Any savvy investor knows that building a success property portfolio doesn’t come without its complications. From problem tenants and maintenance issues to volatile housing markets, the challenges can sometimes seem endless. As a result, utilizing the skills of an experienced property management company is crucial for investors who want their investments to run as smoothly as possible and yield the best possible return.
“A property management company takes care of a wide range of essential functions including all of the maintenance related to the property, whether it’s tapping into a network of contractors to handle the repairs or snow clearing and grass cutting,” says Rob Kirby, President of Veranova Properties Limited. “A property management company also does all of the leg work involved with getting new tenants, including finding them, doing the background checks, and then managing them when they move in.”
Property management companies act on behalf of the landlord and shoulder the tasks that fall outside of most peoples’ comfort zone. Finding a suitable realtor, offering legal support services, and inspecting the property if it is empty are all functions that fall under the management company’s remit.
“Many investors do not realize that if you leave a property for a certain period of time and something happens, such as a flood, the insurance may not cover it because it was vacant with no one checking on it,” Kirby says. “The property management company might check the property something like every 48 hours to inspect for things like break-ins and water damage until they get a tenant, which can take a bit of time if you’ve just bought a property.”
Property management companies play an important role in helping investors safeguard and maintain the value of their properties. “In the current economic climate, and with interest rates rising, it is harder to find real estate and harder to qualify for borrowing, and that makes it even more crucial for investors to make sure they maintain their asset’s value,” Kirby says. “A good management company takes a preventative approach to maintenance, which means issues are dealt with before they become big, costly problems. It’s an approach that saves the investor both time and money.”
Source: Canadian Real Estate Wealth – Mar 20, 2018
If it would sell for less than $200K, it might be a decent investment property
Q: My 91-year old father just moved into assisted living. His townhouse is in my name. It has no money owing on it. Unfortunately, it looked like a time warp circa 1979. We will spend just under $20,000 renovating it. We borrowed this money on a low-interest loan.
The home is in a nice section of town in Prince George, B.C. Renting seems like a long term play but risky, just after we put so much money into it. It is in a strata, which has a monthly cost of $200. We could expect monthly rent between $1,000 to $1,200. Does renting make financial sense?
A: Your situation is pretty common these days, T, as baby boomers are tasked with managing their aging parents’ finances. There isn’t exactly a manual on best practices either.
I’m assuming that your father has sufficient pension income or other resources to fund the assisted living costs, so that the income or the proceeds from the townhouse are not crucial for his day-to-day well-being.
You mentioned that the townhouse is in your name. Do you mean it’s 100% in your name or it’s joint with your father? If it’s 100% in your name, one thing to consider is that if you own a home of your own, you may have a capital gain when you sell your father’s home as you can’t have two tax-free principal residences.
If it’s held jointly with your father, assuming he added your name for estate planning purposes only, your father may still be able to claim a full principal residence exemption on sale. That said, if he’s in assisted living now and not ordinarily living there, delaying a sale may attract some capital gains tax, T.
If there are other people, like your siblings, who are beneficiaries of your father’s estate, you should seek input from them assuming the house proceeds are also meant for them.
And if the property is beneficially your father’s and your name has just been added legally, remember that the same logic applies to the house proceeds if you sell it. That is, the money is still technically your father’s money while he’s alive, even if it goes into a joint account.
I’m cautious about doing a renovation before the potential sale of a property, especially one as dated as your father’s. I’d definitely seek input from a realtor as to what to do and what not to do as renovations are often based on personal taste and may not return 100 cents on the dollar. Renovations for listing purposes should at least be high priority, marketable and ensure widespread appeal.
Even if you rent, I think you want to try to ensure your renovation money is well-spent to maintain the property, appeal to renters and eventually appeal to buyers.
Of note is that if you do rent the property, the interest on the borrowed money for the reno will be tax-deductible against the rental income, T. Rental income is taxable on your personal tax return, with an offsetting deduction for eligible interest, strata fees, property taxes, insurance, utilities and other associated costs.
Renovations are generally not deductible like other expenses, but get added to the cost of the property for tax purposes and you may then claim depreciation (capital cost allowance) of up to 4% per year on a declining basis.
Whether renting is the best option depends in part on your other options. If you would otherwise invest fairly conservatively, you might only be able to generate 2% interest or less on the net sale proceeds (back out real estate commissions, legal fees and as mentioned earlier, capital gains tax if applicable from what you’d ultimately have to invest).
If you would invest more aggressively, is this money going to stay invested the same way upon your father’s death? If so, a balanced portfolio might generate 4-6% over the long run and an all-stock portfolio might generate 6-8%. Will real estate do better? It’s hard to say.
But when evaluating the real estate, start with what you expect the rental income to be, T. You said between $1,000 and $1,200 per month and net of your strata costs of $200, you’re looking at $800 to $1,000. Depending on property taxes, insurance and incidentals, your net rental income might only be $600 to $800, let’s say. So let’s use the midpoint of $700 for our calculations.
As a landlord who already owns a potential rental property (as opposed to one who was thinking of buying a specific property), I think I’d want to be aiming for at least a 4% capitalization rate, meaning if $700 per month ($8,400 per year) was under 4% of the property value, you might consider selling. If you could only generate $700 in net rent per month and the property value was more than $210,000, you should possibly be considering your options. So if the property could sell for, say, $225,000, I think you need to at least consider selling. If, on the other hand, it would fetch much less than $200,000, you might have a decent yielding investment property.
Regardless of how the numbers shake out, I think you also need to consider simplicity with a rental property. If you live in Vancouver and the property is in Prince George and it would be a hassle to manage, you might lean more towards selling. Even if you’re in Prince George, if your time and attention would be better allocated to your father’s care, you should also consider selling.
Hopefully this helps you weigh your options, T. In the meantime, I hope your father’s transition to assisted living is an easy one for all involved.
Did you know that three of the leading causes of financial losses for renters are fire, crime, and liability suits? Lucky for you, tenant insurance can help you keep your bank account in tact — and get things back to normal as quickly as possible.
Fire doesn’t care whether you rent or own your space. Thankfully, tenant insurance covers all the things that make your rental a home.
Nearly one quarter of all residential fires in Canada happen in apartments
The average cost of damages in an apartment fire is over $65,000
The most recent study of fire losses in Canada found that in 2007 alone, fires in apartments led to more than $185 million in damages
That same year, Ontario had more apartment fires than any other province: a total of 1,650 fires that led to more than $55 million in damages
In British Columbia, the average cost of damage caused by one apartment fire is over $140,000 — that’s more expensive than in any other province
Source: “Fire Losses in Canada (Year 2007 and Selected Years).” Council of Canadian Fire Marshals and Fire Commissioners.
Coming home to find that a stranger has been there — and worse, that they’ve stolen your TV and smashed your glass coffee table — is something no one should ever have to experience. But if something like this happens to you, know that renter’s insurance has your back — your insurer could pick up the tab for your stolen or damaged belongings.
Burglars don’t discriminate — and rental properties aren’t exempt from break-ins. Do your best to deter those pesky thieves, but know that tenant insurance has your back when you need it most.
In Canada, renters experience the greatest number of break-ins per household, with a whopping 125,000 cases reported in 2014
That same year, there were 248,000 reported cases of theft of personal property from rental homes
Cases of vandalism are decreasing year after year, but there were still 143,00.0 cases of vandalism to rental properties reported in 2014
Source: “Household victimization incidents reported by Canadians, by type of offence and selected household, dwelling and neighbourhood characteristics, 2014.” Statistics Canada.
Of all the types of coverage in your tenant insurance policy, liability coverage could be the most important when it comes to protecting your finances. This is the coverage you need when, for example, a court decides you’re legally required to pay for your friend’s Ray Bans and medical bills after you break his nose and glasses at one of your weekly baseball games. Plus, it can cover any legal fees you encounter in the process. Accidents happen, and battles over money are never pretty. Talk to your broker to make sure you’re covered.
In the event of a liability lawsuit, tenant insurance can protect your savings — and your credit rating.
A lawsuit can virtually bankrupt you if you’re held responsible for covering expenses that result from an injury or damage you caused to someone’s belongings — say goodbye to your savings and your credit rating
If you’re taken to court for a liability issue and need to pay a lawyer, you could be in the hole for thousands of dollars in legal fees
When your toilet backs up and the questionable puddles in your bathroom start to trickle into the apartment downstairs, you’ll have to pay for the damage
Don’t forget your landlord: if she claims that you ruined part of your rental unit, get ready to forfeit your damage deposit plus additional repair costs
You have options
Get protected before the unexpected happens. If you’re ready to get set up with your very own tenant insurance policy, connect with a licensed broker to learn about your options.
Source: Economical.com – Stephanie Fereiro | Published on: December 12, 2016
Being a landlord isn’t without its challenges, but covering one’s bases in the following ways is bound to yield quality tenants and rents.
Every real estate professional understands the importance of location, and so should every landlord. Steve Arruda, a sales agent with Century 21 Regal Realty, has been a landlord for 18 years and advises taking one’s time performing due diligence on prospective neighbourhoods.
“You want to know where you’re investing in and what the demographics are in that neighbourhood, and whether there are universities and families there,” Arruda told CREW. “I’ve rented in depressed neighbourhoods, and it’s challenging. The price may seem really tempting, but then you attract a lot of renters who may not have the best incomes, and they could become problematic because there are issues each month with payment. Location is one of the most important things. Make sure you know where you’re investing and what the demographics in that neighbourhood are.”
If investing in a house rather than a condominium, ensure big ticket items like furnaces, wiring, roofs and windows are updated “because those are the things that are quite costly to repair,” added Arruda. “It’s good to have those larger items updated, otherwise if they fail, it’s always at an inopportune time like winter, and you’ll be left with an angry tenant.”
Beyond material concerns, Arruda says landlords invariably become arbiters in disputes between tenants, unfairly or not, and that managing personalities is a delicate art.
“When you have a house with four units, like a multiplex, it’s hard to get everybody to get along, and you’re their first line of defence,” he said. “So, managing personalities, managing expectations and being able to handle that
stress level are crucial, because for an inexperienced landlord, the first call they get because of an issue with a tenant or an issue with a clogged toilet can make their already stressful life even more stressful. Always be prepared for anything, whether issues with tenants or the property itself.”
Additionally, tenants need to be thoroughly screened, and Arruda recommends landlords run their own credit reports and confirm bank statements are real. Even calling an employer to confirm the information provided by potential tenants isn’t beyond the realm of the reasonable. As well, call their previous landlords to find out what kind of people they are.
Over 18 years, Arruda also learned that units with dishwashers, washers and dryers are not only highly sought after, they attract good-quality renters.
Renu Ashdir, a sales agent with iPro Realty Ltd., says clients for whom she seeks rental accommodations flock to buildings with amenities like gyms, but warns too many amenities—especially swimming pools—result in higher condo fees.
“If you’re a person in your 20s and 30s, fitness amenities are the most used,” she said, adding older tenants prefer the security of a concierge. “People care about the kind of neighbours they have in a building and whether or not there’s transit nearby.”
Most importantly, says Arruda, “Look after your renters and know rental laws.”
Source: Canadian Real Estate Wealth – by Neil Sharma12 Jan 2018
The plan will put a heavy focus on housing supply building tens of thousands of affordable housing units over the next decade and repurposing other cash to maintain housing supplements.
There are expectations that the plan will also include a new portable benefit that low-income renters can carry with them through the market.
Those are just two of a number of anticipated measures aimed at making housing in Canada more affordable, particularly for the 1.7 million households that are forced to spend more of their disposable income than they should on housing.
Prime Minister Justin Trudeau will be in Toronto to unveil the details of the plan, while Social Development Minister Jean-Yves Duclos travels to Vancouver to make a simultaneous announcement on the West Coast to mark National Housing Day.
Recently released census data found that 1.7 million households were in “core housing need” in 2016, meaning they spent more than one-third of their before-tax income on housing that may be substandard or doesn’t meet their needs.
Outside of Vancouver, the cities with the highest rates of core housing need were in Ontario. In Toronto, close to one in five households were financially stretched the highest rate of any city in the country.
The government hopes that building 80,000 new affordable rental units, along with billions more in spending over the next decade, will lift 500,000 of those families out of core housing need and help a further 500,000 avoid or get out of homelessness.
The details of how the spending will roll out are of keen interest to housing providers and cities. Municipal leaders have been meeting with federal officials this week to talk about the national housing strategy.
The Liberals laid the financial backbone for the plan in this year’s federal budget, promising $11.2 billion over a decade in new spending. About $5 billion of that money the Canada Mortgage and Housing Corp. is expected to turn into $15 billion by leveraging $10 billion in private investment.
Still, most of the money won’t be spent until after the next election in 2019, which concerns anti-poverty groups.
Those groups are planning demonstrations in multiple cities today, demanding the Liberals spend the full $11.2 billion before the next election.
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
Q: I have five rental properties in my name. Should I switch them to a numbered company?
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