HST etc. We have the result of years of failed policy on our hands, but thank god for condos and these small investors, can you imagine what the rental market would be like with out them?