(Almost) Everything you wanted to know about being a landlord but were afraid to ask
May 24, 2018
This is an interesting time to be investing in properties in Toronto – a recent survey showed that most new investors were losing money on a monthly basis, so if your income property isn’t generating income, what’s the benefit?
As well, with the price of real estate being what it is, it takes an enormous amount of cash for a down payment to break even and few investors want to have that much cash tied up. So why would you want to consider an investment property in Toronto? Over the long term, Toronto real estate prices continue to rise and there simply are not enough condos being built to match demand. The rental market is tight and rents are quickly rising. The average rent for a one bedroom apartment in Toronto was $2040 as of April according to PadMapper.
If you’re thinking of investing in a rental property, here are some things you should know because over the past year or so, the rules have changed!
Ontario now has a standard lease
The standard lease came into effect on April 30, 2018 as part of the Fair Housing Act signed into law in April, 2017. Renters have the right to ask for the standard lease and if the landlord doesn’t give them one within three weeks, the renter can withhold a month’s rent, according to a government news release.
This is actually beneficial for both landlords and tenants because it simplifies the whole process.
Rent control now applies to all units
One of the major changes which potential investors should be aware of is that the province extended rent control measures to all units. Before the Act, landlords renting out units (condos and units in homes) that were built after November 1991 were exempt from this rule, meaning they could raise the rent annually, as much as they wanted, even with the same tenant in place. As of now, rent increases are capped at 2.5%.
Are no pets clauses legal?
Pets are a bit of a sticky issue.
You can’t actually include a ‘no pet’ clause (see what I did there?) in your lease, but you can refuse to rent to someone who has a pet. However, if your tenant gets a pet after they’ve signed the lease, you cannot evict them unless the pet is dangerous or destructive. Here’s an interesting piece from the CBC about one way people can get around landlords who ask for ‘no pets’.
The only legal reason to prohibit pets is if you’re renting out a condo in a building that doesn’t allow animals. They’re rare, but they exist.
Thinking of buying a property with a tenant?
If you’re considering purchasing a condo from plans, you don’t have to be concerned about tenants. Plus, if you buy a vacant property, you can set your own rent!
However, if the property you’re buying already has a tenant, there are a few things to keep in mind:
You can only ask the tenant to leave at the end of their term if you plan on occupying the space yourself or letting an immediate family member use it. If a landlord evicts a tenant and then re-rents the place for more money, the fine is up to $25,000 if the tenant finds out – and trust me, they will.
If you’re looking at a unit where the tenant is paying rent that is below market value, do the math. While prices continue to rise, the investment may not pay off in the short term because you can’t raise the rent by more than 2.5% until the tenant chooses to leave.
Bits and pieces
If your tenant wants to leave before the term of the lease is up, it’s not unusual for a landlord to negotiate for the tenant to pay a realtor commission (assuming the landlord used a realtor to rent the property in the first place). A tenant will sometimes agree to pay for that or a 1-2 month penalty. In a market like Toronto, it’s unlikely that you’ll be stuck with an empty unit for very long.
Security deposits are not allowed in Ontario. In fact, a tenant isn’t even required to provide first and last month’s rent to secure the property – just last month’s rent. The first month’s rent is due on the first of the month.
You’re not allowed to ask for post-dated cheques. A tenant can offer them, but you can’t ask for them.
You’re allowed to ask for a key deposit, but only to the maximum cost of the key.
If you’re considering investing in investment properties, please give me a call – I’m happy to answer any questions and show you some great opportunities where the numbers make sense!