Category Archives: student rentals

Ontario’s rental vacancy rate is starting 2020 at a near record low

Mississauga Toronto condo prices<img class=”aligncenter size-full wp-image-196480″ src=”https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/2019/10/Mississauga-Toronto-condo-prices.jpg” alt=”Mississauga Toronto condo prices” width=”1024″ height=”683″ />

Photo: James Bombales

New year, no vacancy. Renters in cities across Ontario will spend another year struggling to find rental housing as prices continue to rise in the face of tight market conditions.

In 2019, the vacancy rate was 1.6 percent and it will likely drop further through 2020 to a near record low of 1.5 percent, according to Central 1 Credit Union economist Edgard Navarrete. For context, the vacancy rate for Ontario’s rental market averaged 2.6 percent between 1991 and 2018.

In his 2019-2022 housing forecast published at the end of 2019, Navarrete noted that the province has seen a substantial uptick in completed new rental units over the last three years. Through the same 1991 to 2018 period, the average number of new rental units added to the market was 1,500. From 2017 to 2019, the average increased to 7,000 units.

The trouble is that increase still doesn’t satisfy the demand for rentals in some of the province’s most competitive markets, especially Toronto, which is said to have the worst rental supply deficit in Canada.

“Government investments in rental housing will continue to add to the rental universe but expect [the province’s] rental vacancy rate to remain stubbornly lower than the long-term average due to continued strong demand from immigrants settling in Ontario and existing renters opting to remain in rental longer until they have a sufficient down payment to qualify for a mortgage loan,” wrote Navarrete in the Central 1 Housing Forecast.

Unfortunately, the main takeaway here for Ontario renters is monthly rents will continue to climb above inflation as long as this sharp disparity exists between rental supply and persistent demand. Navarrete singles out Toronto, Ottawa-Gatineau, London, Kitchener-Cambridge-Waterloo and Hamilton as markets where rental prices will log especially steep increases and bidding wars will keep intensifying. These cities will feel the strain on their rental markets particularly acutely because they are set to absorb the most new residents to the province.

There is hope for a rental unit supply uptick in the next few years, but for those looking for a new rental this year, it’s unlikely to offer much relief. The provincial government under Premier Doug Ford rolled back the rent control measures introduced by the Wynne Liberal government just a couple years earlier. With more flexibility to price rental units in response to market demand, investors are more likely to see condos as a solid long-term moneymaker and purchase units to add to the rental market.

These investor-owned condos are known as the “secondary rental market” since they are not built for the sole purpose of being added to the rental pool. Purpose-built rental units are known as the primary rental market.

The caveat is that the positive market changes this policy shift from the Ford government intended to inspire won’t be felt for at least a few years.

“If we see a large number of investors entering the market today, with the average completion time of high-density housing such as condo apartments anywhere from two to three years from the time shovels hit the ground, it wouldn’t be until after 2022 when the increased rental market supply will alleviate some of the pressures from the primary rental market,” wrote Navarrete.

Source: Livabl.com –

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The Top 8 Real Estate Calculations Every Investor Should Memorize

investment-portfolio
Despite what many of us math-allergic folk would prefer, real estate does involve some math. Luckily, most of the formulas are simple and straight-forward. In fact, if you can master the calculations below, you should be just fine.

The Top 8 Real Estate Calculations Every Investor Should Memorize

Cap Rate

Net Operating Income / Total Price of Property

Example:

NOI: $25,000

Total Price (Purchase + Rehab): $300,000

$25,000 / $300,000 = 0.083 or an 8.3 Cap Rate

This calculation is mostly used for valuing apartment complexes and larger commercial buildings. It can be used for houses and small multifamily too, but operating expenses are erratic with houses (because you don’t know how often and how bad your turnovers will be).

Related: The Investor’s Complete Guide to Calculating, Understanding & Using Cap Rates

You want to have a cap rate that is at least as good, preferably better, than comparable buildings in the area. I almost always want to be at an 8 cap rate or better, although in some areas, that’s not really possible. And always be sure to use real numbers or your own estimates when calculating this. Do not simply use what’s on the seller-provided pro forma (or as I call them, pro-fake-a).

Rent/Cost

Monthly Rent / Total Price of Property

Example:

Monthly Rent: $1,000

Total Price of Property (Purchase + Rehab): $75,000

Rent/Cost = $1,000 / $75,000 = 0.0133 or a 1.33% Rent/Cost

This is a great calculation for houses and sometimes small multifamily apartments. That being said, it should only be used when comparing the rental value of like properties. Do not compare the rent/cost of a property in a war zone to that in a gated community. A roof costs the same, square foot for square foot, in both areas. And vacancy and delinquency will be higher in a bad area, so rent/cost won’t tell you what your actual cash flow will be. The the old 2% rule can lead investors astray, and they shouldn’t use it. But when comparing like properties in similar areas, rent/cost is a very helpful tool.

According to Gary Keller in The Millionaire Real Estate Investor, the national average is 0.7%. For cash flow properties, you definitely want to be above 1%. We usually aim for around 1.5%, depending on the area. And yes, I would recommend having a target rent/cost percentage for any given area.

Gross Yield

Annual Rent / Total Price of Property

Example:

Annual Rent: $9,000

Total Price (Purchase + Rehab): $100,000

Gross Yield = $9,000 / $100,000 = .09 or a 9% gross yield

This is basically the same calculation as above but flipped around. It’s used more often when valuing large portfolios from what I’ve seen, but overall, it serves the same purpose as rent/cost.

Debt Service Ratio

Net Operating Income / Debt Service

Example:

NOI: $25,000

Annual Debt Service: $20,000

Debt Service Ratio = $25,000 / $20,000 = 1.25

This is the most important number that banks look at and is critical for getting financing. Generally, a bank will look at both the property’s debt service ratio and your “global” debt service ratio (i.e. the debt service ratio of your entire company or portfolio).

Anything under 1.0 means that you will lose money each month. Banks don’t like that (and you shouldn’t either). Generally, banks will want to see a 1.2 ratio or higher. In that way, you have a little cushion to afford the payments in case things get worse.

Cash on Cash

Cash Flow / Cash In Deal

Example:

Cash Flow (Net Operating Income – Debt Service): $10,000

Cash Into Deal: $40,000

Cash on Cash: $10,000 / $40,000 = .25 or 25%

In the end, this is the most important number. It tells you what kind of return you are getting on your money. In the above example, if you had $40,000 in the deal and made $10,000 that year, you made 25%. This is a critical calculation not only when it comes to valuing a property, but also when it comes to evaluating what kind of debt or equity structure to use when purchasing it.

The 50% Rule

Operating Income X 0.5 = Probable Operating Expenses

Example:

Operating Income: $100,000

Operating Expenses = $100,000 * 0.5 = $50,000

This is a shorthand rule that I judge to be OK. It is for estimating the expenses of a property. Whenever possible, use real numbers (i.e., the operating statement), but this is good for filtering out deals that don’t make sense. Just remember, a nicer building will have a lower ratio of expenses to income than a worse one and other factors, like who pays the utilities come into play. Don’t simply rely on this rule.

Related: Rental Property Numbers so Easy You Can Calculate Them on a Napkin

The 70% Rule

Strike Price = (0.7 X After Repair Value) – Rehab

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After Repair Value: $150,000

Rehab: $25,000

Strike Price = (0.7 X $150,000) – $25,000 = $80,000

This is another rule like the 50% rule, although I think this one is better. This one is for coming up with an offer price. Always crunch the numbers down to the closing costs before actually purchasing a property. But if you offer off the 70% rule, you should be just fine as long as your rehab estimate and ARV (after repair value) estimates are correct.

Comparative Market Analysis

Unfortunately, there’s no real calculation for this. It’s mostly used for houses, and it’s all about finding the most similar properties and then making adjustments so that a homeowner or investor would find each deal identical. The MLS is by far the best for this, but Zillow can work too (just don’t rely on the Zestimate). For a more detailed explanation, go here.

In the end, the math isn’t that bad. No rocket science here luckily. Instead, there are just a few handy calculations and rules to evaluate properties before purchase and analyze their performance afterward. Memorize these, and you should be fine.

What formulas do you use to analyze your deals? Any calculations you’d add to this list?

Let me know with a comment!

Source: BiggerPockets – Andrew Syrios
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Calling in the pros – Implementing a successful property management

Implementing a successful property management system is vital to the longevity, health and overall profitability of your growing portfolio of investment properties. Property management systems come in all different shapes and sizes, and can be completely tailored to your specific portfolio needs and wants. Rather than examining these different systems, which could take up an entire magazine, I want to explore three ways to increase your ROI by taking advantage of professional property management.

1. Set realistic expectations from day one
In my view, hiring a professional property manager is very similar to hiring an employee. You wouldn’t give a new hire a vague description of their tasks and responsibilities and then let them manage their job any way they want. You would give your employee a clear definition of their role and show them the kind of results you expect.

The same is true when engaging a property manager for the first time. The following are five simple questions to ask your PM – and yourself – as you’re working out the relationship. If everyone can answer every question definitively, you know you’re on the right track:

  • What is needed?
  • Who is doing what?
  • When will it be done?
  • How will it be done?
  • How much will it cost?

This may seem like a lot of work when you’re just getting started, but completing the above exercise will eliminate the roadblocks, misunderstandings and accidents associated with starting a new professional relationship, and will ultimately improve your ROI.

A professional PM will usually have all these roles pre-defined in their contract, but that doesn’t mean they can’t be challenged or negotiated to better suit your needs. Communicate above and beyond to maximize your results.

2. Hire a superintendent
This can be a hot topic depending on who you talk to – some investors dismiss the idea of hiring a super outright, and some absolutely can’t operate without theirs. I believe that if handled correctly, using a superintendent can be an effective management strategy for a medium to large building, especially if done in tandem with professional property management.

The greatest advantage of superintendents is that they live on site. This is extremely convenient when small issues arise that need immediate attention, like a spill in the hallway that needs cleaning or a tenant who needs to give you cash. For small, more regular tasks like mopping hallways and shovelling walkways, a super is usually the most cost-effective and efficient method. In my experience, waiting for your PM to deal with small items can take too long and not be as cost-effective.
I prefer my super to have a smaller role, meaning my PM handles all maintenance calls from tenants, major renovations, rent collection, tenant placement and regular reporting to me. It’s important to ensure the super is not impeding the job of your PM and vice versa. Each have their roles and should be complementary to each other. The PM is in charge, and the super is there to assist when needed, along with tending to a short list of responsibilities.

This PM-plus-super system frees up more time for me to focus on strategy, grow my portfolio and create value in my current assets. My accountant also appreciates the efficient system, as we save a fair amount of money on minor property maintenance with a super in place.

3. View property management as a service, not an expense
This is more of a way of thinking than an operational guideline. This particular piece of advice stems from years of wrestling with the same question over and over with my group of investors: “Paul, I like the property, and the numbers make sense to me, but when you factor in the cost of property management, the cash flow decreases, and the numbers are just average or below par. What do you think?”

There is no way to avoid the cost of property management. Either you are going to engage a professional to do it for you and pay for it out of the property’s cash flow, or you will handle the property management all on your own. You may think this will save you money or make your property more profitable. If you have spare time and energy and want to learn the business, I would encourage you to take on the PM responsibilities. However, if you’re busy with your career, family and lifestyle, like many of us are, by taking on the day-to-day management of your properties, you’re doing yourself a massive disservice.

Whether you pay a professional PM or not, it’s still going to cost you the same or more. By taking on the PM role, you’re going spend your own time, energy and gasoline and take away quality time for other activities you could be pursuing, like spending time with your family, getting some exercise (mowing the lawn doesn’t count), reading a book or sleeping. This may not sound like traditional ROI, but since most investors get into real estate to improve their lives, not just their bank balances, finding a good property manager will provide these other, highly attractive returns.

You cannot avoid the cost of property management. You either pay in dollars or you pay in your own time and energy. Either way, it must be done properly.

Source: Canadian Real Estate Wealth Magazine –  Contributor 14 Nov 2017

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Pay less tax on rental properties

Q: I have five rental properties in my name. Should I switch them to a numbered company?

–Travis

A: Hi, Travis. Incorporating a holding company to own rental properties has some advantages and disadvantages depending on the objectives you have in mind in both the short and long term. However, you should first speak with a tax accountant about any tax ramifications both personally and corporately to ensure as perfect an integration of the two systems as possible. Then speak with a legal advisor to draft up the appropriate corporate structure before making the transfer.

From a tax point of view, there are two things to consider. While the transfer of real property held personally should qualify for a Section 85 election to rollover the properties at their cost base, you will want to be sure the CRA will not consider your properties to be held as “inventory”; that is property, held primarily for resale rather than rental. If so, they will not qualify for a tax-free rollover or capital gains treatment. Therefore, the transfer could trigger unexpected tax consequences. Your history of receiving rental income from the property will help you avoid this.

Second, you’ll also want to understand the difference in taxation rates both inside and outside of the corporation. Recent tax changes may have made it less desirable to own passive investments inside a corporation, depending on where you live in Canada.

Some advantages of incorporation include limited liability and creditor protection. However, if you are holding mortgages, most financial institutions will still require personal guarantees. Corporate directors and officers can also be held liable on default, so proper insurance protections for these instances is critical.

From a retirement planning point of view, incorporation may provide more flexibility as to when income is taken as dividends. It could help you to avoid personal taxes or spikes into the next tax bracket, and benefit from the recovery of refundable taxes in the corporation.

Consider also that there will be costs for setting up and annual reporting of the holding company. Transferring the properties from the taxpayer to a holding company may have tax consequences, other than income taxes. If your province has a land transfer tax (or equivalent), you may have to pay the land transfer tax when the properties are transferred.

The bottom line is this: you’ll want to be thoughtful about the transfer, and you’ll want to match your investment objectives and desired tax outcomes as closely as possible.

Source – MoneySense.ca – Evelyn Jacks is a tax expert, author, and founder and of Knowledge Bureau in Winnipeg

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Five ways to maximize your investment property

Wasim Elafech of Century 21 Bravo Realty in Calgary is among the banner brokerage’s top sales agents in the world. Century 21 operates in 78 countries with over 100,000 agents, and Elafech managed to become their number one unit producer in 2015 and number three in Canada last year, so he knows a thing or two about getting the best bang for your buck out of a rental property. He shared some of those tips with us.

1. Maintain the property
Elafech says some he’s sold properties to clients who in turn rented them out, but without putting in the necessary work. “The work you do doesn’t have to be expensive, but it has to be brand new,” he said. “It will be liveable but it won’t look good. The floors will be cracked or peeling, and when people walk in they get the impression it’s a rundown property, but they won’t if you do the work. Make sure all the fixtures work, that they’re not broken; make sure door handles are loose or need to be replaced. If the place is well-maintained, 100% of the time you’ll get more money for your rental.”

Elafech added that properties are often reflections of the people who live in them.

“A really good tenant won’t look for a rundown place, first of all, so they wouldn’t take that place. You’ll attract the type of people your property looks like. People who accept living (in shabby properties) aren’t the best tenants.”

2. Bungalows yield higher rents
Bungalows are excellent rental properties because the top and bottom floor can be rented out as separate units. “One guy I know pretty much made his whole house different rooms with a common living room, couch and TV.”

Typically, however, the upper and lower floors of a bungalow can be rented as separate units. “Bungalows are the easiest houses to sell in certain areas here because you can rent the upper and lower levels, if it’s properly treated. In an area where you’re renting a whole house to a person, you’d get, say, $1,600 a month, but if you’re renting the floors separately, you can get maybe $2,200 a month. It’s about volume.”

3. Screen your tenants
Screening tenants adequately ensures your rental investment doesn’t become a nightmare.  “I see it a lot,” said Elafech. “They don’t want to lose a month on the mortgage payment, so if it’s been sitting for a couple of weeks they’ll rush into a deal and rent it to whoever comes next, and sure enough the people either do a midnight run or don’t pay. I’m going through that now with my client.”

Elafech recommends waiting it out, even if that means the property sits empty for a month or two. Ask tenants for references and their job history. “If the tenant is reluctant, there’s usually a reason. Keep a look out for red flags.”

He also suggested hiring a rental management company if an apartment building, rather than two or three properties, needs to be maintained. While pricey, they’re well worth it – and they screen tenants.

Sometimes, though, less is more.

“I have a client that’s renting out a house with a garage for $1,000 month that usually goes for $1,800, because he has a good tenant. He cuts the grass and maintains the property. He does everything for the landlord, so that peace of mind is worth more than the money he’d get from renting the parking pad and garage in the back.

4. Rent the garage and parking spot separately
Elafech mentioned a rental property he’s currently showing. “The owner is going to park his trailer on the parking pad, rent out the garage and both floors of the bungalow separately – rental income from upstairs, downstairs and the garage.”

5. Location, location, location
Location is everything in real estate, so Elafech recommends investing in a property that’s surrounded by prime amenities like transit and schools.

“In Calgary, we have LRTs and buses. Even having shopping centres and schools nearby is important. A client had a condo with an LRT across the street, and he got more for it than a similar place he owns that had a similar layout but was a bit bigger, because it was six or eight blocks away and farther from the LRT. In Calgary, when it’s minus-40 outside, you’re not walking, or waiting for a bus when it’s cold. People pay for convenience.”

Source: Canadian Real Estate Wealth – Neil Sharma

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Ontario’s potential rental housing crisis in 11 statistics

Ontario Rental Housing Crisis-compressed

Earlier this week, the Federation of Rental-housing Providers of Ontario (FRPO) published a major report prepared by Toronto-based real estate market data firm Urbanation on the state of the Ontario rental market with a focus on the province’s largest region, the GTA.

A number of the report’s key findings will come as no surprise to those who have recently searched for rental housing in the city and surrounding region. Demand for rentals has hit multi-decade highs, according to the report, “driven by robust economic and population growth, job creation for prime renter cohorts, and a decline in homeownership affordability.”

While the report makes some encouraging observations on expected increases to the rental supply, the housing advocate concludes that a significant supply shortfall will remain and likely worsen unless the pace of construction ramps up quickly to meet demand.

Without policy action, the FRPO expects Ontario renters, especially those in the GTA, will experience mounting challenges in finding suitable housing.

Here are 11 stats from the report that illustrate the difficult market conditions that the province’s renters face:

1. The vacancy rate for purpose-built rental buildings sat at a 15-year low at the end of 2016. It was 2.1 per cent in the province and 1.3 per cent in Toronto.

2. The vacancy rate for Toronto condos — many of which are purchased by investors and added to the city’s rental pool — was even lower at the end of last year, sitting at a seven-year low of 1 per cent.

3. Eighty-five per cent of purpose-built rentals in Ontario are over 35 years old. Upgrading this aging existing stock will require a significant investment from rental owners, possibly to the tune of $5 billion over the next 5 years, the report estimates.

4. When looking at the age distribution of renters, the 25 to 34 year old demographic made up 21 per cent of total renter households in Ontario, making this cohort the “prime renter age segment.” The 35-44, 45-54 and 65+ age segments each made up 19 per cent of the total. Over the next five years, however, the prime 25 to 34 year old segment will see “accelerated population increases” thus further increasing demand for rentals.

5. Immigration to the Greater Toronto Area represented 30 per cent of Canada’s immigration total. Ninety thousand immigrants came to the region in 2016 and a similar number are expected to arrive in 2017. As the report notes, the majority of recent immigrants rent when they arrive.

6. After hitting a five-decade high in 2011, the homeownership rate in Ontario is expected to “flatten or decline in the next 10 years.” Affordability issues, higher interest rates and stricter mortgage policies are all expected to contribute to this trend.

7. By mid-2017, the cost disparity between owning and renting in the GTA remained at its highest level in more than five years.

8. On the rental supply side, purpose-built rental development reached its highest level since the 80s in both Ontario and the GTA. However, after the new rent control measures were unveiled as part of the province’s Fair Housing Plan, the rate at which new purpose-built rental buildings were proposed slowed when compared to previous quarters, with some projects originally proposed as rental even indicating a change to condominium.

9. On the rental demand side, the report forecasts that rental demand will outweigh supply by approximately 57,500 units over a 10-year period, or 5,750 units per year. This unit total “does not necessarily represent the level of additional rental development required to bring the market into a state of balance, but rather represents a level that keeps conditions from worsening over time.”

10. There is only one rental unit under construction per 1,000 GTA residents. In Vancouver, the ratio is over three rental units while in Montreal, it’s two units.

11. According to the report, rental starts need to double immediately and eventually triple from current levels just to satisfy demand.

Ontario Rental Housing Crisis-compressed

Source: Buzz Buzz News Canada –  

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The average cost of rent in major Canadian cities in September (MAP)

 

Although there has been a little fluctuation in prices, the ultra-hot Canadian rental market continues to increase across the board.

While some city’s prices for one-bedroom rentals remained unchanged since last month, the most expensive in Canada has now surpassed $2000, according to the latest report by PadMapper.

Not surprisingly, Vancouver and Toronto continue their domination as the top two cities with the most expensive rental markets in Canada.

Last month, Vancouver’s median rent for one-bedroom showed a decline of 4.8%. But one month can change a lot in this market, and the price of a Vancouver one-bedroom has jumped up 1.5% from last month bringing it to $2,020. Two bedrooms have also gone up in the city, and are now renting at $3,160.

In Toronto, rent continues to increase every month as the city saw a 4.3% hike in one bedroom rentals, which are now $1,930. Two bedrooms also increased to $2,440. The most shocking part about rental costs in this hot city is that one-bedrooms in Toronto are up 15.6% since this time last year. Let that sink in for a minute. Actually don’t, time is money…

PadMapper

Trailing behind Toronto is Barrie, which also experienced a massive 15.4% annual growth rate over the past year. One and two bedrooms have settled this month with medians of $1,200 and $1,450, respectively, in the Ontario city.

Meanwhile, Montreal remained in fourth place. Rent in the popular Quebec city has experienced a 3.5% hike to $1,190, with two bedrooms now renting at $1,520.

Back to the west coast, where Victoria remains in fifth place with its median one bedroom costs increasing by 4.5% to $1,150, and two bedrooms growing slightly higher than last month to $1,490.

The largest drop in rental in Canada was in Quebec City, where one bedrooms dipped to $810, and two bedrooms went down 5% to $1,130.

But in Ontario, Hamilton climbed up three spots on the list to become the 11th most expensive rental market in Canada. This city’s growth rate for one bedroom units is up 5.3% to $1,000, and two bedroom rent grew 2.6% to $1,200.

Calgary remains steady, as one bedrooms are $1,020 just like last month, and two bedrooms also remain unchanged at $1,300.

The cheapest city to rent on the list is still Quebec’s Saguenay, which jumped a little to $640 for a one-bedroom, and $730 for a two bedroom. It’s probably one of the only cities in Canada where you never have to think about having a roommate these days.

PadMapper

See also
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