Small Landlords need better protection
I was reading an article that stated smaller landlords need more protection than larger ones. I don’t understand this explanation. The article suggested that the small landlords are the ones who provide the basement suite, shared rooms, the first condo and the house in the area where you kids can have a back yard and not have to play in the hallway of a condo.
This is very true but it doesn’t matter who owns the house, condo or townhouse all landlords in BC must follow the same laws and regulations when renting their properties.
We work with many small landlords and speak to many who contact us about our services. The biggest difference between large and small landlords is not the protection they need, it is their knowledge of the laws and regulations. Large companies have employees who work in the field and learn and understand the tenancy laws. We often speak to landlords about the process of renting and are provided with direction or suggestions on how they want the property managed. When we advise them this is against the laws and or regulations a common reply is, if the tenants don’t like it then can rent elsewhere. This attitude will often result in the landlord ending up in front of the RTB at a hearing brought forward by the tenant. Large landlords treat the renting of their properties for what it is. It is a business, and needs to be operated like a business.
The article suggests that small landlords can’t afford to be without rent for a month, afford a bailiff, legal fees and are not equipped to deal with conflicts from bad tenants. I disagree with these statements. Small landlords can hire a property manager who has the skills to properly select tenants and deal with tenant related issues. Many small landlords see the fees for hiring a property manager as a detriment to meaning their property then cry foul when they end up in a negative situation due to their ignorance of the laws.
Can small landlords afford not receiving rent or hiring a bailiff. Large landlords are not charging a different rent that allows them access to a larger pool of money to pay for these items. If the larger landlord has a vacant unit for six months they are losing money, just like the small landlord. If they need a bailiff they also have to pay the same fees the small landlord pays. The difference with small and larger landlords is they run numbers based on the unit being vacant for periods of time and save some of those funds for these emergencies. This is operating your rental like a business. I have discussed renting a property for many individual landlords who have owned their properties for ten or fifteen years and still have a very significant mortgage on their property even though it has been rented for all of those years. This is not managing your money effectively while renting your property. This is taking all the profits out of the property before you have earned them.
Managing a rental property is very complicated to understand all the rules and regulations of the RTB and for some reason many people think they can manage a rental without any education or knowledge of the system. It is the only business I think people buy into without any understanding of the business they are entering. What does Warren Buffet say,
“I only invest in things in my circle of confidence”.
If you have no knowledge of managing a rental property why are you buying one?
If you do buy a rental property why would you not hire an expert to assist you with the knowledge you are lacking.
It is not that small landlords need more protection from teannts, they need protection from themselves.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
Rental Rate Data
Recently I was at a breakfast meeting where a real estate agent provided a very detailed presentation of the recent housing sales. Their presentation had statistics identifying the number of sales, the average sale prices and the stats were separated by the type of property including single family homes, townhouses and condos. The information was great and very useful if you are wanting to understand the housing sales market. The reason they were able to provide a detailed presentation is the sales market updates stats monthly.
The following week I was at another event and the topic of what are current rentals prices today came up. I described this report and said it is very difficult to determine what is the current market pricing due to the lack of efficiently collected data.
I asked google gemini where CMHC obtained their rental housing data. It’s reply is below.
“Statistics Canada (StatCan) gets rental market data primarily from administrative sources like major online rental platforms (Rentals.ca, Zumper), complemented by Labour Force Survey (LFS) data for context, and partners with CMHC (Canada Mortgage and Housing Corporation), using their survey data for some reports. They combine these sources, clean the data (removing outliers), and use methods like linking to the Statistical Building Register to create reliable statistics on asking rents for apartments and rooms. “
The second question we asked was how often does statistics Canada update rental data.
“Statistics Canada (StatCan) updates their key rental rate data, specifically the Quarterly Rent Statistics (asking rents from platforms) and other related indexes, on a quarterly basis, providing fresh insights into the Canadian rental market every three months. While some core housing data is released more frequently (like monthly GDP), the detailed rental figures, including breakdowns by unit size and area, come out quarterly for timely analysis. “
The response to these questions provide us with why the rental market is hard to determine what the current rental rate is
Let’s look at our second question first. CMHS updates rental rates quarterly not monthly. If data is only collected and updated each quarter we are often far behind on the current market conditions when the data is released. Rental rates can change rapidly especially in times of economic turmoil. It would be more effective if the data was updated monthly.
If we are reviewing data that is three months old to evaluate where we should price a rental property we are misleading our clients.
With regards to the first question of where the data is obtained it is an imperfect system of collecting the data. CMHS indicates they use data from various rental platforms creating reliable statistics on asking prices. The problem with this model is that the asking price is not the rented price, especially in a volatile rental market. There are multiple rental websites that many landlords are not using creating a great discrepancy in the amount of data collected. Yes statistical analysis can make assumptions based on a sample size of the market, though in this case the amount of data missing creates a large discrepancy in the market.
An example of this is the vacancy rate in Vancouver. Why are we able to obtain sales data on each city Vancouver, Burnaby, Port Moody, Coquitlam and Surrey for example. The rental data is not evaluated on every municipality and this can create a very misleading evaluation of a market when it is grouped with the neighbouring city which has a different market. The other concern is that the data collected fails to collect a significant amount of rental properties. These are the mom and pop often self managed individual rental properties where data is often missed. Working as a strata manager in Vancouver, CMHC would contact us to determine the number of rentals in a building and we didn’t even have the correct data as many owners were not identified as renting their unit. Although they were required to advise strata they were renting often they would not do this. Since 2010 the majority of condos built in the lower mainland of BC are rental properties. This leads us to believe that the estimated number of rental properties is significantly under estimated.
How could this be improved? CHMC needs to report data more frequently, monthly reporting would be better. It would be great if CMHC could develop better data collection sources. Maybe the government needs to develop a system where landlords are required to register their data in order to file a claim with the BC RTB before a hearing. The information could include when the tenancy started and what the rental rates were. This would create a database of information that would be more accurate. It would be more accurate if the landlords were required to enter the data at the time of renting the property then the information would be upto date at the time the unit was rented.
Maybe one day there will be more effective and timely data to understand the current rental market rates.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
When does a Tenancy Start?
We were reading a tenancy issue recently about a tenant who paid the deposit, signed the tenancy agreement, the parties completed a move in inspection but then the tenants elected not to move into the unit. The tenant was requesting the deposit money be returned. Has the tenancy started? What do the landlord and tenant do in this situation?.
If a tenant signs an agreement and does not provide any financial commitment they could argue the tenancy has not started since they have not moved in. They have a contract but they have not executed it at that time. The standard tenancy agreements in BC state the date rent is due and the date the deposit funds must be paid by. Tenants can pay the rent prior to the date identified on the agreement, though legally they are not required to do so. The standard agreement also indicates a date to which the security and or pet deposits must be paid by. If a tenant fails to pay these deposits by this date it can be cause to terminate the agreement.
In today’s rental market we are renting properties to people who are agreeing to rent the property then the following month they move in. How can landlords ensure a tenant is committed to the unit and provide themselves with some protection. Cartref Properties practice is to arrange a time to sign the tenancy agreement and at that time we collect the security and or pet deposits if there is one. This creates an active agreement for both parties. What does that mean?.
When an agreement has been engaged it means both parties must follow the terms of the agreement, or follow the law to terminate the agreement.
If a tenant were to sign an agreement on November 15th to begin a tenancy on January 1st and pay the deposit funds on November 15th they have entered a tenancy agreement. If that tenant decides on December 8th that they are not going to be able to occupy the unit on January 1st as agreed upon they must provide notice to vacate or terminate the tenancy agreement.
The basic law in BC provides that a tenant provide the equivalent of a calendar month’s notice to vacate a tenancy agreement. The notice period depends on the date rent is due. If this tenancy required rent to be paid on the first of the month then the tenant would need to provide notice to vacate that included the entire month of January as part of their notice.
When a tenant provides notice to vacate both parties must meet to complete the move out inspection of the property to return the deposit funds to the tenant. The tenant must provide a forwarding address either on the inspection report or in another form if the tenant fails to attend the move out inspection. Landlords are required to return the deposit within 15 days to the tenants after the tenancy ends. Failing to do so could result in the tenant claiming double the amount of deposit owed. Often misunderstood in this process by tenants is that the 15 day time starts at the time the landlord is provided with their forwarding address.
What happens if a tenant signs a tenancy agreement and then elects not to move into the unit? Does a landlord give the deposit back? It depends. A landlord can choose to return the deposit or they can follow the law. They can request the tenant provide proper notice in accordance with the agreement. In this case the tenant is ending an agreement before the fixed term expires, and may be responsible to compensate the landlord for rent they were expecting to receive from this agreement.
In this situation the landlord has an obligation to mitigate their loss. If they were to find a new tenant at the same rent for January first then they would have no loss of income and would be required to refund the deposit funds. If they were unable to find a tenant until February 1st the landlord has an argument that the tenant should owe them rent for January. In this case they would either complete the move out inspection for where the tenant signs the form agreeing to forfeit the deposit funds to pay for the rent in January or the landlord would be required to file a claim with RTB to have a hearing to be granted permission to keep the deposit funds in lue of unpaid rent.
Landlords often misunderstand that they are only permitted to keep deposit funds if they have either the tenant’s permission or by an order from the RTB stating they have the right to keep the funds. If the landlords have neither of these they are violating the tenants right to have their deposit funds returned.
What you should do is communicate clearly to the tenant before they sign the tenancy agreement that by signing and paying the deposit funds both parties are engaging in the agreement and are now bound by the terms of the agreement. Landlords should only complete a move in inspection with the tenants at the time they are handing over the keys to the tenants. If a landlord performs the inspection with the tenant but doesn’t give them the keys on that day it could be argued the condition of the unit was not what was agreed upon and this could be a legitimate reason for a termination of the tenancy agreement.
Landlords should never hand over the keys to a tenant until the security deposit has been collected. After the tenant moves in if the deposit has not been paid it will be difficult to obtain this from the tenants. We often provide tenants a few days before the start of the month access when possible to make moving easier. We avoid more than a week when possible and if they want more than a week then we require payment of rent for those days.
When unsure what to do, follow the law.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
What is market rent?
What is market rent?
There are a number of terms used in the rental market, some of which are hard to determine their meaning. One term I find people missunderstanding is “Market Rent”.
What is market rent?
Let’s look at the BC lower mainland rental market.
When the housing market experiences a tightening of product versus the number of people looking for a property and the vacancy rate is low we hear governments saying they are going to build new products that will be below “market rent”. We hear tenant advocates requesting greater rent controls including that rent should not be permitted to increase between tenancies.
The problem is what is “market rent”? Market rent in simple terms is what the market will pay for the product or service being offered. Karl Marx explained capitalism in the terms of if it costs you $10 to make a product and the buyer is only willing to pay you $9 then you will not make a profit. The difficulty with rental house pricing is that market rent is a moving target.
In good times market rent increases and in slow times it decreases. The biggest problem is it moves faster than you can build a new product. When a developer, builder or government says they are going to build a new project that will be “below market rent” pricing by the time the project is finished the market rate has changed.
Before covid the market rates had gradually increased over time, which is the normal course of action in growing cities. When covid hit, which is an unusual world wide situation the rental rates increased dramatically. After multiple years and various government interventions trying to control the increase, and now the world wide economy slowing due to US tariff action, rental rates are declining rapidly back lower than pre-covid rates. The amount of product entering the rental market today is greater than the number of people seeking to rent a property.
If the “market rent” changes monthly depending on the amount of product available for rent then what is market rent? When a unit is rented in July for the current market rent, and then another comparable unit is rented in October for the current market rent which is lower than what it was in July this means the unit rented in July is now above market rent. Does this mean the people who were promised below market rent should have their rent decreased to an amount below the price of the unit rented in October?.
The same could be said for the scenario if this was the other way. If the unit was rented in July and the rent increased by October should the unit July be required to move up to the current market rental rate? Tenant advocates always argue that rental rates should not be permitted to change in between tenancies, yet they only want it when the rents are increasing. If the rental market rates decrease they argue that is allowed as that is the current market rent. If rents are not permitted to change when increased maybe that should be the case when the prices are decreasing. This obviously won’t work as the market won’t pay for an overpriced product.
Market rent as we mentioned at the beginning is the rate someone is willing to pay for the unit at the time it is being offered for rent. After it is rented it is no longer part of the “market rent” equation as the rental prices have changed, up or down. It would be great if we could develop a better system of tracking the market rent prices, meaning when a unit is rented this would determine the market rent at that time. Unlike the sales industry there is not enough tracking of this information effectively to collect this data. Statistics Canada distributes information on rental rates though by the time they produce the information they are months old and not reflecting the current market rent. A system which provides monthly reporting would provide better insight to what market rent actually is, or at least give a better comparison to recent rental rates in the market. We are a long way from ever achieving this type of information unless a better coordinated system of tracking rental properties is developed.
Cartref Properties when looking to help a new client reviews the current advertised rental rates and compares that to our recent rentals to determine where we believe the rental market rates are at that time.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
Why I disagree with rent being added to tenants’ credit ratings.
Cartref Properties rents to people from many walks of life. In today’s market we often rent to newcomers to Canada and many young people. These demographics are often what the rental market consists of.
One of the common phrases we hear from both of these groups is they have good credit and they have bought a car to develop their credit rating. I often apologise to them and say we are deceiving them in this manner. Let’s look at why we don’t think adding the rent to credit ratings will help tenants improve their ability to rent a property.
Today’s society has been convinced that we need a good credit score to obtain what we want in the world. A credit score is obtained by borrowing money and paying it back in a timely manner. What seems to be missed by many is the part they must “borrow money” to develop a credit rating. Borrowed money always includes interest which is an additional cost to the consumer. The perons who benefits the most from a person borrowing money is the lender.
How will adding the tenant rent to the credit rating system help tenants be approved to rent properties. If their previous rent payments are reported on their credit rating it will give landlords the opportunity to view their rent payments. This would be a benefit, only if the tenants pay their rent on time.
Currently the credit reports provide a number of other items on a report that provide insight to the person’s ability to pay their bills, including credit cards, car and personal loans, phone bills and many more.
How could it not help a tenant. If the applicant is not making payments on these items but is paying their rent on time, it may not be a benefit to their ability to be approved for renting.
I understand the argument is that some people don’t have loans, credit cards or cell phones for their credit rating. If they don’t qualify for these items they may not be a quality tenant. This leads to the issue with why rent on their credit report would not help. If they are not able to qualify for a loan or a credit card it means the financial institutions are not prepared to lend them money. This is what the credit report is all about, borrowed money.
Let’s look at why rent on the credit report is not needed. First we need to look at the purpose of a credit report in the process of renting. A credit report often is looked at by landlords with too much weight of how good a tenant is when trying to rent. A credit report offers insight into the person's ability to manage their money, or does it.
Let’s look at two potential applicants scenraions and decisde who would be a better fit.
Two couples both working, earning good incomes with rent equalling 30% of their income.
Couple A has a car loan each, two credit cards each, with balances owing on all of the cards. Each card has a 10K limit, two are maxed out and the other 2 have 3k balances on them. They supply a bank statement showing their account and their rent payment each month though the account each month goes into a short negative balance each month to make these payments. The credit report shows all the payments are being made each month on time and they have 100K in credit and 85% of it is being used. They have a good credit score.
Couple B has the same income level and ratio of rent to income. This couple has no car loans, one credit card each with limits of 10K each and no balances on them. They supply a bank statement that shows the rent being paid each month and the account has a balance of 80K at the end of the month. The credit report shows they have the same credit available of 100K and only 5% is being used. The credit report shows they have no payments but when payments are made they are paid on time. They have a good credit rating.
If you are a landlord, which one of the above would you prefer as a tenant?
Everyday we would choose couple B as the above information shows us they are better at managing their money, and they are prepared when something goes sideways. For couple A when one loses employment or can’t work for other reasons, they will struggle to make their payments and rent, may be one of those payments they stop paying regularly. For couple B if one loses their job or they can’t work they have money in the bank to pay their bills during negative situations.
If couple A had the same scenario above and one of the payments on their credit report was their rent payment, it would not change the situation of their ability to pay the rent. Even if a potential applicant didn’t have the car loans and credit cards but have no money in the bank it shows a low ability to manage their money.
The tenant selection process involves many things and the credit report is only a part of the process.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com