Toronto Investor Rental Info -

Value of a Landlord’s Reputation
by Richard Warren on September 2010

Many people demonize landlords as evil and greedy bloodsuckers. Some of them are to be sure. Most of them (us) are really just investors trying to make a living and build wealth. Finding a story about a slumlord that does nothing but collect rent is easy. They do as little as possible in terms of maintenance and repair and are simply looking for their monthly check. Ever here the story about the great property owner that treated his tenants fairly, made sure his rentals were properly maintained, safe and secure? I didn’t think so.

You only hear about the terrible landlords because bad news travels fast and good news isn’t very entertaining. It’s like sports referees or umpires; they go unnoticed until they blow a call. The value of having a good reputation as a landlord can be summed up in one word – vacancies.

A Fact of Life

Hear the one about the long-time landlord that never had a vacancy? Neither did I. Vacancies are a fact of life; tenants get new jobs, get married or divorced, have kids and need a bigger house, or buy a house of their own. When a tenant moves out it is rare to have a new one move in the next day. The property may need some repairs or updates, new occupants need to be found, and screening prospective renters takes time. If you can have it rented by the following month you are doing well.

A wise landlord uses a vacancy factor when calculating cash flow projections, generally 7-10%. Sometimes that’s sufficient, sometimes it’s not. Two years ago I wrote an article about two rental properties I owned that were polar opposites in terms of vacancies. While a vacancy factor is an assumption, it can vary wildly. I just experienced such a situation.

I own homes in a rural Nevada mining town with a very high demand for rentals. While I’ve certainly had vacancies, I recently went almost two years without one. Then I had one tenant of more than five years give notice because he had finally been able to purchase a house of his own. I was disappointed to lose an excellent tenant but I really couldn’t complain. Not two days later I had a call from another good tenant; she had to move out due to a family emergency. I suddenly had two vacancies – the law of averages had reared its ugly head.

A Priceless Commodity

Imagine a slumlord in that situation. His reputation will keep the good tenants away and he is left with the dregs that can’t get anyone else to rent from him. Fortunately I’m not in that situation – it’s just the opposite.

I immediately put the word out to my network that I had two rentals available. One was ready to go as soon as I changed the locks, the other needs to have a few things taken care of and it was time for new carpet. Within forty-eight hours I had received numerous calls on both properties. In the first case my long-term tenant actually found not one, but two prospective tenants for me. The one I selected is so anxious to move in that my total downtime on the rental will be ten days. The second house is actually paid through the end of September and I am in the process of selecting a tenant for an October 1st move-in.

Why did I have so many people calling me? It’s not because there are no other rentals or because they’re priced too low. The rents are right at market and there are enough properties available that people have a choice. The reason is that this is a small town and I have developed a reputation as a landlord who is fair, but firm, maintains the houses and treats tenants with respect. Want to have a low vacancy rate in your properties? Then develop a stellar reputation in your community.

It takes many good deeds to build a good reputation, and only one bad one to lose it. – Benjamin Franklin

Photo Credit: boliyou

Bottom line? It’s always a good time to buy, says expert

Beyond the numbers


By Dianne Daniel Special to QMI Agency

Recent interest rate activity has left many homeowners and buyers wondering whether to buy, refinance or lock in. To shed some light on the subject of pricing trends and rate activity, Homes Extra caught up with Lois Volk, a mortgage broker with Invis Inc. Here’s what she had to say.

Q: What’s the best mortgage strategy right now?
Variable or fixed rate? A: It depends a lot on the individual situation. First-time buyers are more inclined to choose a five-year fixed rate because they know what the payment is going to be for the next five years and it helps with their budgeting. But for second time purchasers there’s a lot more interest in the variable rate. Right now the spread between the variable rate (2.3 versus 3.79) amounts to about $200 a month on a $250,000 mortgage payment. So it’s really hard to argue that they should lock into a higher payment, but it’s just a guessing game as to how long these exceptionally low rates will last. If they’re going to be in a real tight budget situation than maybe they should be looking at the fixed rates.

Q: What if rates go up? Will I still be okay?
A: Risk tolerance is real big factor here. Some people won’t sleep at night if they know their mortgage payment might go up. So they’re a better candidate for a fixed rate and I have no problem selling a five-year fixed rate at 3.79 — it’s an excellent rate. But the economists will tell you that 80 to 85% of the time you’ll come out ahead with a variable rate mortgage. When I’m working with clients who want a variable rate mortgage, I always show them the cost if the mortgage goes up a per cent, and another per cent, and another. We have prime rate now at three per cent, it’s not unlikely that it could go to five or six per cent over the next five years.

Q: Is now the time to lock in my rate?
A: There’s no panic. Personally, I think you’re going to be okay with a variable rate mortgage for the next year, possibly more, but nobody has any idea what’s going to happen after that. In any variable rate mortgage you can lock in to a fixed rate at any time and the shortest term for a variable rate is three years. If you’re taking a variable rate mortgage, we suggest you pay based on a higher rate (for example, the bank’s qualifying rate of 5.39). That way you build in protection if the rate does go up, plus you’re paying off a big chunk of your principal in the meantime. The other thing to consider is there are a number of lenders offering split term mortgages where you can do part of it at a fixed rate and part of it at a variable rate. So if you’re a bench sitter, or a couple where one wants variable and one wants fixed, you can split it in half.

Q: Should I be considering refinancing?
A: I’ve actually been doing a lot of refinancing lately, partly because the interest rates are very low but also because the economy has left people in tighter situations. A lot of people refinance to consolidate debt; they’ve got credit cards and loans at higher rates with higher payments and in those cases it can be very much to their advantage to refinance at a lower rate with a longer amortization. There are a number of reasons why people will refinance (to buy a cottage, to invest, catch up on RSP contributions) and a mortgage is still the cheapest way of borrowing.

Q: Is now the time to buy?
A: Generally prices have come down across the country. In Toronto, it depends on the neighbourhood. If you can afford it and you want a house, it’s always a good time to buy.

The Canada Mortgage and Housing Corp. and many large real estate brokerages are predicting a more normal and well-paced market.

Rookie mistakes to avoid when buying a home

They’re often heedless, emotional, rigid and, even worse, uninformed.

September 22, 2010 VIVIAN SONG

Experts say they see the same rookie mistakes in first-time homebuyers who are entering the housing fray: they don’t do their research, underestimate their finances, and let their emotions carry them away.

But with falling house sales and declining prices in the GTA, first-time buyers may find that market conditions are currently in their favour.

“We’re moving towards a balanced market right now,” said Mark Salerno, GTA district manager at the Canadian Mortgage and Housing Corporation (CMHC). “Because the pace of sales has slowed, houses remain listed for longer, which gives people more time to do research, and do their homework without any pressure.”

To help first-time homebuyers avoid making the same rookie — and costly — mistakes as their predecessors, experts at CMHC and the Toronto Real Estate Board have provided some helpful advice on common homeowner traps.

Mistake 1: Jumping into homeownership without understanding the implications.

Just because market conditions seem ripe doesn’t mean you’re ready to become a homeowner. If you’re a renter, the first thing to do is check the terms of your lease agreement, says Bill Johnston, president of the real estate board. What are the conditions of termination? Can you sublet?

“Fifteen-hundred dollars in rent can be a significant burden if you suddenly find that you’re stuck,” he said.

The CMHC also reminds first-time buyers that being a homeowner means being responsible for all payments, repairs and maintenance, which requires additional time and money. If you have an unstable jog, or if you’re not prepared to deal with leaky pipes or spend the weekend shovelling and painting, you may want to reconsider buying.

Mistake 2: Not getting pre-approved.

Shopping for a home without getting pre-approved could dash your dreams if you set your sights on houses that are out of your price range: you need to know how much you can afford to play with.

One of the first orders of business is to get pre-approved by a lender. Your pre-approval will depend on your gross household income, down payment, credit history, assets and liabilities. Online mortgage calculators can give you a rough idea of your maximum loan amount.

The general rule lenders use to determine your maximum mortgage is that your monthly housing costs — mortgage, taxes, heating and other expenses — should not exceed 32 per cent of your gross monthly income. Secondly, your debt load should not be any more than 40 per cent of your gross monthly income, which includes housing costs, car payments and credit card payments.

Mistake 3: Underestimating the costs.

Don’t forget that in addition to your mortgage, the closing costs for sealing the deal can range from 2 to 5 per cent of the home purchase price. That includes lawyer fees, home inspection, deposits, land-transfer tax, moving expenses, property tax and home insurance.

If you’re buying a house, chances are you may have to purchase major appliances, furniture, window treatments and lawn or snow-clearing equipment, as well as connection fees for cable TV, phone and Internet. If you’re buying a condo, you have to factor in maintenance fees.

It’s also estimated that maintaining your house will cost 1 per cent of the home purchase price per year.

Mistake 4: Having preconceived notions of downtown or suburban living.

Here’s where our experts are divided. Although the knee-jerk reaction may be to look farther afield to the suburbs to get more bang for your buck, first-time homebuyers need to look at the whole picture, advises Salerno of CHMC.

“If you work in the city, while your house may be more expensive, the proximity may mean you don’t need two cars, or before- and after-school programs for the kids,” he said. “I would caution people to really think about the time it takes to live in the suburbs.”

He also reminds prospective homeowners that condos usually come with amenities, such as swimming pools and gyms, and are also typically close to city parks.

Johnston, on the other hand, advises expanding your horizons and keeping an open mind about location. A knowledgeable realtor, for instance, could find the exact home you’re looking with all the amenities you need — just in a different neighbourhood than you wanted.

“A realtor will give you options,” he said. “For instance, I ended up in Richmond Hill and I swore there was no way I would live north of Steeles Ave. But I love it.”

Mistake 5: Not considering the resale value of the home.

“One of the things with homebuying is that you have to step back and recognize that while you are moving into the house now, you will move out years later,” Salerno said.

Try to look at the house objectively, experts say. In addition to considering how it fits your needs, consider if it could also fit the needs of future homebuyers, such as families and couples. Although a nearby railway or highway may not disturb your sleep, it may be a major deterrent for future buyers.

Check zoning and development plans for the area, especially if there are vacant lots, empty fields or underdeveloped areas.

Take a drive through the neighbourhood and check out the level of amenities nearby, such as grocery stores and shopping, as well as the quality of schools.

Mistake 6: Not shopping around for the best mortgage.

Don’t make the mistake of bellyaching about your high-interest mortgage because you didn’t take the time to shop around.

Mortgage brokers are great resources because they will act on your behalf and try to secure the lowest possible rate. Because they’re paid by the lender, there’s no additional fee for you.

You may also miss out on valuable first-time homebuyer incentives if you fail to do your research. For example, the federal government introduced a First-Time Homebuyers Tax Credit last year that could provide up to $750 in federal tax relief for eligible buyers.

For those who buy a fixer-upper, you can also apply for a home renovation mortgage, or purchase plus improvement, which lets you finance the purchase and renovations as one loan.

“Everyone is frenzied in the homebuying process,” Salerno said. “The buyer wants to get into the house and the realtor doesn’t want to lose the sale, which can result in all parties missing opportunities.”

Mistake 7: Not doing a home inspection.

Here’s where the adage “Don’t judge a book by its cover” applies. Don’t be fooled by the little old lady who reassures you the house is a well-oiled machine.

Behind shiny new, stainless steel appliances could lurk rotting wood, busted pipes and families of rats. You’re already plunking down wads of money to buy your dream home; you don’t want another loan to fix things you never knew were broken.

If you find yourself in a bidding war, no matter how much you want the house, don’t make the mistake of forgoing the home inspection as a condition of purchase.

Mistake 8: Letting your emotions dominate.

Homebuying can be an emotionally charged event, especially for first-timers who are making the biggest purchase of their lives. But letting the heart overrule the head can cloud your judgment and end up costing you dearly.

“The mistake a lot of buyers make is that they get caught up in the frenzy of the marketplace, which is driven by fear and greed,” Johnston said. “Buyers who are lined up in multiple offers will then end up paying too much for a property.”

Take advantage of today’s quieter market, but do your research first.

First-Time Home Buyers Tax Credit (HBTC)

The First-Time Home Buyers Tax Credit (HBTC) is one of the measures provided by the federal government in 2009 to encourage investment in Canadian housing.

For 2009 and subsequent years, the HBTC is a new non-refundable tax credit, based on an amount of $5,000, for certain home buyers that acquire a qualifying home after January 27, 2009 (i.e., generally means that the closing is after this date).

The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit was $750. Each year, the credit is recalculated, so it may be higher or lower than previous years.

How do you qualify for the tax credit?
You, and anyone you purchase the home with, must be considered a first time home buyer to be eligible for the tax credit. The home must be used as your principal residence, and if you purchase with your spouse, common-law partner, or even a friend, then either one of you can claim the credit (or share it). However, the combined total cannot exceed $750.

If you are a person with a disability or are buying a house for a related person with a disability, you do not have to be a first time home buyer. See the Government of Canada website for further details.

What is a qualifying home?
To qualify for the First-Time Home Buyers Tax Credit, a home must be a housing unit located in Canada, including mobile homes, condominiums and apartments. A share in a co-operative housing corporation that entitles you to possess, and gives you an equity interest in, a housing unit located in Canada also qualifies. However, a share that only provides you with a right to tenancy in the housing unit does not qualify.

Also, you must intend to occupy the home or you must intend that the related person with a disability occupy the home as a principal place of residence no later than one year after it is acquired.

How to Claim the First-Time Home Buyers Tax Credit?
First-time homebuyers purchasing a home may claim the HBTC on their income tax returns. Starting with the 2009 taxation year, line 369 is incorporated into the Schedule 1, Federal Tax to allow you to claim the credit in the year in which you acquired the qualifying home.

The home must be registered in your or your spouse's or common-law partner's name in accordance with the applicable land registration system.

Claimants should ensure that documentation supporting the purchase transaction is available if requested by the Canada Revenue Agency. Claimants are also responsible for making sure that all applicable eligibility conditions are met.

Keep the HBTC in mind when you consider buying a Canadian home. It’s just another great reason to take the final step of real estate home ownership.

For more Information visit: http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html