Toronto Income Property Newsletter – September 2013

Now that summer is winding down and we are heading towards the fall, we can look forward to a lot more income properties hitting the market over the next few weeks. Fewer properties for sale in the summer time are quite normal. This year to date has very much been a Sellers’ market in the downtown Toronto core, and we expect that trend to carry on right through to the end of the year.  There is still a very high demand for duplexes and triplexes. Interest rates are still quite low although there are rumblings that they might finally start to creep back up.
– P.A.

Landlords: How to find great tenants

Finding great tenants starts with having a high quality place to rent to them. Even in a bad part of town, no decent person is going to live in a bad place (at least not for very long). Never show a vacant apartment to a prospective tenant until it has been painted and fully cleaned up. Don’t show a rundown unit to someone and then tell them how you’re going to fix it up. Always do the work first, make it presentable, and then bring them in to have a look. You can’t expect a tenant to have a vision of what the place will look like after it has been fixed up. Remember, less desirable tenants will take anything. I once had a potential renter tell me over the phone that she needed a place immediately and she didn’t care if there were holes in the walls or if the apartment was a total wreck. I politely told her I couldn’t help her and hung up the phone. What kind of tenant do you think she would have been? Always paying on time? No problems? I would’ve gotten a security deposit and first month’s rent and then be fighting to get her out. Good places attract good tenants. Bad places attract bad tenants. It’s pretty simple. A bad landlord will often have their tenants giving notice.

If you ever purchase a multi-unit building with a few bad tenants you should work to get them out as soon as possible. I call it re-tenanting a building. You cycle out the bad and bring in the good. Remember that you can’t give notice until the end of the rental term. Your good tenants won’t put up with crazy behavior and late night loudness; they’ll simply move out without notice one weekend and leave you scratching your head. Better to be proactive and let your good tenants know that you are on top of the situation rather than let them slip away.

So you’ve got a decent place and it’s ready to be rented. You didn’t go overboard on expensive countertops and imported ceramic tile. It’s clean, sanitary and presentable. You could give the keys to someone and they could move in that night. How do you get people to come and see it? The answer is as simple as it seems: Craigslist, Kijiji and view-it.ca. Sometimes MLS is used too for higher end rentals (though this often ends up costing you one month’s rent in agents’ fees)

I’ve used these sources many times and it works. I like these avenues better than a sign in the window. Using the Internet will save you a ton of headaches. You don’t want volume. You want quality. Having 90 people respond to your sign and ad with phone calls may sound great to a novice, but I’d much rather spend a half hour of my time with a targeted group of prospective tenants. An added benefit when you acquire more buildings is that you can direct someone to the right place for them. They may not like the apartment that you are showing right now, but the apartment being vacated in another building at the end of the month may be perfect for them. As any good salesman will tell you, it’s all about getting qualified leads. I’ve rented apartments a week before Christmas and remember people telling me beforehand that nobody would show up. If you have a decent place, tenants will always be interested. There will always be exceptions; bad weather, lull in the rental market, etc. but in good parts of town and bad, this advertising system has consistently proven itself to be effective.

Buyers: How to find a great investment property

How do you go about buying a quality rental property in Toronto?  We have many tips and tricks on at plex.ca that will enhance your chances for success. Here’s a list that that I think is a very comprehensive checklist for all buyers:

1. Assess your fiscal requirements and goals. Do you need a steady stream of income from your rental or do you plan on selling it for a profit in a couple of years? If it’s the latter, look for lower priced property that you can fix up as you rent it out.
2. Consider being a resident landlord by purchasing a multi-unit property and living in one apartment. In many cases, the income from the other unit(s) will cover your mortgage payment, allowing you to effectively live for free. Being on-site has other advantages, including ensuring that the property is well-maintained.
3. Decide if you want to do maintenance yourself. If you have the skills, equipment and temperament to deal with upset tenants and a backed up toilet at 2 a.m., fine. If you plan on hiring a property manager, add about 5 percent of gross income into your calculations.
4. Choose the kind of property you want. Single-family houses are generally less expensive than multiplexes because of pure size, but generate less income. Apartments, on the other hand, can require more upkeep.
5. Get pre-approved for a mortgage. Investment property is different from residential property in that it may require a larger down payment.
6. Start shopping: Check out classified ads in the newspaper and online. Find a real estate agent who specializes in commercial or income-generating properties.  I have over ten years experience trading these kinds of properties so my clients always feel secure with that knowledge.
7. Choose a property in an area where people want to live, close to shops, parks and decent schools, and in a well-kept neighborhood. Also, check out any restrictions on renting with the home owners association, which, if there is one, can have a say in any rental agreements.
8. Consider what improvements, if any, you may be willing to make. Buying a fixer-upper will be less expensive than a property in pristine condition, but you can go broke bringing a property up to rentable condition. Before you buy, get cost estimates for all necessary fixes.
9. Have the property inspected. You may also want to order an appraisal to get a fair market value.
10. Search past records for vacancy rates over the last five to ten years as well as at present. If the building is occupied, find out how long the tenants have lived at the property. Long-term residents are valuable, but may also have been signed on at a lower rental rate.
11. Plan on spending time and money advertising for and interviewing potential renters. Have a contingency plan in place if a unit remains vacant for a few months.
12. Determine what a competitive rental rate is for your property by reviewing area apartment listings, and by personally visiting units available in the neighborhood.
13. Run the numbers. Make certain that whatever income you derive covers your costs of owning the property, plus a profit.
14. Work with an attorney to draw up and review any necessary papers relevant to the purchase.
15. Negotiate the terms of the sale. Some sellers may be willing to pick up a share of closing costs and other expenses. The eventual price will also be affected by prevailing market conditions–keep this in mind when negotiating.