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Real Estate

Real Estate Appreciation

One of the things I find interesting about human cognition is how we handle different intellectual tasks.  Catching a ball is an INCREDIBLY tough task on the surface, the catcher needs to:  estimate the ball’s current location, estimate it’s current direction and speed of travel, apply the force of gravity to it to determine its trajectory, position her hand in the right location and tense the muscles at the moment of impact.  We do this so effortlessly that children can learn to do it after a few attempts.

Compare this to deriving the area of a circle.  The concept is quite simple, but you have to think pretty hard to get your head around it the first time you come across it. Our brains are clearly better optimized for projectile motion than for geometry.

One of the things that throws us is rates of change.  To really bake someone’s noggin get them thinking about non-linear rates of change, such as exponential growth.  We all know compound interest is great for our money, but it’s very easy to make mistakes when we start trying to reason about, and make extrapolations in, such situations.

A number of investing myths are based on such misunderstandings, and one of the most popularly believed is that location inherently affects the appreciation rate of property.  As one real estate software site suggests:

The location of a property can affect how fast it appreciates in value.  Water properties have been increasing in value at a fast pace.  There is a finite amount of water property available in the United States and demand has been increasing.  More and more people are reaching retirement age fueling the demand for recreational property.

Sounds reasonable, a commentor many moons ago made exactly this argument.  Similar arguments are made about different price tiers of real estate and properties in world famous towns appreciating faster than the market as a whole.

John Reed responds to this myth (and, in my opinion neatly demolishes it) with comments such as:

No price category appreciates faster consistently. It would be mathematically impossible because that category would eventually cost too much for anyone.”

and

However, I have never bought the notion that high-priced homes appreciate at a higher rate than moderate-priced homes. If it were true, the disparity between the two would grow greater as a percentage year by year. Say that in 2004 the median price of a high home were $400,000 and the median price of a moderate home were $250,000. That means the moderate home is 62.5% of the high one.

Then say the high home appreciates 10% and the moderate, 5%. That gives new prices of $250,000 x 1.05 = $262,500 and $400,000 x 1.10 = $440,000. Now the moderate home is only $262,500 ÷ $440,000 =59.7% of the high. Run those numbers since the beginning of home building and you get something that bears no resemblance to current reality.”

I was convinced the first time I read the first quote.  Mr. Reed only talks about appreciation rates for different categories of the housing market, but to my mind the same logic clearly holds for other situations.

To be clear, I’m *not* saying that all houses in a town have the same value, and I’m *not* saying that housing in all towns have the same value and I’m *not* saying waterfront property has the same value as non-waterfront property and I’m *not* saying that transitional areas can’t appreciate at a different rate during the change.  What I’m saying is that all properties, on average, tend to appreciate at the same rate (so if waterfront property is twice the value of non-waterfront property, it will tend to remain twice the value into the future).

So, say non-waterfront property was worth $100k and a waterfront property was worth $200k.  If the non-waterfront property went up $10K and the waterfront property went up $20K (over some period of time), their appreciation rates are identical (10% in both cases).

While factors exist that may temporarily distort appreciation (often economic issues that lead to more people moving into or out of a community), these WILL be temporary.  If an aging population fuels higher appreciation of waterfront property, then once this population gets to an age they can’t enjoy these properties any more there will be a lower appreciation as these properties flood back onto the market.

Let’s go through an thought exercise for anyone who still doesn’t believe it.  You (the reader) and I are two Roman siblings who move to Egypt in 10 AD (or, in 10 CE for people who are morons).  I buy a nice little villa in the heart of Alexandria for 10,000 denarii and you buy a similar villa (on the water) for 20,000 dinarii.  We each marry locals and have many children – our Greek slaves shout opa! – who each remain in these ancestral homes, maintaining them, updating them, dealing with political turmoil, and living their lives.  The properties get passed down through the next 2000 years at which point our descendants get together to compare the values of the identical modern houses they’ve each had recently built on our respective plots of land…

Say we accept that there’s a higher appreciation rate for waterfront property, and let’s make it TINY (a 1% difference).  Proponents of faster appreciation claim MUCH higher rates than this.  Currently, in Alexandria, your property is valued at LE 800000.00 (or $147,378.16 Canadian), quite reasonable for what looks like a beautiful place to live.

Given a 1% difference in appreciation, this would mean my comparable, inland property would be worth LE 0.0018 (800 000 / (1.01)^2000)).  This would be 0.03 CENTS Canadian.

As Mr. Reed eloquently puts it, “you get something that bears no resemblance to current reality.”

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Real Estate

Screening Tenants – Lease Agreement And Repairs

This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

Repairs

Alexandra and Rachelle had more good advice when it came to repairs. I was getting anxious about how to handle the trade-off, and had visions of one set of tenants leaving at 11:59 pm and the new tenants arriving at 12:01 am the next day. The current tenants promised to leave the apartment clean (as it was when they took possession), but I was terrified of having to finding cleaning and painting ninjas to blow through the place in tight time between tenants.

I can’t find a reference to it while writing this, but I’m 99% sure that I read an official guideline that Ontario tenants moving out are suppose to leave at noon on the last day of their tenancy, and that new tenancies start at noon, so in theory there’d be a 24 hour window between tenants in the worst case scenario (if anyone has a link to this or can find it in the RTA I’d appreciate it if you could post a link in the comments).

What the expert advice was was to do the repairs while the current tenants are still in place. They may not be overjoyed about it, but landlords can certainly get access to a unit to make repairs. I think painting would be a big pain with tenants still in place, and cleaning would be a fools errand: it would just get messy again during the move out. If there was anything MAJOR that needed to be repaired, while the current tenants are still in place would definitely be the time to do it in my opinion. It’s somewhat mercenary, but the tenants are leaving so a landlord’s commitment to customer service can be relaxed.

I was able to assess the unit when I started showing it, and my tenants were upfront about the “damage” they had done to the unit (it was basically some scrapped up baseboards, a few paint chips and a couple longer gouges through the paint). In my opinion, very reasonable wear-and-tear over 3.5 years of tenancy (I told them the condition was fine with me as long as they left it clean).

I’m not a handy guy at all, and I really didn’t want to paint the entire unit (or pay someone to do it) when it still looked like it was in good shape. I got some spackling paste (available at any hardware store and most dollar stores / department stores) and patched up the chips and gouges in the wall. I bought the smallest can possible of the colours I used for the walls and baseboards, and JUST painted the spackled / damaged areas. It cleaned up AMAZING and you couldn’t see it had been repainted unless you were up close and knew what you were looking for. Many painting sites warn about “flashing” where new paint has a different sheen the the rest of the wall with the old colour. For whatever reason, even with a 3.5 year difference between the paint coats this wasn’t an issue. I used Benjamin Moore’s Barely Beige CC140 for my walls. Maybe this is better for not showing flashing – I don’t know why it worked out as well as it did.

In my opinion there’s nothing worse than moving into an apartment that’s dirty from a previous tenant, so if the previous tenants didn’t clean the place SPOTLESS, I’d make sure it is for the new tenants.

Lease

You want to use a legal lease. You can get a tenancy agreement form if you’re a member of the landlord self-help center, from your property owner associations (most communities have one), from a friend who is a landlord in the same province / state, many book stores sell legal forms that probably includes a residential lease agreement, or you can buy from a website (a number of lawyers will sell them on-line for a nominal fee – do a Google search and make sure it’s applicable for where you live).

I go through the entire lease, item-by-item, and discuss each with the tenant, explaining what each obligates them, and myself, to. It’s often an excellent opportunity to make sure you’re on the same page. It is a very GOOD sign if a tenant asks many questions and clarifications and reads through carefully. Rather than indicating that they’ll be contentious, this shows me that they’re taking it seriously and intend to follow their legal responsibilities (which is all I, as a landlord, ask for).

One of my father’s friends knowingly puts a number of illegal conditions in his lease. His attitude is that if the tenant doesn’t know these are illegal, he can “encourage” them to follow those rules (even if he doesn’t have the law to back them up). Many contracts are “severable” which means even if specific clauses are illegal and unenforceable, the rest of the contract remains valid. Many of us are familiar with this from employment contract, such as:

In the event that any provision or portion of this agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this agreement shall be unaffected thereby and shall remain in full force and effect to the full extent as permitted by law.

or something to that effect. I’m not a lawyer, and some things I’ve read warn that an illegal clause CAN invalidate an entire lease agreement. I wouldn’t be happy if someone tried to trick me into signing a contract with clauses they know are illegal, so I don’t do this with my tenants.

Trade Off

Once you have the full deposit (first and last month’s rent in Ontario) cleared, the old tenants moved out, the place repairs and cleaned, you’re ready to move the new folks in! Meet up to hand over the keys and cross your fingers that the new tenants will work out.

You’ve done everything you can at this point and the rest is up to lady luck.

Thanks again to Rachelle and Alexandra!

Categories
Real Estate

Screening Tenants – Credit Check

This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

Credit Check

Check out Rachelle‘s excellent post on this. She recommends Tenant Verification Services, which I don’t find as enticing as she does. I joined the Landlord’s Self Help Center which includes a membership for Rent Check Credit Bureau whom I’ve used and like.

Whichever service you use, sign up early.  It takes time for them to give you a membership, so if you wait until you’re ready to process an applicant before you sign up, you’ll be scrambling to get them to authorize you.  I’d sign up with a credit check service at least a week or two before you’ll need to run a check.

Because the credit check costs money, do this after everything else has checked out.  On the other hand, a $20 credit check is the best money you’ll ever spend, so don’t skip doing one to save some cash!  Look at their credit history and try to figure out what their story is. I looked at some people with MASSIVE debt. They had a bunch of delinquencies from 3 years ago and had been steadily paying down their debt since. It was pretty obvious to me that they were people who were turning their life around after some mistakes, and I was willing to rent to them (in spite of their sub-optimal credit).

Often landlords will say that you won’t get applicants with perfect credit: people with perfect credit buy, they don’t rent. I haven’t found this to be completely true (students and young professionals will often have good credit and still rent). Depending on your target market, it may not be realistic to hunt for someone with perfect credit. I’ve never had to rent to someone with awful credit, and in fact probably wouldn’t. If they don’t pay other people, why would they pay me?  I don’t own low-income housing, people who do will probably have to accept far rougher credit histories.

If at all possible, it is very helpful to have someone who knows what they’re doing go over a few credit reports with you.  They’re a little daunting to interpret the first time you see one.

My mantra when renting is “no tenant is better than a bad tenant”

Rejecting Applicants

At the screening or credit check steps you’ll rule out a number of applicants.  There are different schools of thought on how to go about rejecting them.  Both Rachelle and Alexandra told me not to commit to getting back to applicants on a specific timetable.  I can’t help myself from following the golden rule, and I haven’t followed this advice (although it’s probably wise).  I’d be very annoyed if a landlord wouldn’t tell me when I’d hear back from them and I usually tell tenants I’ll let them know in 2 or 3 days.

Alexandra advocates not giving them a timetable and instead of rejecting applicants, just don’t contact them again.  If they contact you, just tell them you’re still processing applications (or have rented to someone else if you have).  She says they’ll get the message and look elsewhere when they haven’t heard from you for a week or so.  This is probably the safest approach from a legal perspective, but I couldn’t bring myself to do it.

Rachelle advocates the following:

Use exactly these words.

“I am sorry to inform you that your application is not accepted”.

If he asks you why? Tell him that you don’t need to give him a reason.

“I’m not giving you a reason. I am not renting the apartment to you.”

Again, this is probably a great approach, but seemed quite harsh to me.

A buddy who has a lot of experience as a landlord advised me to just say “I’ve decided to rent to someone else”.  He said, even if there isn’t someone else he’s renting to, it’s technically true if he’s decided to rent to someone else in the future instead of the current applicant.  I asked him if rejected applicants have ever gotten angry when they see him advertising a unit after rejecting them, and he said it’s never come up for him (but thought it was a funny idea and would be an awkward conversation if they called him on it).

In the end, I wasn’t 100% comfortable with any of these, and as a compromise politely rejected people by e-mail (which is perhaps cowardly) and hoped no one called.  No one argued or fished for more details.

Offering the Unit

Just because you say “the unit is yours”, it isn’t a done deal until the lease is signed.  I had a nice couple who ran into financial problems three years ago but looked pretty good.  I offered them the unit and was coming a couple of days later to sign the lease with them.  They were grateful and happy I offered the unit to them.  The day of the signing the man called me and asked if I was still in Waterloo or in Toronto.  Turns out, they’d continued their apartment hunting, found a place they liked better and decided not to rent from me after all.

Some people I told about this said they’d have been angry at the couple (saying they wanted to take the place and backing out at the 11th hour before signing the lease).  I was just grateful that they told me before I’d rented a car and gone to Toronto.

If I offered the unit to someone who started delaying signing the lease, I’d probably offer it to someone else (as they’re clearly using the unit as a “back up”).

Along with signing the lease, I get the first and last months rent from the applicant.  They don’t get the keys until the current tenants have moved out, so there’s a bit of time to make sure checks clear and whatnot before they have a key and possession.

Thanks again to Rachelle and Alexandra! More details in future posts…

Categories
Real Estate

Screening Tenants – Filling Out Applications

This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

Application

After showing the apartment to potential tenants, the million dollar question is “would you like to fill out an application?”. If the person doesn’t fill out an application, on the spot, they aren’t interested. I CONTINUALLY fool myself with this, someone will look me in the eye, say it’s a great unit, they’ll fill out the application and fax it to me. They even ask about details like “would it be acceptable to scan it and e-mail the application to you as an image?”. They won’t do so. I had 3 people say something along these lines to me this time and a number say similar things to me 3.5 years ago, I believed each of them (and mentioned to friends and family that there were more applications that were coming in), and none of them followed through.

If you get the once in a lifetime person who actually does this, enjoy, but if they don’t fill out an application immediately after the showing, treat it as if they said “thanks, but I’m not interested”.

If you don’t get at least 1/2 the people who see the unit filling out applications, it means your asking rent is too high. Keep dropping it until 1/2 the people who see it fill out applications (then pick the best applicant).

Some people will ask if it’s first come first served, or if they’re guaranteed to get the apartment if they fill out an application. I always answer this with: “Just like you’re trying to find the best apartment, I’m trying to find the best tenant. I’ll process all the applications and offer it first to the applicant that looks best, then to any others who are acceptable“. People don’t seem to love this answer, but they accept it.

Rental applications are a bit tricky. You obviously don’t want one that asks any illegal questions, but it can be tough at times to be sure what you’re asking is 100% legal or not (there are a large number of opinions on what is ok to ask about and what isn’t). In Ontario, joining the Landlord’s Self Help Center is worthwhile (more on this in the next post) and they provide a pdf rental application form to members. Most local property owner associations will have an application for members (I use one I got from a friend who got it from his association). Be careful if using a form downl0aded randomly off of the internet (it may be appropriate for another country / province but not for where you are).

Some people will ask “do I have to fill out this question?”, often followed up with “will it hurt my application if I don’t?”. I always answer “you don’t have to fill in any part of the application you don’t want to” to the first question, and “the more information you give me, the easier it will be for me to rent to you” for the second. If they repeatedly ask, I repeatedly answer the same way. It’s dangerous legal ground to go beyond this, so I avoid the issue entirely. I can’t process a credit report without a SSN (which legally they aren’t required to provide) and it makes it harder for me to do screening without the other info, so unless they have a good reason (that they give me) for not being able to fill out a field, I accept incomplete applications but I don’t bother processing them.

Screening

Screening tenants is half art, half science. Read as much about other people’s thoughts on this as possible. The first “filter” is your impression meeting them. If someone creeps you out or gives you a bad vibe, reject them. I had one guy who walked around the place talking quite slowly and gushing about how much he loved his dog. I thought, well I’m fine renting to this “good ol’ boy“, and he filled out half the application, then announced that he’s a lawyer and he didn’t have to providing any other information. I don’t know if he was a simple guy pretending to be a lawyer, or a lawyer pretending to be a simple guy, but either way I didn’t want to have anything to do with him.

Call up where they work. Legally there’s a minimal amount of information employers can provide, but they should be able to verify that the person actually works there, their position title, and their annual salary.

Call up their past landlords. Their current landlord isn’t to be trusted (perhaps they’re bad tenants and he’s lying to get rid of them). It’s more their older landlords that will be honest with you. Read between the lines (if they don’t want to give much information and keep repeating things like “they were my tenant from this date to that date”) it’s a bad sign. They should be able to tell you if the tenant was ever late on rent payments (which is an automatic rejection for me: I need tenants that pay the rent).

Google as much information as possible. A woman applied the first time I was renting the unit and looked reasonably good. She even cut me a check for a deposit and gave it to me with the application. I Googled her “landlord’s” phone number and it was the number for a company, owned by a man with the same last name as her that did the same work she’d told me her father did. I called, talked to a nice woman who gushed about what a good tenant she was, and after I asked if she had any relationship with the application other than being her landlord there was a pause, then she said “no, we met her for the first time when she rented from us”. I don’t rent to people who lie to me (and something MUST be going on if she has to get someone to pretend to be her landlord).

Personal references don’t need to be contacted. I’m sure Jeffrey Dahmer or Adolf Hitler could have easily provide 3 or 4 people who would say how wonderful they are. You get these contacts NOW in case you need to track the tenant down later. If they disappear in the night and leave owing money, you have the name and numbers of 3 of their friends / family to try to find them.

Thanks again to Alexandra and Rachelle! More details in future posts…

Categories
Real Estate

So You Think You Can Landlord? A Tenant From Hell Story

Warning – this post is not suitable for family viewing!

I originally rejected this post and then decided to run it – then I rejected it again and finally decided again to publish it.  It’s not the type of post I really want to publish, but it does contain a good lesson for prospective landlords.  The item in question will not be mentioned by name here, although I have provided a link to the Wikipedia description so you can find out what it is.

This article was written by Rachelle: a real estate guru who works as a property manager and helps investors find rental properties in Toronto and surrounding areas.  She has recently started a very interesting blog called Landlord Rescue.  You can subscribe to the RSS feed here.

Check out Rachelle’s other “Tenant From Hell” posts:

This is a story about pushing the envelope of Landlord & Tenant Act, and of the system of protections in a rental building breaking down. Staff can be manipulated and make rental mistakes.  In this case we escaped relatively unscathed except for my coworker’s ego and some of her innocence.

The Humongous Electric [item]

As soon as I entered the office, a veritable mob of staffers assaulted me. I knew it was big trouble because ten people were in my office this morning.

There was a call at about 4 am about leaking water. The super played detective and followed the clues until he found the source of the water. He then observed a delightful scene. The bathtub was running full bore and the drain was plugged with cigarette butts. There was about 2 inches of water throughout the apartment. There was also a man.

In spite of the super’s knocking and shouting “Management” the man was passed out cold.  He was lying in the kitchen on a blow up mattress. He was very naked. Supers never like to find naked, passed out, obese, middle-aged men in a flooded apartment. They hate it even more if they can see an extra-large plastic pleasure prod right beside the naked man still plugged into the wall.

Now he was in MY office telling ME that I have to do something. I haven’t even finished my coffee. Then the rental agent comes over. She’s shuddering because she’s heard about the “device” found beside the guy. Every time she says the word [item], she turns a bright shade of red. I ask her for the file on this guy. I’m giggling delightedly to myself since the rental agent and I have what can best be described as a rocky relationship. I’m enjoying her embarrassment.

The File

I get the file on our newest resident… there’s nothing in it except for a lease and it isn’t signed. No ID, no work history, no previous landlord, no letter from the bank. Nothing.  There is a receipt for payment of first and last. What this guy was doing in our building with nothing but respiration to recommend him? I dig deeper, it turns out she gave the guy a break because he just got out of the mental hospital and he needed a place to stay right away. He didn’t have any of the paperwork, but he was supposed to bring it to her before the first of the month.

Literally all that is required to move into our building is a pulse and first and last. No wonder the eviction department (me) is so damn busy.

The Action Plan

I sigh and shake my head a little. I tell everyone I have a plan. I ask where [Item] Guy is. They tell me he went out. I’m guessing he’s gone to get more beer and cigarettes.  I explain that because it’s before the first and we didn’t charge him prorated rent, he’s not officially our tenant yet. Everyone breathes a giant sigh of relief.  I tell the super to change the locks and post a note on his door telling the new non-tenant to come to the management office.

Getting a check issued

My request to head office to issue a check for us to refund our non tenant’s money ASAP was met with protestations of impossibility. In buildings we only issue checks to pay bills 90 days old. I tried to do this once with my hydro bill and darkness ensued, but buildings get away with it all the time.  The list of reasons why it wasn’t possible was very long.

I called the owner of the building and tell him about his brand new tenant. I convey my regrets that I wasn’t able to get rid of him because the head office had assured me that it was impossible to issue a check. I described the plastic [item], it was huge, it was electric, it would cost a fortune in hydro. I described the flood, four floors damaged etc. Yes, it was indeed his very first day in the building. “What would the future hold”, I idly mused? “Oh well it’s too bad” I apologetically said as I hung up the phone.

I wait by the phone … about 2 minutes later it rings. It’s the exalted head accountant on the phone. It seems that they have a check ready.  A miracle has occurred, the angels are singing and my plan gets a new lifeline. Alas, another problem rears its ugly head. “How are we going to get this check to you?” the accountant with the MBA asks me. (Head office is 20 blocks away) I’m glad I’m talking to the smartest guy at head office. “I’ll use my car and drive over” I carefully enunciate.

The Tenant Reappears

After a drive, I return to my office with the check. The rental agent is talking to someone about an apartment. I notice that she’s not making eye contact with her potential tenant at all and she’s trembling. The guy has a bag from the liquor store with him. It’s [Item] Guy!

The rental agent keeps talking about the nice apartments we have and how he can get an even better apartment to rent because he had a flood in his apartment. I can’t believe what I’m hearing and my brain is melting a little. I call her over to my office.

“Thank God” she says.  [Item] Guy has been talking to her since I left. She’s afraid to tell him that’s he’s kicked to the curb. “He did just get out of the mental hospital” she says. She’d rather sit there and rent him another apartment for two hours while shaking and shuddering than tell him the truth.

“Do I have to do every single thing around here? I didn’t rent to this weirdo you did” I tell her.  She begs me to tell him that he’s not moving back in. By this time I’m fed up and just want this crap finalized.

The Brush Off

I break the news to him. You’re not moving back in here. You caused thousands in damage with your flood. I hand him the check and tell him to take his stuff. He gets really mad at the rental agent and starts screaming at her. I tell him it’s time to go and he leaves. He doesn’t take any belongings and never came back.

Can it really be over?

A couple months later, I notice that the apartment is still empty. I ask maintenance why it’s not available. He starts telling me what a problem he’s having.  “The cleaning staff won’t touch IT,” he says. So he can’t get the suite renovated or cleaned because the giant electric [item] is still in the apartment.

Now it’s over

I’m thrilled. I sneak to the apartment throw a towel over the problematic device, unplug it and chuck it down the garbage chute. I don’t tell anybody.  I snicker randomly for the next few days and wait.

A couple days later the maintenance manager comes into my office. He’s very concerned.  “One of the staff must have stolen the [item]; it’s disappeared.”  Staff theft is a big concern in buildings. I tell him that someone must have needed it badly and to look on the bright side of things. Now we can clean and rent the suite. I’m keeping a straight face somehow; as soon as he leaves the office I start laughing so hard the tears are rolling down my cheeks.

I never did tell them… until now.

Categories
Real Estate

Buying Vs Renting A House


As much as I like real estate, I also like saving money, so I always perk up when I come across articles or postings comparing buying vs renting.  The real estate people in the crowd will say that buying real estate has numerous advantages (I’ve discussed many of them in previous posts) and that when you rent “you’re throwing money down the drain”.  It’s quite arguable that keeping a roof over your head is “money down the drain” so lets start there.

I’m currently paying $500 / month for a room in a house (which I share with two other tenants).  This covers all utilities and everything.  This $500 is gone, but it’s purchasing me some of the necessities of life.

Buying vs renting

Say I bought a 1 bedroom condo in Crescent Town (one of the cheaper areas in Toronto, Keifer Sutherland grew up there – it’s pretty depressing these days).  Right off the top condo fees will run me $376, which cover utilities, ground and common area maintenance and whatnot.  This is “money down the drain” just as surely as my rent is.  I’d be paying about $70 / month in property taxes, which pays for things like schools, transit and mayor David Miller’s golf club membership.  This is money down the drain too.  Of my $683.65 monthly mortgage payment (say $110k at 5.69%), $515.51 is going to interest rather then equity (money down the drain again).

If you’re saying to yourself (“well, those condo fees are outrageous”) please keep in mind that apparently for a single family home, you’ll typically spend 2.5% of the house value on maintenance annually.  Plus you’re paying all the utilities and property taxes.

The rent advocates will talk about how you could rent, then invest the difference in the stock market, average a 10% return and be better off.  This is all true for what it is.  If someone tells you after renting for 10 years you have nothing to show for it, you can smile and show them your stock portfolio and say “this is what I have to show for it”.  Or you can show them pictures from your last 10 trips to Hawaii and say this is what you have to show for it.

The big question ultimately is where do you want to live and what are you willing to pay to live there.  If it’s going to drive you nuts having to get the landlord’s permission to paint your bedroom purple, or getting a rent increase every year, you might be better off as a homeowner.  If you like to move every 2 years or want to live in a bare-bones ultra-cheap accommodation, renting might be better for you.

For me I could live where I am for $500 / month, or I could be living in a 1 bedroom in Crescent Town for ~$950 / month (I’d have to pay more than this, but the extra would be going into equity).  Right now the flexibility and low-price makes this preferable (but if my roommates piss me off, I’d quickly switch into condo hunting mode).  It’s not as simple as saying that the condo costs $450 / month more as I’d be getting appreciation from the condo, as well as protection from rent increases (although I’d be exposing myself to increases in the condo fees and the property tax).

Just make sure not to buy into the absolute of one is better then the other, it is highly dependent on who you are and what you want.

Categories
Real Estate

Screening Tenants – Advertising And Showings

This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

Advertising

I’ve touched on this in previous posts, and on comments on other blogs, but I’m a big believer in free advertising when it comes to renting out apartments in Toronto (other markets may be different, but in Toronto, for apartments, you can get enough applicants on the free sites).  I recommend posting ads on Craigslist (in “apts/housing for rent“) and Kijiji (in “apartments for rent”).  Both sites have filters to prevent you from reposting the same ad in a set period of time, but they’re pretty easy to get around (just make some superficial changes to your ad).  Worst case scenario, if it matches the ads together, take down the old ad and re-post a new one every few days.  The reason why you want to repost (and fight the system to do so) is that people will just look back through a certain number of ads and you want your apartment to be in the part they look through (the first ones!  they’re ordered reverse chronologically).

Kijiji sells “priority placement” and will also sell you the ability to move your ad back to the top.  I’ve never used either of these features (if anyone has and they care to comment I’d love to hear your experience).

In terms of the ad, there aren’t any limits to space (that I know of), so there’s no reason to use the crazy newspaper short forms:  e.g. “2 br, 2 ba, part furn”).  Both sites allow pictures, so it’s well worth including some!  I can never understand why some people leave out information (like the rental price!).  I include EVERYTHING I think might be relevant:  pictures, extensive description, all amenities, map of the area, rental price, nearby stores, etc, etc, etc.

Typically I also make up a website which I can direct people to from the ad (officially you aren’t supposed to do this with Kijiji, but again it’s pretty easy to get around).  I’ll copy and past from the website when I’m re-posting ads to one of the sites.

You may feel more “bound” by the sites’ terms of service than I do, in which case feel free to only post once, don’t link to an external website, etc.

There are a number of other sites, some for pay and others that are free.  I posted on all the free ones I could find, but I still found all my leads came from Craigslist or Kijiji.  Doing a Google search on “toronto apartment rental” will probably turn up most of the other sites if you decide it’s worth advertising as broadly as (freely) possible.

Showings

When showing the unit, at first I felt a bit weird walking around, gesturing grandly and saying “now please turn your attention to the lovely Corinthian banister”.  In part, because I don’t think Corinthian banisters exist, in part because even if they do exist my unit certainly doesn’t have one and in part because that it just isn’t my style.  When I was first showing my unit, my friend suggested that I feel free to point out any nice features of the apartment, and limit my “selling” to that.  I would have a standard walk around the building pointing out amenities, then I’d show them around the unit and do the same thing there.  I learned a few set responses to common complaints / criticisms such as:

  • “No, there isn’t central air conditioning, but you’re welcome to put in window air conditioning, and since you don’t pay for utilities, there won’t be any monthly fees”
  • “No, there isn’t a dishwasher, but you’re welcome to hook up a portable dishwasher to the sink”
  • “Yes, it is an older building.  Typically you either get a new condo with small units and fancy amenities, or older building with lots of space and fewer amenities.”
  • “No, there isn’t a second bathroom” (I could never think of a better response to this one”)

I foolishly would make appointments with individual applicants when I rented the first time, and it was madness (I spent a couple weeks constantly running back and forth to the condo).  This time I set out a 6 hour block, and told people that’s when they could come.  People who couldn’t make it, I told them I’d keep their contact info and let them know if I arranged another showing.  I did it over a weekend, got a good applicant, had them fall through (more about that in a future post), then did showings over a 2nd weekend and got another good applicant that stuck.

Two Wise Acres (which sadly has become defunct) has a hilarious post “How to manage prospective tenants efficiently, effectively and without killing them“.  I think I got every one of these other than the murderer (which, if you’re going to avoid one of them, that’s the one to avoid).

One thing that is AMAZING to me is how cavalierly people will not show up for appointments, and never call to say so.  My only theory is that it’s a chance for people to “stick it” to a landlord with no fear of repercussion (or maybe people are just ruder than I believe).

Sometimes I’d get phone calls or e-mails from people with INCREDIBLY complex lives and problems, (e.g. I’m moving back to the country and don’t have any rental history, I’m in Edmonton and need you to hold the apartment for me for a week while I book a flight to come see it, I’m going to start school near Casa Loma – which is NOWHERE NEAR the condo you’re renting, but for some reason I’ve decided to move to your part of the city instead).  On other rental issues, Alexandra and Rachelle had each summarized their feelings as “that’s not your problem” when I was asking how to deal with awkward situations with tenants and applicants.  I’m not sure if these people were scam artists or genuine people in a difficult circumstance, but I only went out of my way to a certain limit to accommodate people who had a unique situation and wanted to view the unit.  I think “it’s not my problem” is a reasonable mantra when people start trying to suck you into their drama.

Thanks again to Rachelle and Alexandra ! More details in future posts…

Categories
Real Estate

How To Screen Tenants

This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

I recently had my tenants give me notice and had to go through the process of finding tenants for the second time. I initially expected that it would quite straightforward, seeing as I’d gone through the process before and put quite a bit of thought into it at the time. Surprisingly, I found it quite an anxiety-producing experience: I guess I was out of practice after 3.5 years. Luckily, a couple of my favourite Money Smarts commenters, Rachelle and Alexandra, were willing (and very able) to answer questions, and I think the process went as well as could be expected.

I’ll try my best to identify which suggestions were from who. My apologies in advance if I take credit for something that was actually from one of them (I’ll grab any credit that isn’t nailed down).

Why They Left

I gave my tenants a rent increase earlier in the year, and they gave me notice less than 2 months later. Since rent increases require 90 days notice, and terminating tenancies require 60 days notice (and they paid for the last month’s rent when they moved in), they actually left before the increase took effect.

It’s a VERY debatable point with landlords: do you raise rent on good tenants? I remember one place I was living, they increased my rent from $650 to $700 / month and that was the straw that broke the camels back and I moved in with my girlfriend at the time. Their apartment sat empty for 2 months after I left, which obviously lost them a lot of money. There’s some point when tenants will leave, and the rent going up gets them closer to that point. On the other side of the coin, moving is a pain in the butt, and has a number of expenses associated with it as well. If you’re going to pay more than the increased rent over the next year on the move, are you really saving anything? Also, tenants often get distorted views of “market rent”. They think of prices in terms of what apartments cost last time they were apartment hunting, rather than what the current prices are (and are often shocked when they start hunting and everything is more expensive than they remember).

Given that I only raised my tenants’ rent by 2.1% (and this was after 3.5 years), I find it hard to believe this would have prompted them to move. They also had told me they were considering moving, as one of them was going to school in another part of town and it would have been a brutal commute. I acknowledge that this MAY have just been them being polite, and I drove them out (I’m certain that would be the interpretation of the “never raise the rent” crew).

The reasons to raise the rent is obviously a business decision. While a 2.1% increase of the gross rent may not seem like a lot, when it gets added to your bottom line it can be significantly (this would have been more than a 10% increase in my monthly cashflow).

The new tenants ended up paying the increased rental amount, so the market determined this was a fair price.

Notice to Vacate

I’ve had a very good relationship with the previous tenants, but I certainly wanted to do everything “by the book”. They just wanted to informally tell me when they would move out, but I insisted that they get me an N9 form. They were confused and bothered by the fact that, in Ontario, tenancies end on the last day of the month, but start on the first day of the month. I was sympathetic to this, and thought it was a fair question “where am I supposed to stay overnight with all my stuff?”. Both Rachelle and Alexandra had similar reactions to this and basically said “how is this the landlord’s problem?”. In the end I tried to soften it a little, while holding firm by sending them the following info:

Unfortunately, that is how it works in Ontario (that you need to vacate on the 30th). Surprisingly it isn’t a problem as often as you’d think. Often tenants won’t be in the new unit (they might leave a couple days early from the unit you’re moving into and the new landlord may let you in on the 30th), or the new tenants don’t need the old unit on the first, or the new unit has been empty (like when you first saw the unit you’re in after the renovations), etc., etc., etc. Some buildings have storage they’ll let you use overnight. I once had to move all my packed belongings to a friend’s living room over night (and then move everything again into the new unit the next day). Some people rent cube vans and use them as overnight storage as well as transportation.

They were still unhappy, but in the end, it worked out exactly as I suggested (they were able to move into their new place 1 week early). They couldn’t understand why I wouldn’t let them stay a few days into the next month, but obviously this would have cost me an entire month’s rent.

Another friend of mine who owns and rents a bunch of units says that he will leave units empty for a month for clean-up and repairs between tenants. He acknowledges that this is a big expense, and in part because of this he really looks for very long term tenancies (and has been quite successful in setting up his units with these). This was a higher expense then I was willing to take on between tenancies.

Thanks again to Alexandra and Rachelle! More details in future posts…