The Biggest Mistakes that Landlords Make

In this seven-part series, learn about the biggest mistakes that Landlords make and how to avoid them.

 

Mistake #1 – Selecting the wrong Tenant

The #1 key to success as a Landlord and real estate investor is finding a great Tenant that will pay the rent on time and take care of the property.  Plain and simple.

Finding that great Tenant is where the challenge begins.  Your Tenant screening process needs to be systematic and comprehensive, so that you can find the best of the best.

This may seem obvious, but you’d be surprised by how many Landlords take the short-cut and accept the first person that comes along.

Why does this happen?

    • They’re under financial strain and desperate to get the unit rented.

    • Lack of patience.
    • They don’t have the time for due diligence.

    • They don’t know how to properly screen a Tenant.

    • They don’t know what supporting documents to ask for.

    • The Tenant offers a lump-sum payment up-front as incentive, usually to overlook red flag on their application.

    • The Tenant was referred by a friend, acquaintance, or family member.

    • The Tenant offers to do repairs/improvements to the property, usually for a rent discount.

    • The rental unit is of low-quality and/or in a bad area.

    • They feel sorry for the Tenant’s situation and want to help them out.

    • They trust the Tenant on face-value, without doing the due diligence.

In most cases, things start out just fine, but eventually start to slip.  The Tenant starts paying late, then missing payments, then not communicating.  The Landlord doesn’t handle the situation properly and the downward spiral begins…

How do you avoid choosing a bad Tenant?

This whole situation could have been avoided by doing the due diligence (aka Application Process, Background Check, Tenant Screening, Vetting Process), no matter where the candidate came from or what their story is.  It doesn’t matter if they were referred to you by a co-worker or family member, always run them through a vetting process.  It doesn’t matter if the Tenant entices the Landlord by offering to pay for one year up front (happens all the time and is a major red flag!), do the due diligence.

This might seem extreme and uncomfortable in some cases, but owning a rental property should be ran like a business.  Your rental business.  And like any business, it depends on consistent revenue to make it work.  You’re also handing over a property worth hundreds of thousands of dollars to a stranger.  You need to make sure that the person taking possession of your valuable asset is qualified and trustworthy and that you feel good about it (that Gut-feeling).

What’s the best way to screen a Tenant?

    • Create good-quality Ads with nice photos.

    • A reasonable Rental Rate, based on market conditions – not too high, not too low.

    • Meet the Candidate in-person and get a feel for them.

    • Ask questions to uncover their story – what’s their history, why are they looking to rent your unit, who will be living in the unit.

    • Listen to your Gut – you’ll have a nagging feeling if something isn’t right.

    • Have them fill out an Application.

    • Request Supporting Documents, including Credit Report, Job Letter and recent Pay Stubs, Photo ID.

    • Check References, especially their Employer.

    • Social Media checks – how they behave on Social Media says a lot about a person.

    • Social Media checks on their References, especially their Employer and Supervisor.

    • Confirm Credit Score on platforms such as Front Lobby and SingleKey – Credit Reports can be easily falsified.

What ‘Red Flags’ should you be looking for?

    • Inconsistent, missing or false information.

    • Dragging their feet on giving you the information that you requested.

    • Not being able to find them or their employer on Social Media.

    • Employer not calling you back for a reference check.

    • Not providing previous Landlord contact information.

You also want to assess:

    • Their ability to pay – do they have enough income to cover their expenses?

    • Will they be a good fit for you, the rental unit and other Tenants (in a multi-unit building)?

In the end, you want to feel good about having the Applicants move into your property.  You want to select someone who you feel that will be a pleasure do deal with on a day-to-day or monthly basis.  You also want someone who’s not going to be overly needy or helpless, as that will eventually be drain on your time and energy.

Want to learn more about the process we use at East Vista to find great Tenants for our Clients? Click HERE to read this informative article.

 

The Ontario Standard Lease – What you need to know!

What is the Ontario Standard Lease Agreement?

A standardized form of lease, mandated by the Ontario Government for most residential lease agreements in Ontario.  The clauses within the lease are aligned with the Residential Tenancies Act.

What you should know about the Ontario Standard Lease Agreement:

  • It’s mandatory for residential leases signed after April 30, 2018.
  • The Tenant must receive a signed copy of the lease within 21 days of signing.
  • The OREA Agreement to Lease (Form 400), used if you advertise the property on MLS through a Realtor, is not a valid form of Lease in Ontario.  It must be accompanied by the Ontario Standard Lease.
  • Additional terms can be added to the agreement, as long as the terms do not contravene the Residential Tenancies Act.

Why is a standardized lease agreement a good thing?

  • Reduces confusion and misinterpretation often associated with tenancy law.
  • Reduces risk for Landlords by keeping them compliant with tenancy law.
  • Protects Tenants against unlawful lease clauses.
  • Clarifies obligations and responsibilities of Landlords and Tenants alike.
  • Provides an easy-to-use, legally compliant Lease Agreement for small Landlords.

The Ministry of Municipal Affairs and Housing publishes a comprehensive guide to the Ontario Standard Lease.  It’s a quick read and provides loads of valuable information about key clauses within the lease agreement and the associated legislation within the Residential Tenancies Act.  In our opinion, the guide should be required reading for Landlords and Tenants alike! 

Overview of Key Sections of the Lease Agreement

Section 3 – Contact Information

Landlords and Tenants can agree to send and receive notices by email, where permitted by Landlord and Tenant Board rules.

Section 9 – Key Deposit

Landlords are permitted to collect a refundable Key Deposit.

Section 10 – Smoking

Ontario law prohibits Smoking in common areas, but not individual units.  Smoking rules for individual units must be added to the Lease by the Landlord and agreed to by the Tenant.

Section 11 – Tenant Insurance

The Landlord can require that liability insurance is obtained by the Tenant.  The Tenant must provide proof of coverage if requested by the Landlord.  Obtaining content insurance is optional for the Tenant.

Section 12 – Changes to the Rental Unit

Tenants are permitted to make minor alterations, such as hanging pictures and window coverings, but must have Landlord approval for any other alteration.

Section 13 – Maintenance and Repairs

This section explains that the landlord must maintain the rental unit and property, but the tenant must repair or pay for any undue damage caused by the tenant or their guests. The tenant is responsible for keeping the unit clean, unless the landlord agreed to do so.

Section 14 – Assignment and Subletting

This section explains that the tenant needs the landlord’s permission to assign or sublet the unit to someone else, and that the landlord cannot arbitrarily or unreasonably withhold consent.

Section 15 – Additional Terms

The Landlord and Tenant can agree to additional terms not covered in the Ontario Standard Lease, assuming:

Any additional term which attempts to take away a right or responsibility under the act is void (not valid or legally binding) and cannot be enforced. Some examples of void and unenforceable terms include those that:

  • Do not allow pets (however, the landlord can require the tenant to comply with condominium rules, which may prohibit certain pets.)
  • Do not allow guests, roommates, any additional occupants Part 1: Sections of the standard lease 8.
  • Require the tenant to pay deposits, fees or penalties that are not permitted under the act (for example damage or pet deposits, interest on rent arrears).
  • Require the tenant to pay for all or part of the repairs that are the responsibility of the landlord.

Additional terms should be written in plain language and clearly set out what the landlord or tenant must or must not do to comply with the term. If typed, the additional terms should be in a font size that is at least 10 points.

We would suggest having your ‘Additional Terms’ vetted by an experienced Paralegal, to ensure that they do not contravene the Ontario Residential Tenancies Act.

Landlords and Tenants alike should get to know the Ontario Standard Lease, as it forms the foundation of the Landlord/Tenant relationship.  You can download the agreement and guide below:

Download the Guide to the Ontario Standard Lease here:

https://files.ontario.ca/mmah-guide-to-standard-lease-for-rental-housing-en-2022-04-19.pdf

Download the Ontario Standard Lease here:

https://www.ontario.ca/page/guide-ontarios-standard-lease

How to find a great Tenant

Finding a great Tenant has become a daunting and stressful task for many Landlords.  

With the advent of social media and online forums, we are constantly bombarded with stories of rent arrears, long LTB delays, Cash for Keys, overcrowding and property damage.  These stories have almost become urban legend and invoke fear in the hearts of even the most seasoned Landlord.

The thing is, we only hear the horror stories, not the good news stories.

Finding a great Tenant is not always easy, but it’s not as difficult as some would lead you to believe.  Tenant recruitment and selection has many dimensions, so is more a matter of following a process and doing the due diligence without cutting corners.

One thing that you might not realize is that your Tenant selection process starts way before you even post an Ad or do a showing.

So, where do you start?

The Tenant Selection Process Simplified

1.  Who is your ideal Tenant?

The whole process starts with articulating a clear vision of your ideal Tenant, aka your Ideal Tenant Profile.

Who are you trying to attract?  Who would be best suited for the property?  What do they do for a living?  How many people are you looking for?  How many vehicles do they have?  Do they have pets?

Create a written description and use it as a guide during your recruitment and selection process.  Use your clear vision to write Ads that appeal to your ideal Tenant or Tenants (you can have more than one Ideal Tenant Profile).  Compare every application that you receive against your profile and stick to it.

2.  Offer a great product

Your Property is your Product and the Tenant is your Customer. If you put a low-quality Product on the market, you’ll attract a low-quality Customer.  

Buy a great house in a great area and the great Tenants will line up at your door.  

Same holds true for Maintenance.  A well-maintained Property will attract Tenants that want the same.

3.  Price as a Filter

Do your research to determine the rental price range for your property and area, then start your pricing at the top of the range.  A higher price will deter most semi-qualified candidates and make your job much easier.  Reduce the price incrementally, depending on response to your advertising.  Ultimately, the market will determine the rent, but you will avoid wasting time with unqualified applicants.

4.  Create great Ads

Your goal is to generate as much awareness about the property as possible.  At the time of this writing, Facebook Marketplace is a highly effective method of reaching the rental market.  MLS (Realtor.ca) is also an option, which expands your market exposure, but at a higher cost.  High-quality lawn signs can also be effective, depending on the location of the property.

In terms of information about the property: More is Better!  Nothing is worse than looking at a property listing that tells you absolutely nothing about the property.  It’s an indicator of a lazy, low-quality Landlord.  What kind of Tenants do you think this will attract?

High quality photos are critical and a video walk-through can be effective as well.  An effective advertising strategy is to publish 2 versions of your ad: one that lists the point-form features of the property, and one that describes the benefits of the property.  Each version will appeal to readers differently.

Include a line of text at the bottom of the Ad stating: “First and Last Month’s Rent, Credit Check, proof of Income and Photo ID required”.  This will instantly discourage less-qualified candidates from responding.

Keep it Legal.  Your ads should not discriminate in any way and cannot include any requirements that contravene the Residential Tenancies Act (e.g. ‘No Pets’).  Doing so just looks unprofessional and can be a deterrent for your ideal Tenant.

Make it easy for potential tenants to get in touch with you.  If you are comfortable, provide a phone/Text number and email address within the text of the Ad.

5.  Respond quickly to enquiries

It’s important to stay on top of your Ad responses and contact the potential candidate as soon as possible, meaning minutes or hours, not days.  Their interest in your property is fleeting, as they might also be responding to 20 other Ads.  You’ll find that about 30% of incoming inquiries will go nowhere, as they have likely made contact with another Landlord by the time that you reply and you will not hear back from them.

If possible, try to make verbal contact or at least correspond by text with the candidate if they messaged through social media.  This increases your chances of booking a showing and you can also tell a lot about the candidate by their mannerism on the phone or through text message (another filter!).

6.  Pre-screen Candidates for Showings

If your property is likely to garner a flood of interest, then you should consider pre-screening the candidates before showing them the property.  This will save everyone a huge amount of time and effort.  No point in showing someone the unit if they don’t meet the criteria from your Ideal Tenant Profile.  It’s all about efficiency and you need to focus on the most-qualified candidates.

One of the easiest and most effect pre-screening tools is a Google Forms questionnaire.  Once you create the questionnaire, embed a link in your Ad copy, with a short sentence saying that the candidate must fill out the form to request a showing.  Learn more about Google Forms here: https://www.google.ca/forms/about/

7.  Conduct Showings and establish rapport

In our opinion, the in-person meeting, aka Showing, is one of the most critical pieces of the Tenant selection puzzle.  Without being overbearing and intrusive, you should strive to establish a rapport with the candidate and facilitate a friendly conversation.  This will put the candidate at ease and encourage the flow of information.  As you build trust, they will open up and offer more insight into their story and character.  Most often, you’ll get a gut feeling about the candidate during that first meeting.  If you have a bad feeling about the candidate, pay attention, as that first gut feeling is usually correct.

8.  Application and supporting documents

If a candidate wants to proceed with renting the property, the next step would be to have them fill out an application and submit their supporting documents.

You should request:

  • A Rental Application – filled out completely, without missing information
  • Photo ID of all Leaseholders
  • Proof of Income – recent Pay Stubs and/or Job Letter – for all Leaseholders
  • A recent Credit Report – PDF version (no screenshots), one for all Leaseholders

This is where the process can bog down.  You’ll encounter many applicants that are not IT savvy and can have challenges with obtaining and sending documents.  You’ll also encounter applicants that don’t have the documents readily available, even though your Ads clearly state that they are required.  Navigating this can take some patience, as it can be a lot of back and forth until you have everything that you need.  (One note: the fact that it’s so difficult to get the documents from them can be a red flag and an indication of what it will be like to deal with them as Tenants).

9.  Do-do-do the Due Diligence

Once you receive all of the requested documents, then the work begins.  The due diligence phase is the most important part, as it’s your last line of defence against all the horrors that you read about on social media.

This seems obvious, but you’d be surprised by how many Landlords take the short-cut and accept the applicant on face value.  There are many reasons that they do this:

  • They’re under financial strain and desperate to get the unit rented.
  • They don’t have the time for due diligence.
  • They don’t know how to properly screen a Tenant.
  • They don’t know what supporting documents to ask for.
  • The Tenant offers a lump-sum payment up-front as incentive, usually to overlook red flag on their application.
  • The Tenant was referred by a friend, acquaintance, or family member.
  • The Tenant offers to do repairs/improvements to the property, usually for a rent discount.
  • The rental unit is of low-quality and/or in a bad area.
  • They feel sorry for the Tenant’s situation and want to help them out.

In most cases, things start out just fine, but eventually start to slip.  The Tenant starts paying late, then missing payments, then not communicating.  The Landlord doesn’t handle the situation properly and the downward spiral begins…

This whole situation could have been avoided by doing the due diligence (aka Application Process, Background Check, Tenant Screening, Vetting Process), no matter where the candidate came from or what their story is.  It doesn’t matter if they were referred to you by a co-worker or family member, always run them through a vetting process.  It doesn’t matter if the Tenant entices the Landlord by offering to pay for one year up front (happens all the time and is a major red flag!), do the due diligence.

This might seem extreme and uncomfortable in some cases, but owning a rental property should be ran like a business.  Your rental business.  And like any business, it depends on consistent revenue to make it work.  You’re also handing over a property worth hundreds of thousands of dollars to a stranger.  You need to make sure that the person taking possession of your valuable asset is qualified and trustworthy and that you feel good about it (that Gut-feeling).

So, what’s the best way to screen an applicant?

  • What’s your impression after meeting with them in-person for a showing?
  • Call References, especially their Employer.
  • Social Media checks – how they behave on social media says a lot about a person.
  • Social Media checks on their References, especially their Employer and Supervisor.
  • Confirm Credit Score on platforms such as Front Lobby and SingleKey – Tenant-provided Credit Reports can be easily falsified – happens all the time.

Through all of these checks, you should be looking for ‘Red Flags’, such as:

  • Inconsistent, missing or false information.
  • Dragging their feet on giving you the information that you requested.
  • Not being able to find them or their employer on social media.
  • Employer not calling you back for a reference check.
  • Not providing previous Landlord contact information.
  • Mismatched fonts on pay stubs or other documents.

You also want to assess:

  • Their ability to pay – do they have enough income to cover their expenses?
  • Will they be a good fit for you, the rental unit and other Tenants (say, in a multi-unit building)?

The graph below is not overly scientific, but it shows where we focus most of our efforts during the due diligence process.  In most cases, the information and documentation that the applicant provides are legitimate, but it’s important that you double-check through your own validation process.  Rental Fraud is becoming more prevalent and sophisticated due to the advent of technology, so it’s good to develop a process to reduce the chances of being scammed.

9.  Make a decision with confidence

If you’ve taken the time to assemble the appropriate documents and check their validity, then your decision will likely be easy.  You should also have a good feeling about the applicant after meeting with them in-person and dealing with them through the application process.  As I mentioned before, be aware if you have a nagging feeling that something isn’t quite right.  Trust your gut…it’s called intuition and it’s usually right.

Your ultimate goal

At the end of this process, you want to feel good about the choice that you’ve made.  You want to select someone who will be a pleasure do deal with on a day-to-day or monthly basis.  You want someone who’s not going to be overly needy or helpless, as that will eventually be drain on your time and energy.  You want a stable Tenant that will provide stable income for you.

To accomplish this, you need to trust yourself and trust the process.  Put in the work of checking the facts and listen to your intuition if something doesn’t seem right.

The Residential Tenancies Act – What you need to know!

In Ontario, the Residential Tenancies Act (RTA) is the body of legislation that governs the relationship between Landlords and Tenants.  The RTA outlines the rights and responsibilities of both Landlords and Tenants and provides a framework for resolving disputes.

From a Landlord perspective, knowing and applying the RTA should be considered mandatory learning, same as having a license to drive a car.  Housing Providers (aka Landlords) play such an important role in the stability of our society, yet it’s surprising how many Landlords make no effort to study and apply the tenancy laws.  In our opinion, being a Housing Provider is a privilege and a tremendous opportunity, but it does come with a responsibility and obligation to do it correctly.

From a Tenant perspective, knowledge of the RTA is also important, as it provides clarity on Tenant rights, responsibilities and obligations.  Tenants should understand that the Landlord-Tenant relationship is a two-way street.  In Economic terms, it’s an exchange between parties that must be mutually beneficial and equal in order for the system to work.

So, what do you need to know about the RTA? 

You need to know the clauses that are the most relevant, in terms of the day-to-day Landlord-Tenant relationship, so that both parties act correctly (according to the law).  Simply doing this will avoid 99% of the friction between Landlords and Tenants.

You also need to be aware of the most relevant clauses, so that you can recognize any misinterpretation or misrepresentation of the RTA, whether you’re a Landlord or a Tenant (eg. the correct N12 process, which is handled incorrectly most of the time).

The RTA is quite lengthy and can be a little tedious to read, so I’ve highlighted some of the most relevant clauses below.  It’s still worth taking the time to read through the whole RTA to understand the scope of the legislation.  I’ve included a link to the RTA document at the bottom of the article:

Part 2 – Tenancy Agreements

12(2) – Copy of Tenancy Agreement

The Landlord must give a copy of the signed Lease Agreement to the Tenant within 21 days of signing.

14 – “No Pet” provisions Void

Any provision within the Lease Agreement that prohibits the presence of animals in a rental unit is void.

Part 3 – Responsibilities of Landlords

20(1) – Landlord’s responsibility to repair

A landlord is responsible for providing and maintaining a residential complex, including the rental units in it, in a good state of repair and fit for habitation and for complying with health, safety, housing and maintenance standards.

21(1) – Landlord’s responsibility re services

A landlord cannot withhold vital services (e.g. Water, Hydro, Heat) during a Tenant’s occupancy of a rental unit.

22 – Landlord not to interfere with reasonable enjoyment

A landlord shall not at any time during a tenant’s occupancy of a rental unit and before the day on which an order evicting the tenant is executed substantially interfere with the reasonable enjoyment of the rental unit or the residential complex in which it is located for all usual purposes by a tenant or members of his or her household.

23 – Landlord not to harass, etc.

A landlord shall not harass, obstruct, coerce, threaten or interfere with a tenant. 

24 – Changing Locks

A landlord shall not alter the locking system on a door giving entry to a rental unit or residential complex or cause the locking system to be altered during the tenant’s occupancy of the rental unit without giving the tenant replacement keys.

26(1) – Entry without Notice, emergency, consent

A landlord may enter a rental unit at any time without written notice,

(a) in cases of emergency; or

(b) if the tenant consents to the entry at the time of entry.

26(3) – Landlord to show rental unit to prospective Tenants

A landlord may enter the rental unit without written notice to show the unit to prospective tenants if,

(a) the landlord and tenant have agreed that the tenancy will be terminated or one of them has given notice of termination to the other;

(b) the landlord enters the unit between the hours of 8 a.m. and 8 p.m.; and

(c) before entering, the landlord informs or makes a reasonable effort to inform the tenant of the intention to do so.

27 (1, 2, 3) – Entry with Notice

A landlord may enter a rental unit in accordance with written notice given to the tenant at least 24 hours before the time of entry under the following circumstances:

  1. To carry out a repair or replacement or do work in the rental unit.
  2. To allow a potential mortgagee or insurer of the residential complex to view the rental unit.
  3. To allow a person who holds a certificate of authorization within the meaning of theProfessional Engineers Actor a certificate of practice within the meaning of the Architects Act or another qualified person to make a physical inspection of the rental unit to satisfy a requirement imposed under subsection 9 (4) of the Condominium Act, 1998.
  4. To carry out an inspection of the rental unit, if,
  5. the inspection is for the purpose of determining whether or not the rental unit is in a good state of repair and fit for habitation and complies with health, safety, housing and maintenance standards, consistent with the landlord’s obligations under subsection 20 (1) or section 161, and
  6. it is reasonable to carry out the inspection.
  7. For any other reasonable reason for entry specified in the tenancy agreement.

A landlord or, with the written authorization of a landlord, a broker or salesperson registered under the Trust in Real Estate Services Act, 2002, may enter a rental unit in accordance with written notice given to the tenant at least 24 hours before the time of entry to allow a potential purchaser to view the rental unit.

The written notice under subsection (1) or (2) shall specify the reason for entry, the day of entry and a time of entry between the hours of 8 a.m. and 8 p.m.

Part 4 – Responsibilities of Tenants

33 – Tenant’s responsibility for cleanliness

The tenant is responsible for ordinary cleanliness of the rental unit, except to the extent that the tenancy agreement requires the landlord to clean it.  

34 – Tenant’s responsibility for repair of damage

The tenant is responsible for the repair of undue damage to the rental unit or residential complex caused by the wilful or negligent conduct of the tenant, another occupant of the rental unit or a person permitted in the residential complex by the tenant. 

35 – Changing Locks

A tenant shall not alter the locking system on a door giving entry to a rental unit or residential complex or cause the locking system to be altered during the tenant’s occupancy of the rental unit without the consent of the landlord. 

36 – Tenant not to harass, etc.

A tenant shall not harass, obstruct, coerce, threaten or interfere with a landlord.

Part 5 – Security of Tenure and Termination of Tenancies

37 – Termination only in accordance with the Act

This section covers the ways in which a tenancy can be terminated – either by Notice or by Agreement between the Landlord and Tenant.  A couple of conditions:

When notice void

(4) A tenant’s notice to terminate a tenancy is void if it is given,

(a) at the time the tenancy agreement is entered into; or

(b) as a condition of entering into the tenancy agreement. 

When agreement void

(5) An agreement between a landlord and tenant to terminate a tenancy is void if it is entered into,

(a) at the time the tenancy agreement is entered into; or

(b) as a condition of entering into the tenancy agreement. 

38 – Deemed renewal where no notice

If the Tenant has not terminated the Lease in writing or the Landlord has not served a notice to terminate (which must be a N12 or an eviction order), then the Lease Agreement will renew automatically and remain in force.

48 (1, 2, 3, 4)– When a Landlord wishes to use the property for personal use

A landlord may, by notice, terminate a tenancy if the landlord in good faith requires possession of the rental unit for the purpose of residential occupation for a period of at least one year by,

(a) the landlord;

(b) the landlord’s spouse;

(c) a child or parent of the landlord or the landlord’s spouse; or

(d) a person who provides or will provide care services to the landlord, the landlord’s spouse, or a child or parent of the landlord or the landlord’s spouse, if the person receiving the care services resides or will reside in the building, related group of buildings, mobile home park or land lease community in which the rental unit is located. 

The date for termination specified in the notice shall be at least 60 days after the notice is given and shall be the day a period of the tenancy ends or, where the tenancy is for a fixed term, the end of the term. 

A tenant who receives notice of termination under subsection (1) may, at any time before the date specified in the notice, terminate the tenancy, effective on a specified date earlier than the date set out in the landlord’s notice.  

The date for termination specified in the tenant’s notice shall be at least 10 days after the date the tenant’s notice is given. 

48 (1) – Compensation for notice of eviction for personal use (N12)

A landlord shall compensate a tenant in an amount equal to one month’s rent or offer the tenant another rental unit acceptable to the tenant if the landlord gives the tenant a notice of termination of the tenancy under section 48. 

62 – Termination for cause, damage

A landlord may give a tenant notice of termination of the tenancy if the tenant, another occupant of the rental unit or a person whom the tenant permits in the residential complex wilfully or negligently causes undue damage to the rental unit or the residential complex. 

Notice

(2) A notice of termination under this section shall,

(a) provide a termination date not earlier than the 20th day after the notice is given;

(b) set out the grounds for termination; and

(c) require the tenant, within seven days,

(i) to repair the damaged property or pay to the landlord the reasonable costs of repairing the damaged property, or

(ii) to replace the damaged property or pay to the landlord the reasonable costs of replacing the damaged property, if it is not reasonable to repair the damaged property.  

64 – Termination for cause, reasonable enjoyment

A landlord may give a tenant notice of termination of the tenancy if the conduct of the tenant, another occupant of the rental unit or a person permitted in the residential complex by the tenant is such that it substantially interferes with the reasonable enjoyment of the residential complex for all usual purposes by the landlord or another tenant or substantially interferes with another lawful right, privilege or interest of the landlord or another tenant.  2006, c. 17, s. 64 (1).

Notice

(2) A notice of termination under subsection (1) shall,

(a) provide a termination date not earlier than the 20th day after the notice is given;

(b) set out the grounds for termination; and

(c) require the tenant, within seven days, to stop the conduct or activity or correct the omission set out in the notice.  2006, c. 17, s. 64 (2).

For more information on the Residential Tenancies Act:

https://www.ontario.ca/laws/statute/06r17

7 Simple Tips For Managing Cashflow

Seven Cashflow Tips

Whether you’re a small-scale Landlord with one property or a seasoned Investor with a large portfolio of properties, managing Cashflow is a critical part of your long-term success.  In today’s environment, most Landlords are feeling the strain of high Interest Rates and property prices.  Higher costs mean lower profit margins, so it’s critical for Landlords to focus on Cashflow Stability and Equalization.

Cashflow Stability mostly comes in the form of on-time and in-full rent payments from their Tenants, but it also comes from controlling and minimizing expenses.  Even pesky small repairs can eat away your profit margin over the course of the year.

Cashflow Equalization is more about spreading fixed and variable expenses evenly across all months of the year.  Focusing on Equalization helps to alleviate the highs and lows from month to month, and provides much-needed predictability and peace of mind for Landlords.

So, how can you manage Cashflow Stability and Equalization?

Pay your mortgage weekly

Paying the mortgage in smaller chunks just seems more manageable.  It also makes financial sense.  A weekly or bi-weekly payment will save you thousands over the life of the mortgage, as you’re basically making an extra payment each year (painlessly!)

Pay Property Taxes and Insurance Monthly by PAP

Most Municipalities and Insurance companies will allow you to set up a pre-authorized monthly payment.  For us, this has been a game-changer, as you eliminate those large Bills that can be hard to plan for.

Reserve funds and LOC

Set aside 5-10% of the rent each month in a separate account, to be used for unforeseen expenses.  Another option is to have a small Line of Credit available if cashflow is tight.

Preventative Maintenance Inspections

Keep your property in tip-top shape, to minimize those costly repairs.  Of course, things do break, but you can avoid many issues through effective Property Management.  A neglected property will slowly get run-down over time and expenses will start increasing.  Unnecessary cleaning and repairs when turning Tenants will also impact your cashflow.

Create a Maintenance and Improvement Plan

Over time, your property will need repairs and improvements.  Not necessarily from Tenant wear-and-tear, but also to protect and improve the value of your investment and to ensure that it’s desirable to prospective Tenants (which affects your revenue). 

Embrace Technology

Use an online accounting software to manage your finances.  Platforms, such as Quickbooks Online, allow you to connect your bank accounts, so that you can track income and expenses in real-time.  Even more important: you can schedule-out your income and expenses months in advance.  This allows you to better manage your cashflow and adjust for potential short-falls.

Automate as much as possible

The ultimate goal is to put the property on autopilot. This is more about reducing stress and making your investment easy and hassle-free, which is totally doable.  Set up pre-authorized payments for all recurring expenses.  At the very least, you won’t be wasting brain power on remembering to pay bills, which becomes critical as you add more properties to your portfolio. You also won’t be stressing about paying those periodic large bills, like Property Taxes, as you’ll be paying them automatically every month. You won’t even have to think about it, which is such a relief!

Best Practices to improve your Rent Collection efforts

It goes without saying that one of the keys to success as a Housing Provider is getting your Rent payment on-time and in-full.  With that accomplished, everything else just falls into place…the mortgage, insurance and taxes get paid…and there might even be a little left over as profit…life is good.

 

But in the real world, it doesn’t always work out that way.  Many things can go wrong in any Landlord/Tenant relationship.  Late payments and arrears can quickly add up, causing stress and conflict, eventually leading to legal proceedings and evictions.  It’s a downward spiral and a no-win situation.

 

Most of the time, the Tenant gets the blame.  We’ve all heard the horror-stories about Tenants not paying rent for months on end…the Landlord struggling to make ends meet, while waiting helplessly for an eviction hearing.  These stories drive fear into the hearts of would-be Landlords, enough to make them avoid investing all together. 

 

The thing is, nobody talks about is the fact that most problems are avoidable and are most often caused by the Landlords themselves…not intentionally, but because of bad choices and decisions.  It’s easy to blame the Tenant for a bad situation, but the root cause can usually be traced back to the Landlord ignoring the fundamentals.

 

So, what are these fundamentals?

 

1.     Provide a high-quality Product (ie. Your Property!)

 

Characteristics of the property, such as location, cleanliness, and maintenance standards, determine the quality of the Tenant that you attract.  A high-quality property will attract high-quality Tenants.  Pretty simple.  Properties in the worst part of town will generally attract a lower-quality Tenant.  By nature, people want to associate with people that are the same as them, in terms of appearance, lifestyle, habits, etc.  Better quality Tenants will naturally have a more stable lifestyle, which translates into better payment patterns and better communication with you if there ever is an issue.

 

2.     Screen Applicants thoroughly

 

Choosing the right Tenant requires a lot of patience and attention to detail.  So many Landlords find themselves with payment issues because they didn’t follow a proven Tenant Screening process.  Instead of doing their due diligence, they tend to take the easy money, by taking the first Tenant that comes along.  This is almost always a recipe for disaster.  It’s so important to first meet with a prospective Tenant, to get a feel for them.  Then you must do the proper due diligence to ensure that they say who they say they are and that they are able to pay the rent.

 

3.     Know the Law and follow it!

 

The Residential Tenancies Act is the body legislation that governs the Landlord/Tenant relationship.  Not knowing or following the laws will surely lead to friction with the Tenant and their first means of protest or retaliation will usually be withholding of their Rent payment.

 

4.     Make it easy to Pay

 

Use technology to remove barriers to payment.  Cheques and cash are a thing of the past.  E-transfers are better, but not ideal, as it depends on a person remembering to do a task every month.  Automated payments and pre-approved payments through an online platform can make the process easy and hassle-free, while improving a Tenant’s on-time payment patterns.

 

5.     Automate

 

Again, technology should play a major role in the end-to-end rent collection process.  Automated Invoices, Reminders, Payments, and follow-up can reduce headaches and the time normally required to do the work.  Today’s online platforms can also improve communication, by using integrated phone, text, app and email messaging.

 

6.     Provide Incentives and Rewards

 

Your Tenant should be viewed as your Customer and should be rewarded for being trustworthy and loyal.  Incentives and Rewards are an easy way of saying ‘Thank you for your business’.  They also encourage a favourable payment pattern and increased Goodwill.

 

7.     Stick with the Process

 

If there is a payment issue, it’s important to be professional and empathetic, but it’s also important to be strict and follow a process for dealing with the late payments.  The Landlord and Tenant Board has defined a process to be followed, including serving the appropriate Notices, with the option of filing for a Hearing with an Adjudicator.  This is a professional relationship, and your Tenant should know that you will not tolerate late payments.

 

8.     Provide good Customer Service

 

Your Tenant is your Customer.  Not only are they buying a product from you (ie. your rental unit), but they are also buying your ‘after-sales service’, which is just as important.  Apart from the rental unit itself, there are additional expectations that form part of the package, such as: being professional, being responsive, being respectful of their rights as Tenants, adequate maintenance of the property, providing the Tenant with required paperwork in a timely manner (e.g. copies of the Lease, Rent Receipts), all go a long way in building a positive, mutually beneficial Landlord & Tenant relationship.

 

Being a Housing Provider is a challenging business.  Things will not always go as planned, but you can minimize your risk and avoid 99% of the problems by mastering these simple fundamentals!

Thinking of renting out your house while living abroad? 14 Top Questions Answered.

Renting your house

So, you have an opportunity to live or work in another country, or you’re going back to your home country for a period of time. Such a great experience awaits you and the possibilities are endless.

But what do you do with your current residence?

It’s a great time to sell, but if you decide to come back in the near future, it might be difficult to buy back into the market.

For this reason, many homeowners consider keeping their principle residence and renting it out while they’re out of the country. This can be a great way to generate some passive income, while building equity in the property. It also keeps your options open, should your situation change and you need to move back to Canada.

That being said, you should also be aware that there are risks associated with owning a rental property. Not that this should deter you from becoming a Landlord, but you just need to plan ahead and maybe get assistance with the whole process.

Here are the most common questions that we’re asked by potential new Landlords.

How do I find great Tenants?

The quality of your Tenant is the most important factor in your success as a Landlord.  They will either make you or break you.  Therefore, it’s critical that you follow a rigorous Tenant selection process.

Here are a number of methods that you can use to narrow down the pool of applicants and find your ideal candidate:

  • Price as a filter
  • Quality of your Advertisements
  • In-person meeting and gut feeling
  • Proper documentation
  • Background checks
  • Scan Social Media
  • Don’t just take the first person that comes along
Who pays the Utilities?

In most cases, the Tenant is responsible for paying the cost of Utilities.  There are many variations on this, depending on the characteristics of the property:

Tenant sets up their own Utility accounts: This is most common in single-family properties, subject to the policies of the Utility provider.

Tenant shares the Utility cost with another Unit in the building: Common in Duplex or Triplex property, where the dwelling has only one Heating system and one Hydro Meter.

Tenant pays an all-inclusive rental rate: To reduce the complexity of dealing with shared Utilities, some Landlords opt to include the Utility costs in the monthly rent paid by the Tenant. This is less frequent these days, as the market norm is for the Tenant to pay Utilities.

Who is responsible for Maintenance and Repair of the Property?

The Owner is responsible for preventative maintenance and/or repairs caused by normal wear and tear.  The Tenants are responsible for any damage caused by negligence or abuse of the property. The Tenants will usually take care of the lawn maintenance and snow removal.

I want to leave some furniture in the house.  Can I rent the house as Furnished?

Renting the house fully furnished is an option, but it really depends on the needs of the prospective Tenant.  Complications can arise if the Tenant only wants certain pieces of the furniture.  There’s also the potential for damage and/or wear and tear.

Can I use part of the house for storage of my personal items?

Technically, yes, you can use a portion of the house for storage of your personal items (e.g. basement or garage).  A couple of notes on this:

  • The amount of space retained should be detailed in the Lease, so that the Tenants sign-off and agree.
  • Retaining a portion of the house may limit your pool of potential Tenants, as many people will not consider renting a property where they do not have full use of the property.
  • Your rental rate will likely be below-market, to compensate for the fact that you are retaining a portion of the house.  It might make more sense to rent a storage unit or sell your personal items.
  • Under the Residential Tenancies Act, the Tenant has the right to quiet enjoyment of the property.  This means that you, as the Owner, cannot cause undue disruption to the Tenant.  For example, if you wanted to pick up or drop off items that are stored at the house.
What if the Tenants don’t pay their Rent?

There is a process to follow, as outlined by the Residential Tenancies Act.  Learn more in this handbook published by the Landlord and Tenant Board.

What if the Tenants damage the property?

The Tenant is responsible for any damage that they may cause.  The downside is that you will need to prove that the damage was caused by the Tenant and it can be very difficult and time-consuming to collect compensation for damages.  Unfortunately, it is illegal in Ontario to collect a Damage Deposit from the Tenant when they sign a Lease. 

Not that it happens often, but property damage should be considered one of the risks of owning an Income Property.  However, there are a few steps that you can take to protect yourself from potential expenses due to damage to your property:

  • Incoming Inspection – Document the condition of the property when the Tenant takes possession.  This includes doing a walk-through of the Unit with the Tenant and both of you signing off on it.  Also take Photos or video of the Unit during the Incoming Inspection.
  • Periodic Inspections – The Residential Tenancies Act allows for Landlord inspections of the property, assuming that proper notice is given to the Tenant.
  • Regular Maintenance – Unattended wear and tear can evolve into major issues that might eventually be blamed on the Tenant.  Realistically, you should expect minor ongoing maintenance to address wear and tear issues.
What is the Ontario Standard Lease?

On April 30, 2018, the Ontario Government implemented a standardized lease template that must be used for all Leases in Ontario.  You can learn more about the lease and download your own copy here.

What if I want or need to move back into the house?

One common misconception is that you can sign a one-year lease with a Tenant (or however long you’ll be out of the Country) and the Tenant must move out at the end of that term. This is not true. In Ontario, A fixed-term lease converts to a month-to-month lease automatically and the tenancy continues indefinitely.

However, under the Residential Tenancies Act, the Owner is permitted to terminate the tenancy if they need possession of the house for themselves or a family member.  A couple of considerations:

  • You must give 60 days notice to the Tenant.
  • You must compensate the Tenant the equivalent of one month’s rent.
  • The Tenant cannot be evicted if they are on a fixed-term Lease.
  • The Tenant can file an appeal with the Landlord and Tenant Board, if they believe they were evicted unlawfully.
  • The Tenant has up to one year to challenge the eviction, if they feel that they were evicted unlawfully.
  • If handled properly and lawfully, there are usually no issues.

Just be aware that moving back into the property is not a simple matter. It requires foresight, planning, empathy and strong Tenant Relations to help it go smoothly. Not handling this situation properly will always lead to conflict, and in some cases, the Tenant refusing the vacate.

What if I decide to sell the house with a Tenant living there?

Similar to moving back into the property yourself, there are a lot of misconceptions about the selling process.

The most important thing to know: You cannot evict the Tenant before you put the property up for sale. You can only terminate the tenancy after the house has been sold.

You are permitted to sell the house, but you cannot terminate the tenancy before putting it on the market. Therefore, you’ll need to sell it with the Tenant living there and they must cooperate with the selling process. The showings of the property must be coordinated with the Tenant and proper notice of entry must be given, as stipulated in the Residential Tenancies Act. The Buyer will either need to assume the Tenant or the Seller can evict the Tenant if the Buyer or their family member intends to move into the property. In that case, a N12 form is served to the Tenant, which gives them 60 days to vacate. You can learn more about the N12 process here.

If I sell the house, do I have to pay Capital Gains Tax?

Depending on how long the property is a rental (as opposed to a principle residence), it may be subject to the Capital Gains Tax for the portion of time that was a rental during the period of ownership. You should consult with your Accountant to learn more.

What about Insurance?

Yes, you should notify your Insurance provider that the house will be converted to a rental property.  Each Insurance provider is different, but they are usually very willing to Insure properties that are going to be used as a standard rental (e.g. single family, etc.).  Specialized insurance may be required if you are renting by the Room or to Students.

One important note: Be sure to ask your insurance provider to recommend an adequate amount of coverage.  They have the most experience and should advise you accordingly.

What is the Non-Resident Withholding Tax?

If the Owner of a property lives outside of Canada for a certain period of time, the Canada Revenue Agency (CRA) requires that a percentage of rental income is withheld and remitted to the CRA on a monthly basis.  A couple of notes:

  • The withholding tax is 25% of Gross Annual Rental Income.
  • The Owner can apply to have this reduced by submitting a NR6 Application.  With the approval of this application, the Owner is only required to remit 25% of Net Rental Income.
  • The actual amount of tax owing is reconciled on the Owner’s Income Tax submission for that year.

You can learn more about the Non-resident Withholding Tax here.

Should I hire a Property Manager?

Managing a rental property from afar can be challenging. Just dealing with a maintenance request in a timely manner from a different timezone can be extremely stressful. A local Property Manager basically acts on your behalf and is the point of contact for the Tenants for anything related to the rental unit. Sure, there is an expense associated with hiring a Property Manager, but you free yourself from having to deal with the day-to-day operation of the property and those inevitable interruptions.

Holding on to your property and renting it out while you’re out of the country definitely has its benefits. Just be aware that there are risks and special considerations associated with owning a rental property, especially if you’re living abroad. Also know that there is help available to make it work. A local Property Management company deals with this type of situation on a daily basis and can be a great resource for you. Let them take care of the property, so that you can enjoy your time abroad.

Property Management is not for everyone

Is Property Management worth the cost?

There is often debate as to whether Property Management is beneficial and worth the cost.  In my opinion: it depends.

If you’re comfortable dealing with Tenants, in terms of collecting rent, handling complaints and maintenance issues, then you likely don’t need the support of a Property Manager or the associated cost.  If you have the time and inclination, I believe that you should try to manage the property yourself for a period of time, as you’ll gain experience in the rental business and valuable insight into the challenges and rewards that come with owning a rental property.

But what if this doesn’t sound appealing to you?  What if you’re already overwhelmed with work and family life?  What if you have a difficult Tenant that’s driving you crazy?  What if you’ve added one or two more properties to your portfolio?  What if you don’t live near your rental property?  What if you move to another city, province or country?

In these scenarios, hiring a Property Management company makes the most sense.

A Property Management company basically acts on your behalf and carries the burden of the day-do-day operation of the property.  Within that, a good Property Management company can modify their service offering, depending on your specific needs.

Many Landlords don’t need or want full management but may need support in certain aspects of owning and operating a rental property, such as handling maintenance requests.  Other Landlords want to own the property at arm’s length, meaning they really want nothing to do with the day-to-day operations.

Hire for the services that you need

So, what are some of the services and benefits that a Property Management company like East Vista Property Management provide?

Tenant Placement – Finding a good-quality Tenant is the key to success in real estate investing but can also be one of the most daunting and frustrating tasks that a Landlord can face.  A good Property Management company follows a proven process and has the resources to focus on generating leads and vetting candidates.  This greatly reduces your risk and the pressure to get the rent flowing quickly.

Tenant Response – Responding quickly and effectively to Tenant requests is also a key to success that is often overlooked.  It’s important from a legal standpoint (and just good Customer Service) to respond to your Tenants and deal with their concerns or requests in a timely manner.  A Property Management company has staff dedicated to handling these requests on your behalf.  They also will have a network of contractors and skilled trades to handle any issue that might arise.

Rent Collection – You might think that this is the most critical service that a Property Management company provides, but I would argue that if you do a good job at Tenant Placement and Tenant Response, then Rent Collection usually takes care of itself.  That being said, a Tenant’s situation can go off the rails and you need to act quickly when a payment is late or short-paid.  A Property Management company has systems and processes in place to deal with Rent Collection on a daily basis, in terms of follow-up and serving of Notices.  They are likely also using technology to make it easier for the Tenant to pay, using online platforms that also have reporting capabilities.

Maintenance and Fire Safety Inspections – Your rental property needs a certain level of maintenance for many reasons.  Not only does it help to maintain and increase the value of the property but can also reduce repair costs in the long run.  A well-maintained property is also more marketable and may command a higher rental rate when the time comes to find a new Tenant.  Tasks such as checking and changing the Furnace Filter, checking the condition of the Dryer Vent and testing the Smoke Alarms should be done on at least a semi-annual basis.

Tenant Turn-over – Changing Tenants can be stressful, especially if the property needs cleaning, repairs or improvements in between.  An experienced Property Manager can get things done in a short timeframe and also manage Incoming and Outgoing Inspections.

Support for non-resident Landlords – If you live outside of Canada, you may be required you to remit a Non-resident Withholding Tax to the CRA.  A Property Management company can manage this on your behalf.

Minor Renovations and Improvements – Keep your property in great condition, with minor renovations and improvements.  Not only does this affect the value of your investment over time, but also affects your income now.  Well-maintained properties will command higher rental rates, while reducing Tenant Turn-over and vacancies. A Property Management company can coordinate the work and might be able to do it in-house, saving you the time and headache of coordinating everything yourself.

Legal support and Compliance – It can be difficult for a Landlord to fully understand the ins and outs of the Residential Tenancies Act, which governs the rental business in Ontario.  A Property Management company has likely dealt with all sorts of issues and has gained valuable experience over time.  They will also make sure that your rental property is operating in a compliant manner, in terms of dealing with Tenants and maintenance.  Furthermore, if more serious issues do arise, a Property Management company has the resources to act quickly and decisively and usually has a Paralegal firm on retainer for guidance.

As you can see, the debate over the benefits of hiring a Property Manager really has no right or wrong answer.  It really comes down to the needs and preferences of the individual.  A good Property Management company will seek to understand these needs and customize their services accordingly.

Rental Car Analogy – Part 2: Who’s Job Is It Anyway?

Car Rental website image

In my previous post, I used an analogy to illustrate the level of care to expect from a Tenant in terms of property maintenance. Beyond level of care, what exactly are the responsibilities of the Landlord and Tenant when it comes to maintaining the property?  Who’s job is it, anyway?

Using the same Rental Car Analogy, it would not be reasonable for a rental car company to expect a customer to care for the car as if it were their own.  Obviously, there is a duty of care, but there are limitations. 

The asset (the car) is owned by the rental company and it’s their responsibility to do the maintenance on the asset.  It’s well proven that a well-maintained asset is going to generate more revenue over time. The same holds true for a rental property.  The Landlord should view their property as an asset and should take measures to maximize the potential of that asset.

In terms of up-time, the rental car customer is expected to return the vehicle in the same condition as it went out.  The profitability of the rental car company depends on the car being ready for the next customer, with minimal effort or down-time. Similarly, the profitability of a rental property depends on a smooth transition from Tenant to Tenant, with minimal down-time (vacancies) and minimal expenses (maintenance or repairs).

The key to success for both ventures is up-time of the asset, while minimizing expenses.  For a Landlord, this can’t be left up to the Tenant alone.  It’s not their asset, so the Landlord’s best interest might not be top priority. It’s ultimately the Landlord’s responsibilities to maintain a property. This is both for their own benefit – upkeep and value of the property; and for the Tenant – reasonable enjoyment and lower turnover.

This approach also enables the Landlord to have pride in their portfolio of properties.  Nothing is worse than driving by your property and seeing it in disarray.  Nobody wants to own the worst house on the street.

To most Landlords, the thought of maintaining the property can be overwhelming and a frustration, but does it really need to be?  Are there short-cuts to owning a well-kept portfolio of properties without being overwhelmed with work and expenses?  Is it possible for your real estate income to be passive?

The answer is yes, within reason.  A rental property can never be out-of-sight or out-of-mind completely, but there are ways to achieve an equilibrium, with minimal effort for you or the Tenant.

9 Ways to cure your Maintenance Headaches

  • Buy the right property

I could write a whole article on this one.  The characteristics of the property are going to have a direct effect on the amount of maintenance, and expense, required.  Characteristics such as:

  • Age of the structure – 70’s Bungalow vs. New-build Townhouse, etc.
  • Size of the lot – older subdivision with large lots vs. newer “postage stamp” lots
  • Types of vegetation – mature trees and flower beds vs. new sod
  • Type of structure – Townhouse vs. 2-story Detached
  • Age of the mechanical components – Furnace, A/C, Appliances
  • Interior Finishes – e.g. Engineered flooring vs. Hardwood

You need to take a hard look at your own motivations and what you’re willing to deal with.  Are you Handy?  Are you ok with dealing with issues?  Or would you rather pay a Condo Maintenance Fee each month and not have to worry?

The characteristics of the property also influence the type of Tenant that you attract.  It will be much more difficult to find a Tenant to take care of a high-maintenance property, say a house on a one-acre lot with expansive flowerbeds.  They just don’t care that much about your asset, which can create headaches for you.

  • Preventative Maintenance Inspections

As I mentioned above, a rental property cannot be out-of-sight and out-of-mind.  Doing Inspections is one of the best ways to ensure that the property is being maintained to adequate standards.  I’m not just talking about Tenant damage, but also checking on the general working condition of the property.  Checking for issues that might not be obvious, but could lead to a future breakdown or repair. 

An inspection is also a great opportunity to connect with the Tenant. The visibility also lets them know that you’re not an absentee Landlord.  In their mind, they know that you’ll be back again to check on things, so they’ll be more likely to maintain the items they can properly.

  • Annual Maintenance Plan

Not all repairs and improvements need to be done all at once.  The Landlord should put together a plan for these items to be done over time.  This gives the Landlord an opportunity to budget for the expense and ideally use the revenue from the property to cover the cost.

A Maintenance Plan helps you look at the big picture, beyond the day-to-day.  It helps you to answer some important questions:

  • What are the unavoidable large repairs needed to the property and when?
  • How can I improve the property, to add value and make it more attractive to Tenants and/or increase revenue?
  • How do I want the property to look?
  • Would the property be ready to sell tomorrow, or would it need work?
  • What needs to be done, so that I can sell the property for top dollar, when the time comes?
  • Tenant Selection

The key to success in real estate investing is selecting the right Tenant.  Of course, you want a Tenant that pays their rent on-time and in-full, but you also want a Tenant that is a good fit for the property.  By this I mean, a Tenant that will have minimal impact on the property and/or a Tenant that will is able to handle the maintenance requirements.

Some factors to consider:

  • How many people will be living in the unit?  For example, there would be significant wear-and-tear if you put a family of 6 in a 3-bedroom Condo apartment.  A family would be better suited to a Detached house with more space.
  • What are the capabilities of the Tenant?  For example, Seniors might not be a good choice for a property that requires a lot of lawn cutting or snow shoveling.
  • Are you renting to a family, young couple or 3 friends moving in together?  Each type of Tenant will have a different impact on the property.

As you can see, selecting the right Tenant has a direct impact on your life as a Landlord.  Choosing the wrong Tenant can lead to excessive wear-and-tear on the property and excessive expenses.

How do you avoid this?

You should create a profile of your perfect Tenant, like an avatar.  Consider the characteristics of the property and what type of Tenant would fit perfectly.  Envision every detail to create your ideal Tenant profile, then apply this profile to your Tenant Screening process.

  • Key Deposit vs Damage Deposit

Under the Ontario Residential Tenancies Act, a Landlord is not permitted to request a damage deposit from a Tenant.  However, you are permitted to collect a Key Deposit.  Technically, you’re not permitted to withhold the key deposit to cover cleaning or repair costs, but it does give you leverage with the Tenant, as they will want to leave the unit in good condition, so that their deposit is returned without issues.

  • Incoming and Outgoing Inspections

Your Move-in/Move-out process should include an inspection with documentation, for a number of reasons:

  • The Tenant knows that you’ll be doing an inspection and will be more likely to have the property cleaned up and ready for you.
  • You can ensure that the outgoing Tenant has removed all furniture and personal belongings.  There’s nothing worse than finding a garage full of junk and garbage after a Tenant vacates.  Disposal costs can run upwards of $250-$500 and are difficult to collect after-the-fact.
  • If there is excessive wear and tear or damage to the unit, you have an opportunity to demand compensation from the Tenant.  If they have already moved out of the unit without an inspection, it will be very difficult to collect any money from them for damages.  They’ll be gone.
  • Periodic Lawn Service

Arranging a Lawn Care service will help to keep your investment looking great.  This could certainly translate into higher-quality Tenants and a higher rental rate. Booking this service is not as expensive as you might think.  Usually, the lawn does not need to be cut every week, but can be stretched to 10-14 days, depending on the weather.  Consider it an investment in your asset.

  • Spring/Fall Cleanup

Another easy way to ensure that the property is being maintained, is to provide a general cleanup in Spring and Fall.  This would include cleaning out the flowerbeds, raking the grass, pruning shrubs and trees, cleaning out window wells, inspecting Eavestroughs for blockage, etc.  Adding a layer of mulch to the flowerbeds will prevent weed growth, keeping the house looking great throughout the season.

  • Tenant Compensation

One option to encourage Tenants to take on the maintenance of the property is to provide the necessary tools and some sort of compensation.  Remember, they are caring for your asset and in some cases it might be beneficial to you, the Landlord, to provide some sort of compensation.  This might include the use of a garage, storage shed, or a monthly rent credit. 

Although this opinion might not be popular with Landlords, it really is in their best interest to take responsibility for the upkeep of the property.  It is an ongoing annual expense, but in the long-term it’s an investment in their high-valued asset.  A simple investment like this will surely pay dividends down the road.

If you want to investigate any of these ideas you can get more info here or contact the East Vista Home Services team at tenantservices@eastvista.com. They would love to chat with you.

Rental Car Analogy : Part 1

Car Rental website image

What to expect when you become a Landlord

No doubt about it, being a Landlord can be a rewarding experience.  At the same time, it also requires a big leap of faith. It is not easy juggling mortgage, insurance and property tax payments. It is not easy hoping the rent is on time.  It is not easy getting those late night or weekend calls about a water leak or a broken fridge.  And, it is definitely not easy to hand over your $500,000+ asset to a stranger in hopes they will take care of it the way you would. 

We’ve all heard horror stories about Tenants destroying the property.  Some Tenants can disturb the neighbours. Some Tenants are a general nuisance to the neighbourhood.  This is every Landlord’s nightmare.

Luckily, those are extreme cases.  In reality, this doesn’t happen that often.  Most Tenants are respectful of property and remain on good terms with the Landlord and neighbours.

Every property owner I’ve dealt with has some level of anxiety about property maintenance. They don’t know what to expect and they’re not clear what their role should or must be.  So to help with this, I’ll try to provide some guidance to my Clients I use “The Rental Car Analogy”.

When renting a car, most people will generally take care of the vehicle.  They’ll drive and park carefully.  They obey the traffic laws.  They try not to spill food or coffee on the seats.  They clean out their garbage and fill the gas tank before they return it.

However, they don’t own the car.  They won’t hand-wash it in their driveway.  They won’t vacuum and wipe the interior.  Changing the oil or air filter is not their responsibility. Checking tire pressures or installing new tires would never be considered.  Although they’ll try not to spill things, they may not be as careful not to drag their suitcase across the back bumper.  Most people just use the car as transportation and return it.

This is exactly how most Tenants will treat their rental house or apartment.  And this is not a bad thing.   They don’t own the property, so they don’t feel that same sense of responsibility that ownership brings.

This is where conflict can arise.  I call it a ‘conflict of expectations’.  The Landlord expects the Tenant to take care of the property as the Landlord would.  The Tenant just wants a place to live.  The Tenant might not have time for property upkeep.  They might not even know how.  People have different living standards.  Some may have never had to cut grass before.  As a Tenant they believe they pay rent and therefore expect certain things to be taken care.  The long-term condition and value of the property doesn’t matter to the Tenant as much as it does the Landlord.

As a result of these different expectations can result in a ‘gap’ in the maintenance of the property.  The Landlord believes that the Tenant should be responsible for the upkeep of the property.  The Tenant believes that the Landlord should take care of it.  At this point, neglect can set in.   Cutting the grass, changing the furnace filter or cleaning the garbage out of the garden shed, all can be overlooked.  

Neglect caused by the ‘gap’ can have a severe impact on the long-term value and profitability of the property.  I’ve seen it again and again. 

Unfortunately these Landlords only see the immediate impact on their bottom line. They look at the expense for grass cutting, spring and fall cleanup, painting or preventative maintenance.  This Landlord wants to avoid these costs by putting the responsibility on the Tenants.

However, as a Landlord, you need to take a longer view.  Consider the future costs of sub-standard maintenance.  This might include:

  • Lower property value
  • Bigger-ticket repairs or renovation expenses
  • Lower-quality Tenants
  • Below-market rents
  • Conflict with neighbours

Ultimately, the Landlord will bear the cost for sub-standard maintenance.  The cost will be felt  now or sometime down the road.  It should not just about the short-term money.  It is should be about taking pride in your portfolio of properties.

Believe me, there is nothing worse than doing a drive-by of your property and seeing that it has turned into an eye-sore.  You may get to the point that you don’t want to go to the property.  Taking the “out of sight, out of mind” approach.

Do not let it get to this point!

In my next article, I will discuss ways to manage the maintenance of your property.  All, without breaking bank.