How to Deal with Late Paying Tenants

November 30, 2013March 2, 2009 by Julie Broad

My youngest brother is in the process of putting in a suite in his basement, and one of his biggest fears is getting a troublesome tenant. He’s not alone in having these fears … many of our newsletter readers are dealing with that exact problem right now. We received an assortment of questions about dealing with troublesome tenants in the past couple of weeks. Most of them specifically asked about what to do to get tenants to pay rent on time. A few weeks ago we also received a long email from a reader about property management, income producing property and tenants.

Why dealing with tenants is like dealing with a bad cold

Rather than share all the emails with you, let me just generally answer all of those questions and say that there isn’t a great cure for problem tenants once you’ve got them. I guess it’s kind of like a bad cold. There are things you can do to get better faster and there are pills to take to reduce the pain and suffering, but you still have a cold until you finally get rid of it. The best way to deal with colds is to avoid getting them in the first place. It’s the same for troublesome tenants – the best cure is prevention!

We’ve talked about this in the past, see 5 Steps to Rent out your Property, but let me add a few other points:

Set clear tenant selection criteria that comply with regulations in your area. Good criteria could be, for example, someone that is financially responsible, shows respect for the property, and is likely to renew the lease after a year.
Only show your property in good condition. Good tenants have options. Shabby looking units attract poor tenants. Sure, you may lose 2 weeks or a month of rent, but that may be MUCH LESS PAINFUL and MUCH CHEAPER than dealing with a troublesome tenant.
Know the market where your property is located (is it by a University or a certain large business). Think about your ideal tenant that would be attracted to living in that area and write an ad that will appeal to that specific person. If you have a nice bright unit near a University and you know it would attract students, write your ad to attract quiet and peaceful people that will be doing a lot of studying at home and will appreciate the peacefulness. Then, price your unit slightly under market rates to help attract a wider variety of applicants.
Hold an open house to show the property. An open house saves time, interrupts current residents less, and can increase the sense of demand for the property.
Run detailed background checks on any applicants that you’re seriously considering. Confirm their identity, call their previous landlords, verify their employment (we like to call the company they work for AND get copies of their recent pay stubs) and check their credit and criminal history. There are several agencies in North America that will do these checks for a nominal fee. A quick online search will help you narrow down one that is suitable for you. Or if you belong to a property managers/landlord organization like ROMS BC, you may get a discount on these checks.

Using the criteria you’ve established and all of the information you’ve collected, select your new tenant! Then, if you still experience issues with your tenants, be sure to act immediately, consistently and if you can’t solve the problem, move them out!

Published March 2nd, 2009

Rental Property Location Research Checklist

December 11, 2012February 19, 2009 by Julie Broad

Here’s the really good news… when you know the signs to look for you’ll find that picking a good location for real estate investing is fairly simple. It takes a bit of leg work to research the locations and find one that meets all of the criteria on the checklist, but when you do, you will also find an enormous opportunity for wealth creation!

In an interview for Canadian Real Estate Magazine, real estate developer, investor and co-owner of Boston Pizza Jim Treliving said of real estate investing “The most important thing is to do your homework…You have to read a lot, find out about the areas you want to go into, where the emerging markets are. It’s often not the biggest ones necessarily; it’s a matter of where you see growth, go and find out, go into the markets yourself.”

The goal of the checklist is to have a barometer to use when locating a good area to invest in. Essentially you are trying to find out if the market is staying the same or is about to make a turn for the better or the worse.

The main elements in our checklist are:

	Familiar Area,
	Population Growth
	Good Employment
	Good Transportation
	Healthy Housing Economy
	Appealing Opportunities.

For some of the above items you want to see trends and where they are heading over a longer period of time for an overall market – like population growth for example. But, you will also want to find out what factors may impact that trend. In Vancouver, we are looking forward to the 2010 Winter Olympics. This has had a significant positive impact on employment opportunities and has likely contributed to a growth in the population in the last 24 months, but if you only looked at the employment or population trends you wouldn’t know that this trend could reverse or slow significantly after 2010. So, you need to take a look at the trend and then figure out why it is the way it is and what is likely to happen in the future.

Starting with an area you already know reduces your learning curve when you are starting out. Often this is not where we are currently living, but it’s somewhere we have lived or somewhere we visit on a regular basis. We do this to make it easier on ourselves. If we buy somewhere we don’t know anything about, it means we have way more research to do, and we have to start from scratch in building a network for that area. Then, we have to make an extra effort to stay on top of that market once we own a property in it. It’s possible, but it’s more work!

Ozzie Jurock, a Vancouver real estate celebrity, wrote a book called Forget about Location, Location, Location. In the book, Ozzie says:

In my view, it is always better to buy locally, because you can do your due diligence easily and deal with a local realtor. If you live in Toronto and want to buy in Phoenix, however, get in touch with a Phoenix realtor, particularly if someone in Canada is trying to sell you a packaged deal. The local realtor has the property perspective.

He also says, of buying from a distance:

Go there, look at it, kick the tires. Once you get there, you might find an entirely different property that will be a much better investment. Also, you have to bear in mind that if you’re investing outside your area, the people who are presenting you with properties are going to show you only what they have in their wagon. They’re not going to go out of their way for a stranger unless they’re assured a piece of the deal.

As you research all of the elements on the checklist, think about prospective tenants. Where will they work? How will they get to work? Where else would they live, if not in the area you are looking at? And, of course, think about an exit strategy. Julie wrote an article for the popular online e-zine Early to Rise called The Biggest House Buying Tip Ever about buying any property with the end in mind. It doesn’t matter if you plan to live in the property or rent it out … before you buy, envision yourself selling it.

You are making an investment only if there is a reasonable probability that you will make money on it while you own it and that you will be able to make money when you sell. Good location research BEFORE you buy the property will increase the likelihood of making A LOT of money from the property!

Published February 19th, 2009

8 Ways to Know if You Should Hire a Property Manager

December 11, 2012January 27, 2009 by Dave Peniuk

When you first start shopping for a property manager you might be shocked to learn what many of them charge. We certainly were!

You’ll usually pay between 5 – 10% of your monthly rental income to a property manager plus tenant placement fees which can be as much as one months rent. The price may seem astronomical at first. It certainly eats into your positive cash flow!

When you learn the cost, the desire to manage the property yourself and save money will be powerful. Saving a few hundred dollars each month may not be worth taking on the property management yourself though! Besides the fact that a professional property manager has extensive knowledge of the local laws and regulations, they also have access to the resources required to easily manage a property.

When we first bought our Toronto tri-plex, Julie was doing her MBA and thought she could handle managing the property while she was in school (Julie is shown in the picture above painting that Toronto Tri-plex – you can tell she is loving it!). We wanted to save money, and Julie had a flexible schedule with some free time so it seemed perfect.

We went to the property and met with each tenant, introduced ourselves and made sure we had the proper signed leases in place. After that, we both figured Julie would only have to deal with minor issues as long as the property was occupied.

We were wrong! The tenant on the main floor proved to be high maintenance and called weekly about different things she wanted fixed. And then, two months into owning the property, the frequency of calls from the tenant on the main floor began to increase dramatically. She was upset because as the weather got colder, the tenant beneath her was smoking in the unit and she could smell it. Her son had asthma and this was impacting him.

Julie contacted the tenants in the basement and explained that their lease stated that there was to be no smoking in the unit and that we’d received complaints. They were polite to Julie. However, they didn’t like getting scolded and – according to the main floor tenant – started taunting her teenage son when he would come home from school. They called him a tattle tale and made him feel threatened.

It’s a long story. It dragged out for weeks, but the issues escalated. Soon the two tenants were at war and Julie was receiving 20–25 calls a day. The police were called to the scene twice by the tenants on the main floor. It was a disaster.

And as luck would have it, this was happening during Julie’s final exams! Julie was pretty close to breaking down and couldn’t just tell the tenants to wait a week until her tests were done–she had to deal with it!

Julie pretty much lost it. She’s really a no nonsense kind of person and she hated dealing with other people’s problems. Failing an exam would mean she’d have to repeat a course and that could mean an extension of her degree–which would be time consuming and expensive.

She was fit to be fried. And looking back, it should have been obvious to both of us that Julie was not well suited for the job. She is organized, efficient and focused. Sounds perfect for property management doesn’t it? Well, not exactly. Anything that throws her off what she is working on at the present moment is an annoyance for her. She also doesn’t like talking on the phone. She’d prefer never to pick up the phone at all if she could avoid it. She likes people and she likes problem solving, but she doesn’t really tolerate people who are lazy or rude. Really, she has a lot of traits that make her well suited to HIRE a property manager!

To tell if you could handle the pressures and challenges of property management you’ll want to do a little bit of a self assessment. We’ve created 8 simple questions to ask yourself to see if you think you could handle property management.

Are you a reasonably tolerant person? Be honest with yourself.
Do you have any knowledge and experience with doing minor maintenance and repairs?
Are you able to sell and negotiate? You will have to sell the unit to renters, you’ll have to sell the idea of paying rent on time, and you will have to have the problem solving and negotiation skills of a salesperson in order to handle some of the issues that will arise.
Can you visit the property on a regular basis? You should stop by at least monthly so make sure it’s convenient and possible to do so. Plus, if you do get a 3am call that requires you get there right away, are you going to be able to?
Are you comfortable and capable of keeping good records? We’re a little weak at this ourselves, and we likely miss out on tax write offs because of it. It also takes us several days to prepare our books to send to our accountants each year because we aren’t as organized with our unmanaged properties as we should be.
Are you able to diffuse angry individuals and ease any tensions between them? How do you handle difficult people? When dealing with a difficult person do you get angry and frustrated yourself?
Imagine the busiest possible day, and then imagine having to handle a call from one of your tenants about a frozen pipe or a broken door lock. Are you going to be able to handle that situation?
Do you have someone that can be your back up if you take a vacation or go out of town? If there’s an emergency at your property, your tenants need to be able to get in touch with someone that can make decisions about the property.

If you answer “no” or “I don’t know” to three or more of these questions then you should seriously consider hiring help. Property management is a job that requires expertise, skills and resources. It’s possible to do it part time while working a full time job, but there will be days where it’s not easy.

These questions are not exhaustive. There are other things to consider when you make the decision whether to hire a professional or not, but spending a bit of time honestly answering these questions will really help you figure out if you want to be your own property manager. You may find the cost of a professional is worth every penny.

5 Steps to Rent Out Your Property

March 6, 2020July 25, 2008 by Dave Peniuk

Money is tight, and you’ve got to rent out your vacant basement unit. You live above the unit and you need the rent money to make the mortgage payment. What do you do? Rent it out to the only person who is willing to move in right away. And you allow yourself to justify why that person won’t let you speak to their current landlord or why the collection agency is after them.

What could go wrong? This lovely tenant could be unstable and pull a knife on her roommate. Yes – it happened to us at 3am on a Wednesday night about 4 years ago. We had to call the police and have them separate the two tenants. The victim moved out the next morning and we were left with the knife wielding tenant who then stopped paying rent but refused to move out. It took us three months to evict her. We had to live above her the whole time. Once we FINALLY got her family to come to town and move her out (we were still a few weeks away from legally being able to throw out her stuff and change the locks), we had to send a collection agency after her for the rent money. We never received a dime.

As you can imagine we’ve taken great pains to find good tenants ever since. Here’s the overall process:

Step 1: Prepare the unit for showing
Step 2: Get your paperwork in order
Step 3: Research the market rents and place your ad
Step 4: Show your space
Step 5: Choose your new tenant.

Step 1: Prepare the unit for showing

The better it looks the more likely you’ll find a good tenant for the space. Make it easy for someone to visualize themselves living happily in that space.

Some suggestions to prepare the unit:

Fill any holes and put a fresh coat of paint over the walls.
Check all of the doors, locks, plug ins, appliances and light bulbs to ensure they are in working order.
While you are doing this, create a checklist to use when the tenant moves in or out. Include all of the rooms, doors, windows, drapes/blinds/shutters, plugs and light switches, shelving, appliances etc.). When your tenant moves in you both need to sign off on this sheet – it’s required by law in B.C. If you’re not sure how to start this sheet check out docstoc for examples.
Air the unit out before showing it – open up the doors and windows to let fresh clean air in.

Step 2: Get your paperwork in order

To attract a good tenant, you will need to be a professional landlord and have the right paperwork on hand. Contact your local residential housing branch of your government or go online and do a search for landlord forms to find the following:

Tenant application forms
Rental/Lease Agreement forms
Eviction notices or other forms you might need later – sometimes you have to order the forms so it’s better to just have them on hand.

Each provincial government has different requirements and rules for what must and what can be in each of the above documents so be careful what you download. Ensure you’ve got documents that are legal in the same province as your rental unit.

Step 3: Research the rent rates and place your ad

Make sure the Price is Right!

Research like units online to make sure you’re not asking too much for your unit. We check Rentometer for a ballpark range and then research in detail on Craigslist and Viewit to understand what the competition has their units priced at.

Don’t get too greedy– it’s better to price just below the market. You will rent your unit faster, have a larger tenant base to pick from, and you will have a better chance of retaining a tenant for a longer period of time. When you find yourself thinking “but I could make $50/month more easily!”, counter that thought with “but it will cost me even more if this unit goes vacant for a month or if I have to re-paint or fix up this unit in 12 months when the current tenant leaves in search of a better deal”. I’m not saying leave a stack of money on the table, I am just saying, that it’s better to be slightly below market and have a great tenant in there quickly then to get a few more dollars every month.

Get the word out! We’ve found tenants through all of these methods:

Word of mouth– we email all of our friends and let them know we’ve got space for rent. As a result, we have rented several units out to friends over the years. We also let our good tenants know about other units that are available and sometimes they move into the units and we keep them as tenants for longer, or they have friends they can recommend to us.
Advertise online! We love the viewit.ca and craigslist combination in Toronto. Viewit.ca takes pictures of your rentals. You can place a free ad in Craigslist with a link to the Viewit.ca ad so your prospective tenants can see the unit.
Craigslist on its own is also very effective and it’s free!
Put a sign up on your lawn or in the window of the unit with a phone number. Viewit gives you a sign to put up which is another benefit of advertising with them.
Local Newspapers can be a fairly inexpensive way to advertise. Ask the classifieds agent what is the best day to advertise a rental unit on to get the most eyeballs seeing your ad. We don’t advertise in the paper anymore as we find online to be very effective, but in some areas your target renters may be best reached by the paper.
University Housing Boards: We haven’t done this for awhile, but we have a tri-plex near the University of Toronto, and we used to advertise there. These days every university student seems to use Craigslist.

Step 4: Showing your space

The most efficient way to show your space is to have an open house. Pick a time to show the space for a two hour period one evening or during the weekend. Then have a back up time. When a tenant calls about seeing the unit, tell them that you will have a showing for all interested tenants at time slot one, and if it’s still available, there will be a second showing at the second selected time.

Prepare for the showing by having the unit as clean and fresh smelling as possible. Be dressed in business casual attire with tenant application forms on hand when you greet the prospective tenants.

You could show your unit to one tenant at a time. This is a great way to get to know the applicant a bit more, but it is very time consuming and inefficient, especially if you don’t live nearby. An open house environment creates an air of demand which helps get applications completed much quicker. When a prospective tenant sees the other interested parties, if they want your unit, they will act quickly to try and get it. Encourage the prospective tenants to complete the application before they leave. Then you will have the application in hand and can make notes on the application about who they were and what your initial impressions of them were. Alternatively, ask them to drop off the application the next day (especially if you’ve already received other applications – you can tell them you plan to make your decision in the next few days).

Step 5: I choo choo choose you! Choose your new tenant.

Review the Application: Look for gaps where a place of residence is not indicated, or look for conflicting information. If you liked them but there are gaps or issues with their application, ask them about it. If you start to hear things like “well my previous landlord didn’t like me because of….”, or “there is a credit agency after me because of…” then it’s not a great start. Some reasons make complete sense, others are just elaborate stories. If you can’t be sure what the case is, keep looking. Or you could end up with a tenant that pulls a knife on another tenant like we did!
Run a Credit Check:Once you’ve found one or two that you like and that has a good application, run a credit check. This is a critical piece. Many veteran landlords say they just trust their gut. Well, I trust my gut, and then verify it!
Reference Checks: Call the reference and ask them simple questions like “how long have you known the applicant?”, “What’s your relationship with them?”, and “Would you rent to them?”. This is also a good gut check, but keep in mind that a current landlord might be anxious to get rid of the tenant so they might not tell you the truth.
Final Gut Check: So they have decent credit, nothing came up on their application that makes you uncomfortable, and the references had nothing negative to say. What’s your gut telling you? Do you get a good feeling about them? Do they seem honest? Do you think they will be too messy? Or too picky? If you are happy with the gut check then you are ready to choose your new tenant.

For more on selecting your tenants – check out our tenant screening checklist.

WAIT! What if there is a tie? What if you can’t choose between two tenants? I go back to the prospective tenants with some additional questions to break the tie:

How long do you plan to stay?
What will you be doing for the next couple of years: work, school? what type of work or school?
What do you like about my place versus others that you have looked at?
Why are they moving out of their current place of residence?
Will you sign a one year lease?
Do you like to have people over on a regular basis?

After hearing the answers to these questions, you’ll usually find yourself leaning towards one tenant. Once you’ve selected your new tenant, have them complete rental agreement and collect the first months rent. Depending on what province your unit is in, you will also collect a security deposit or last months rent at this time.

Once you have a signed agreement with rent cheques in the bank, you will need to let your other prospective tenants know that the unit is rented. If a prospective tenant asks why they didn’t get it never tell them it was because of age, race, gender, or because they have or don’t have children. No matter what your reason was for choosing one tenant over another, you cannot be discriminating about the choice. It’s probably safest to say ” the other tenant had a very strong application”.

Published July 2008

You Might Also Be Interested in Reading:

>> Troubleshooting Your Vacant Rental

>> 5 Steps to Hiring Your Property Manager

>> How to Live for Cheap(er) – Renting Out a Unit in Your Home

>> Tenants Who Break Their Lease & Other Tenant Issues

>> Tenant Move Out Inspections & the 5 Things Tenants Never Remember to Clean

Renting to Tenants – Preventing Tenant Turnover

December 12, 2012June 4, 2008 by Julie Broad

Three months into owning two beautiful loft units at the Toy Factory Lofts in Toronto, we already were renting one of the units out for a second time. Despite being in one of Toronto’s most desirable neighbourhood for the under 40 downtown worker, and being awarded the highest rating and positive compliments from condo reviewer Christopher Hume, the building is still a construction zone. And it can be very tough renting to tenants when they have to deal with the developer’s workers fixing deficiencies and intruding on their space on a regular basis.

In an attempt to prevent tenant turnover, we made some concessions when renting to tenants. We offered rental concessions for the first six months to one tenant, and a lower first month rate to a second tenant.

But, for one unit, it wasn’t enough to prevent tenant turnover. After only 6 weeks the renter left, complaining of dust, noise, and deficiencies. We took special care renting to the the next tenant in the hopes that the next tenant would stay for much longer. One of the things we did differently was we wrote the Tenancy Agreement to ensure the tenant did not have an opportunity to plead ignorance to the construction issues and use that as an excuse to break the lease.

Some lessons for renting to tenants in new construction units (a big thanks to Lindsay Widsten, our Nanaimo-based Property Manager for suggesting some of these):

Ensure your prospective tenant visits the unit and building at least 2 times to experience the “construction zone”;
In your Tenancy Agreement note “the tenant is aware that the rental unit may be impacted by various construction issues including: noise, dust, and workers tending to deficiencies”;
Also note in your Agreement that the tenant agrees that they cannot break the Tenancy Agreement under grounds that they were unaware of such potential issues;
Clearly explain to your prospective tenant that there will be some challenges with the building and possibly their unit over the upcoming months; and
If necessary, make a deal with your tenant that you will reimburse them X dollars at the end of their lease to compensate them for no late rent payments and living thru the construction zone. Ideally don’t reduce their monthly rent, rather, reward them after a full lease term has been served.

The Tenancy Agreement is not something we’ve talked about much because it’s different in each province. Make sure you know the landlord tenant law in your province before you rent out your basement or buy a rental property. There are standard forms for tenancy agreements but they may not cover every situation (like renting out a new construction condo). Some things we have included in agreements for various reasons:

No-smoking policy,
No dogs or no cats,
No assignment or subletting of the unit without our prior and written consent,
No change of tenants without our prior and written consent (very important with student roommates – but that is a big story for another day),
Tenant’s obligations for things like snow removal, lawn care or other maintenance and care
Penalty for late payment of rent or penalty for cheques that bounce.

PublishedJune 4, 2008

Five Ways to Protect Yourself from a Bad Property Manager

December 12, 2012April 5, 2008 by Julie Broad

We’re not too proud to say we made gigantic mistakes when we hired property managers for our Toronto and Niagara Falls properties. Our biggest errors happened before we even bought the properties, but we continued to make them until one day Dave was reading his name in the paper, calling him “an absentee landlord of a local crack house”, and we were making the discovery that our other property manager was robbing rent money from us.

When we realized what had happened in both situations we really felt stupid. And, financially both situations were painful. In fact, five years later, we’re still dealing with problems that arose because of the bad Niagara Falls property manager.

Mistake Number One: Dave bought (I take no responsibility for what he did with the two Niagara Falls properties) without making sure he could hire a reputable management company. Living two hours away, it was impossible for him to manage the property and he had to hire the only person that would take it on.

Avoid this mistake: Before you buy a property, make sure you are able to hire a good property management firm. There are some properties that good property managers will not manage. And if they won’t manage them, there’s a good chance they are more work then they are worth.

Mistake Number Two: When we hired the property manager for our Toronto property, we focused our research on finding the best priced manager. We glanced at references, made sure the company was registered with the better business bureau and that was about it. We were just anxious to not have to deal with the tenants that were fighting and calling us 20 times a day.

Avoid this mistake: Research your potential property manager obsessively. When you’ve found a firm that you think you’d like to hire, get references and find out what other properties they manage. Drive by those properties and see how well they are maintained. Take a walk around and hope to bump into a tenant. See if the tenant is happy with the property management company. And definitely call a few of the owners of these properties the company manages and find out if they would recommend the company.

Mistake Number Three: Once we hired the property manager in Toronto, we washed our hands of it. Grateful not to be dealing with the tenants fighting, we happily stopped thinking about it.

Avoid this mistake: To start with, frequently contact your property management company. And, once in awhile check in with your tenants. Let the property manager know you are keeping in touch with the tenants and checking the property yourself on occasion. Ensuring the property manager knows you’re involved and that he’s accountable will keep him on his toes.

Mistake Number Four: Ignoring a unit that is always vacant. In Niagara Falls there was one unit we never collected rent for. When Dave checked on it, it seemed someone was living there. Turns out the property manager was letting a buddy crash there for free. This buddy attracted working girls and drugs to the building with a greater frequency than the other tenants. So not only was he freeloading, he was bringing the property down with him.

Avoid this mistake: If there is one unit that always seems to be vacant, check on it. Visit the unit or have someone else visit for you. Confirm that it is vacant. If someone is living there, you want to find out why you aren’t getting rent for it. And if it is really vacant, you need to see it yourself to find out why and fix the problem.

Mistake Number Five: While we never did prove it, we’re certain that the same manager that robbed rent money from us (See our story on what happened) also charged us for repairs to the property that never were done. Anything to scam a few extra bucks from the unsuspecting owners.

Avoid this mistake: If you are being charged for snow removal, check the weather history and make sure it actually snowed that day. If you are being charged for repairs, get receipts or photographs of the repairs. One tip that David Lindahl had in his book “Emerging Real Estate Markets” was to have the management company take a picture of the repair with the local newspaper next to it. This way he has proof of the date, and he can see what the repair actually was. It prevents being charged for the same repair twice.

We’ve learned a healthy dose of paranoia goes a long ways. So trust your instincts, but check them too. A few extra phone calls and a few extra steps here and there can save you thousands of dollars a year.

Published April 5, 2008

April 21st, 2008 UPDATE

After we published this article, we received an email from our Nanaimo property manager. He had a great suggestion regarding our advice to check in with your tenants to ensure your property manager is doing what you hired them to do:

I caution all new clients not to contact their tenants direct under any circumstances! I have many tales of woe on this and not one where there was a benefit. The few that disregarded my advice were quick to ask me how to get out of the problems contacting the tenants had created.

The property manager is the middleman and frequently the “no” man. If the tenant has the owner’s contact info they will not take no for an answer. (Then it becomes a “he said, she said” game.) It is amazing what a tenant or an owner thinks the other promised and I have no way to guess the real story which may be somewhere in between. Why open up that can of worms?

I suggest making an appointment to view the home with the three parties in attendance. You get to know each other and the property but keep your comments to the weather. The meeting is warm and fuzzy.

When we received LW’s email, all of the memories of a disgruntled tenant that found Dave’s phone number through information came rushing back to us. Being in B.C. and three hours behind Ontario’s time zone where the tenant lived, we found ourselves getting really unpleasant 5am wake up calls on many mornings. We really like LW’s suggestion, and believe that a meeting with all three parties in attendance would keep the property manager in the middle, where they should be, while providing an owner with the necessary reassurance that the property manager is doing the job they’ve been hired to do.

So thank you LW for your great feedback. Keep it coming!

We were robbed by our Property Manager

April 17, 2020December 17, 2006 by Dave Peniuk

Reasons to find the best property manager money can buy

We were taken for a ride by a property manager we had in Toronto. His services were cheap (5% of the rent and no charge for new tenants except advertising costs). Well, cheap, if you don’t count the fact that he was stealing rent money from us!

Before hiring him to manage our tri-plex in Toronto, I researched him a bit and learned that he was a Mom & Pop-type shop, but I didn’t check references or dig much deeper than that. His scam? He collected $950/month from our tenants but only told us we were getting $890!

The extra $60 was likely hitting his back pocket. We are sure he was taking a cut from our other two units as well. However, we were never able to prove that. The only reason we caught onto his scam was because we moved into the house and the tenants started paying us the rent instead of him. Imagine our surprise when the cheque was for $950, and we were expecting $890!

Looking back, we could have easily protected ourselves. Now, we want to help you prevent it. Investigate your property manager before hiring him/her (as per article 2 above). After hiring the property manager, we suggest you do the following:

When ads are placed for your unit(s), get copies of the ads. Also, ask where the ads are being placed and check for the ads yourself (looking back, I had noticed an ad for our unit for $50 more than we had agreed to rent it for. I wrote him to change it, and he said he would, but now I think it was a red flag that I should have recognized).
Ask for copies of the signed leases.
Ask for proof of expenses incurred (always get receipts, but for larger repairs or purchases get pictures or visit the property yourself).

This may not save you completely, but had we been able to get copies of the leases or asked to see the ads, our property manager would have had a harder time stealing from us. We are getting ready to hire a new property manager for our Toronto property, and we can assure you that we won’t be just grabbing the cheapest man on the block, and we definitely will be keeping a much closer eye on the rent and the expenses.

Getting your hands dirty

by Dave Peniuk & Julie Broad

Are you ready to clean, make repairs, place ads in the paper, screen tenants and handle emergencies? If you aren’t, then we hope you have hired a competent property manager for your new investment property. If you decided to save the cash, then you should be prepared to do any (and all) of the following:

Clean the property of clutter and maintain the outdoor areas of the property while occupied. This includes snow removal in the winter and lawn maintenance in the summer. When vacant, you will likely have to get in there and clean it yourself (or hire someone) to make it more presentable.
Repairs and maintenance (from small things like changing a lightbulb or unclogging a toilet to bigger things like painting or electrical work).
Determine the market value of rent in order to advertise the units (check comparable houses/units in the area by checking online or local listings).
Determine best places to advertise and place the ads for your rental units (front lawn, local university, paper, online, etc.).
Show the property, take applications and screen potential tenants.
Collect rent, and deal with problem tenants (giving notices, working with the local government tenancy office, evicting).

There is a lot of work involved in managing a property. Often, the work involved (and any problems) are unexpected and happen at inconvenient times.

The Investor’s Saviour: A Good Property Manager

by Dave Peniuk

A good, reputable, hands on property manager really is what makes property investing enjoyable. We haven’t been so lucky with all of our property managers, but thankfully, in Nanaimo we have one. Lindsay Widsten is one of those property managers that makes investing almost painless. He keeps our tenants happy, provides us with monthly statements, only contacts us when necessary and has earned our trust completely. In fact, he is so good, that we often forget we even have the four properties in Nanaimo!

Before you choose your property manager, it’s a good idea to take some precautionary steps, including:

1. Check the Better Business Bureau;
2. Contact associations like ROMSBC, GTAA etc. and ask for a recommendation, or if they know the property manager you are considering;
3. Ask if s/he is licensed, and with who (get details);
4. Ask for 2 or 3 references from your property manager and give them a call;
5. Drive by a couple of the properties currently managed by the property manager;
6. Ask friends and family for recommendations.

Do your homework. Hiring the wrong property manager can cause you a lot of grief. But hiring a good one, can save you time, money, and stress!

Published December 17, 2006

Evaluating Your Real Estate Investment

December 13, 2012July 16, 2006 by Julie Broad

How many properties can you afford if each one costs you $400/month?

To buy, or not to buy that real estate investment?

You have found your perfectly located property and are convinced it meets your goals. How do you know whether you should buy it? What if the rent is not enough to cover all of the expenses?

Many of the get rich quick books like Robert Allen’s Multiple Streams of Income or Russ Whitney’s no money down real estate courses are quick to focus on monthly cashflow. They preach that you must buy properties where the rent is high enough to cover mortgage, expenses and profit. We don’t disagree, but just as we have in the last three editions, we want to take you back to your goals before you rule out the ones that don’t have good cash flow.

When we moved to Toronto almost five years ago we bought a small condo in North York. Rents were higher than a mortgage, and we thought we would live there for awhile and rent it out. That is exactly what we did, but it costs us almost $400/month because the rent doesn’t cover the maintenance fees. Why haven’t we sold it? Right now, it still works for our goals.

In an ideal world you would find a real estate investment in a location that is right for you (as discussed last month) that will give you:

Positive cash flow each month (you are taking in more money from rent than you are paying out in mortgage and expenses)
High potential for appreciation over a five to ten year term (or sooner!)
High level of liquidity (in other words, everything about the property is desirable and it wouldn’t be hard to sell in a hot or cold market).

Unfortunately, we don’t live in an ideal world and you will likely have to prioritize which ones you want based on what your short and long term goals are.*

Cash Flow

One of the most common methods of evaluating a purchase in commercial and residential real estate investment is cash flow. In commercial real estate you will often here everyone talk about the cap rates. In residential real estate a common one is the gross rent multiplier (GRM). To calculate GRM:

* Estimated (or known) rent x 12 months = Annual Rent
* Asking price (or what you plan to pay for it)
* GRM = Asking Price / Annual Rent.
For example, if your monthly rent is $1,000, and the asking price is $100,000 your GRM is:

$100,000 / $12,000 = 8.33.

The basic rule of thumb is that you need a GRM of 10 or less to have decent cashflow. This is based on the assumption that your operating expenses are less than 40% of your monthly rent. Operating expenses include your property manager, taxes, insurance, and maintenance and repairs. It also assumes that your financing costs do not exceed 60% of your monthly rental income.

Just to give you an idea of expenses, our properties average about 37% of our rental income each month for operating expenses.

Once you narrow down your list of potential investment properties, contact the listing realtor and obtain an income and expense sheet for the property or ask for actual receipts to determine the true expenses and possible rent of each property. Now, you will be more informed whether to continue looking at this property on a cashflow basis or you should move on.

If your goal is to find properties that will provide you monthly income, then you will need to focus on this method of evaluation. The two other considerations (appreciation and liquidity) should be less of a concern. If you are holding properties for the long term, and looking for ones that are less likely to cause you problems with tenants or repairs, then you are likely also going to be factoring in the other two evaluation criteria.

Potential Appreciation

It is difficult to evaluate appreciation potential as it is based on what happens in the future. There are ways to feel more confident in the potential of your property increasing in value though. For example, consider:

* Are more people moving into the area than out of the area?
* Are there new developments around? What about schools, stores and other services?
* Is there a shortage of land to build new homes?
* Are new roads being constructed? Is the economy in the area diverse and growing?
* Is it a Starbucks area? (from last month’s edition)
* Are people renovating and spending money on nice landscaping?
None of the above guarantees appreciation of a property, but if appreciation is a primary concern, you need to be mindful of these elements.

Liquidity of a Property

Many of the same factors that may help to identify properties that will appreciate are the same ones that will help you evaluate it’s potential liquidity. The objective here is to determine whether you could sell the property in a hot or cold market at a good price.

For us, liquidity is important, but comes in third because we make all our purchases with the intent of holding them for 5 – 10 years or more. In a long term hold situation, liquidity is less of an issue because you do not need to sell it in the short term, and can hold on to it in bad market conditions and wait for the cycle to return to one of strength.

How do you evaluate liquidity? Current market conditions will help you in the short term (how many listings there are on MLS relative to sales is one), but when trying to figure out liquidity in the future, you can consider:

Single family, detached homes are always more in demand than any other product, especially ones that are well taken care of,
Safe locations near parks, schools and shopping are in demand no matter what the market is doing,
Properties that are without extras that people do not need and will not pay for in hard times (pools, 3 car garages, large acreage).

Essentially, you want your property to appeal to the masses in order to ensure liquidity. If it is too unique or too specialized then your market is smaller, and therefore it will be much harder to sell in a market downturn.

Maybe you are tired of hearing it, but it all depends on your real estate investing goals what criteria are most important in your decision. If you only want one investment property and you want the most appreciation potential and least hassles, putting $400/month into it is not a bad thing. Especially if you are in a higher income tax bracket. You can write-off the mortgage interest as well as most of your investment property expenses (speak to your accountant). Furthermore, if your mortgage interest rate is reasonable (less than 6%), your tenant will be paying down a portion of the principal, helping you to build equity (which is our situation with the condo in North York). If you can’t afford to put a dime into the property each month, then you must find one that has good cashflow regardless of the other criteria.

July 16, 2006

It is Not All in the Numbers When Investing in Real Estate

December 13, 2012July 16, 2006 by Dave Peniuk

Just because the property has good numbers, does not mean it is a good buy

When the numbers on your potential real estate investment look good

After a weekend at the real estate investing course that I paid dearly to attend, I was newly equipped with the mission to find properties with a Gross Rent Multiplier of 7 or less. It took me some searching but I found one with a GRM of 3.47! What a great find, or so I thought.

The numbers:

* Asking price = $150,000
* Monthly rent = $3,600
* $150,000/($3,600 x 12) = 3.47.

What a pleasant surprise when the Vendor was also willing to hold a second position on the property. So, not only was I able to secure the low GRM property, but I was also able to get a vendor take back loan.

The trick was that this property was run down, had problem tenants, and always needed a lot of work. Do you remember the crack house story from a few months ago that put me in court and cost me nearly $25,000 in court ordered work and fines? If you do, then you know about my GRM property of 3.47. To be fair though, it is possible to do well with a property like this. To do so, however, you have to live close to it, have thick skin, and be available 24/7 to maintain it. Or, have a phenomenal property manager that does not cost you an arm and a leg!

When the numbers aren’t as good, but the property has a lot of potential

When you know what your goals are, you can easily identify properties that fit within your goals. We were looking for a property to purchase with potential appreciation, reasonable liquidity and limited hassle. With several other properties causing us grief, we really just wanted a good investment, even if we had to pay more for it relative to the rent we were bringing in.

The numbers:

* Asking price = $275,000
* Monthly rent = $1,575
* $275,000/($1,575 x 12) = 14.55.

The property had a GRM that was over double what the real estate investing course recommended we purchase, however it fit all of our other criteria, and because we used equity from another property to purchase it, we didn’t need any of our own money for the down payment. In the end, it costs us $200/month to keep it, but we have some tax write offs to offset that, and it has been a very low maintenance and stress free purchase so far. It’s also the one that Julie still has yet to see!

Knowing your goals gives you comfort and confidence in your purchases. Also, knowing what you are willing and able to endure financially and emotionally will take you a long way to finding properties that fit into your life.

published July 16, 2006

Archives: Evaluating a Real Estate Investment

December 13, 2012July 3, 2006 by Julie Broad

Evaluating a Real Estate Investment Articles

Considerations & Questions to Ask Before You Buy a Condo

Knowing When to Walk Away From a Deal

Find, Screen and Select Joint Venture Partners

What’s Your Return on Time?

Where the heck is easy street for my investments?

The Challenge with Investing in Condos

Home Inspections 101

Real Estate Market Research

Are Rent to Own Real Estate Deals a Cash Cow?

How to Analyze Risk in Real Estate Deals

Multifamily vs Single Family Real Estate Investing

Tax Advantages of Real Estate (for U.S. residents)

Four Ways to Check Reality Before Buying a Rental Property

Rental Property Location Research: Where to Buy

How to Evaluate a Property in 60 Seconds

Is Now a Good Time to Buy Real Estate?

5 Ways to Know You’ve Found a Great Investment Property

5 Questions to Ask Before you Buy a House

How to Value Commercial Real Estate

Why it’s Ok to Sell your Property at a Loss

The Truth about goal setting

Sweating the small stuff

It’s Not All in the Numbers When Investing in Real Estate

Evaluating your Property Purchase

The Starbucks Area

Real Estate Investing Goals

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Long Distance Real Estate Investing

December 7, 2012June 16, 2006 by Karysa

It helps to have “Peeping Toms”

Startled by the couple wandering around the yard, and looking in windows she decided to yell over to them and ask what they were doing. “Excuse me, are you looking for something?” she called as she watched the couple peak into the basement window. My parents replied, “Um, our daughter is considering buying this house, and she told us it was vacant and asked us to look around. She lives in Toronto, and needs to be sure this is a good investment”. Thankfully the neighbour believed my parents, and was kind enough to tell them more about the area, but it could have ended a little differently had the neighbour just called the police on my peeping parents!

Unable to find anything that met our goals in Toronto, we began searching for a property in Vancouver or Nanaimo to invest in.

Vancouver turned out to be a bigger financial committment than we were prepared to make at that time, so we eventually focused on Nanaimo. We found a place, put in an offer, negotiated the deal and closed on our purchase from Toronto. I did not see the property before we bought it. In fact, we have had it for almost a year, and I still have not seen the property.

How did we do this? First of all, Dave grew up in Nanaimo and knows it very well. This is the fourth property we have bought in Nanaimo (fifth if you count the one Dave bought with his mom many years ago), and we have a very reliable and trustworthy real estate agent and property manager, Lindsay Widsten. Dave kept in close contact with Lindsay, and kept his eye on MLS listings to spot opportunities.

Second, we both have family in and around Nanaimo. Dave’s Mom did the initial walk through with Lindsay when the opportunity arose. She sent us photos and described it to us in detail. My parents went over on a different day, and walked around the block and peaked in the windows.

There is not much you can’t do over fax, phone and email these days. All our negotiations were done via Lindsay over the fax and phone. We had our lawyer here notarize our signatures on the purchase, with another lawyer in BC acting on our behalf for the purchase. We used the same fantastic mortgage broker in BC, Cindy Faulkner, who has convinced many lenders to loan us money at great rates. Finally, we had Lindsay rent it out and manage it for us.

It helps to have the right resources, and to have some knowledge of an area to make a purchase. It definitely makes it more comfortable. And, if you don’t need to see your investment on a regular basis then it’s definitely worth looking in other locations to find your investments. It gives you more flexibility, and may diversify your risk of market crashes because those are often very geographically focused.

Published June 16, 2006

Worth Checking out for a Canadian Perspective:

No Money Down Real Estate Deals

December 13, 2012May 15, 2006 by Dave Peniuk

Manslaughter & a Crack House: No Money Down Real Estate Deals

“No money down“, “100% Annual ROI”, and “Positive cashflow” are all catch phrases commonly used by real estate investment gurus. It’s hard not to get wrapped up in the hype. I certainly did. After participating in some investment seminars and reading several no money down books, I decided to go after my dream of quitting my job by age 35.

From what I learned, it seemed the only way to do this was to buy several positive cash flow properties with little or no money down. After some searching, I was able to find two of these “gems” in Las Vegas North; Niagara Falls, Ontario. I bought a total of nine units for about $5000 of my own cash.

I have now learned there is usually a reason that you can buy a property for no money down. It is because no one else wants it!

The first clue that these properties were not a real bargain should have been when the only one who would manage them was a shifty character I’ll call Bob. I became aware of Bob through the seller of the property.

To begin with there was an occasional fire code issue and frequent police presence on the property. And, of course, my tenants always paid in cash which made it easy for Bob to skim some extra for himself. These issues were small compared to what I would face though.

The real problems began when Bob killed a tenant in another property. In an altercation where the victim was harassing other tenants, Bob delivered what ultimately was a fatal punch to the head. The death of this person sent Bob into a drug induced pit of depression. He slowly turned one of my properties into a crack house, while letting everything run into the ground at the other.

All of the crack use and prostitution in the buildings attracted the attention of the fire department. Several substantial orders against each property were filed, and $25,000 later (including a $5000 court fine) I am finally in the clear with the violations.

No money down, doesn’t mean it won’t cost you!

Properties such as this can make you decent positive cashflow, but they are very stressful. You also need an outstanding hands-on property manager, and access to a lot of cash. Property issues often arise because of tenant abuse and property defects.

We both have very busy full time jobs and several other properties to oversee. Having a run down stressful building was not a good fit for our goals, even if there was sometimes positive cashflow.

We are no longer completely focused on cashflow, and let’s face it, 35 isn’t too far away. I am not going to be quitting work just yet.

We want the numbers to make sense, but that isn’t the only factor we consider in our purchases. We now look for properties in good or improving locations that have features that will make them easy to rent, easy to resell and that we can proudly say we own. These properties aren’t on every street, and it takes more money to buy them, but it is a property type we can handle.

Published:May 15, 2006