Investment Properties: Finding a Good Tenant
October 5, 2021
In my last blog, we talked about what you should look for when it comes to location and the type of property to purchase, but it’s also important to have a solid tenant:
Finding a good tenant
During the pandemic, it’s more important than ever to do your due diligence as there’s a no eviction order in place until at least the end of December 2021. So even if someone moved in tomorrow and never paid rent, you could not begin eviction proceedings until January at the very earliest.
The good news is that there are tools available for you to vet a tenant – even more so if you work with a realtor. Also, while there are some serial deadbeat tenants, many aren’t that smart. To weed them out, check out what they submit to you.
I’ll repeat that: don’t trust at face value that what they send you is accurate.
Let me tell you a story about an application I received while I was renting out my own suite at Radio City.
A prospective tenant filled out an application with their last two residences listed and provided their own credit report from Equifax. Note: it’s not unheard of for someone to provide their own credit check. Make sure you to go Equifax and pull the report yourself. I did and found that the information I was given was out of date.
I then took it upon myself to contact their past landlords:
For the first reference, I was given a name and a number for someone who didn’t actually own the unit. It turned out to be a friend of the applicant who told me he was ‘doing him a favour’.
For the second reference, the address they provided me with didn’t even exist – they claimed to have lived in a loft in one of Toronto’s signature loft conversions on the 7th floor, but THERE IS NO SEVENTH FLOOR. All the units are two storey and are even numbers.
If you’re going to lie on an application, at least do it well! Sketchy tenants are counting on landlords to be lazy. Of course, there’s no guarantee that even someone who gives you accurate info is going to pay the rent, but the vast majority of people have good intentions.
Even if you fully crosscheck, it’s still just a snapshot in time and things change over time in an applicant’s life such as employment status, physical health and mental health – but at least fully checking out a prospective tenant will help you weed out some of the flakes.
What you need to know about rent control
When you’re renting out a unit to a new tenant, you get to set the price. However, landlords renting out units built or occupied before November 15, 2018, must follow the provincial rent increase guidelines. When one tenant moves out, you can charge as much or as little as you like, but once the new tenant is in, you need to follow the rules.
There’s currently a rent freeze which ends on December 31, 2021. The maximum rent increase allowed in 2022 is 1.2% which works out to $24 on a $2000 rent.
Having a happy tenant who pays their rent on time is worth more than that increase, but you could also consider having an agreement of raising the rent 1% per year so you’re at least covering a small portion of the cost of inflation over time.
From the Ontario Government website: New buildings, additions to existing buildings and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018 are exempt from rent control.
This means that if your tenant was paying $2000 a month in 2021 and you wanted to raise it to $3000, you can do that. Is it smart? Not really – you’ll lose a tenant. But it does mean that if rents go up significantly, you’re able to raise it in line with the market.
A note on the lease: The Ontario Government has simplified the process and every landlord needs to use a standard form.
Stay tuned for next month’s blog on financing!