Real Estate Investing

[blankall]

Originally Posted by sa226

It's almost like there are good landlords and bad landlords. Or good renters and bad renters.

We rented a house in Renfrew, when we moved out they took over half of our damage deposit for some bogus reason. (I forget why, it was 10 years ago)

A week later they demolished the whole place to make room for an infill.

There's definitely both good and bad from all sides. A major issue with tenants is that many of them are broke, so there can be no way to go after them for missed rents. Once a dispute starts, they can also be vengeful. A colleague of mine had a tenant stop paying rent. Then when they started eviction proceedings they put rocks down all the piping, including the garburator.

[dino7c]

A REIT will never call you in the night to fix a toilet

[Izzle]

https://boomerandecho.com/weekend-re...tion/#comments

Historically, renting and capital appreciation with that rental property has been better than stocks adjusted for inflation. However, that isn't the case since WW2. As well, you are not taking advantage of diversification benefits if you become a property owner in Calgary. REITs would be better if you want exposure to real estate.

[tvp2003]

Originally Posted by Crazy Flamer

Thanks everyone for the input so far. I've balanced out the risks vs potential reward already. And yes, this is more of a long term play and I'm comfortable taking this on.

But part of the process will be to find renters and good ones at that. I know most rental applications come with credit checks. Is that something I can do on my own or do I have to hire a third party to do that? I'm guessing employment verification is something I can do myself?

I don't know if we've ever asked for a credit check. I think we did with our very first set of renters, but not since then. We have done multiple showings each time and were able to pick the best applicants (i.e. the ones that we were most comfortable with). Takes more work, but is worth it IMO. References can be helpful too.

My best suggestion would be to ask (yourself) why this person is renting, why they're leaving their current place, and why they want to rent your place. Is it because they are still young and aren't able to afford to buy yet? Are they retirees who are downsizing? Or did they just get kicked out of their last rental and are looking for the next place to get kicked out of?

P.S. People lie and can be filthy pigs so keep that in mind as well when vetting tenants.

[bizaro86]

Originally Posted by opendoor

And it's also more tax efficient, as rental income is taxed as straight income while REIT dividends are mostly capital gains or return of capital (which eventually gets taxed as capital gains by lowering the Adjusted Cost Base).

This part isn't wholly true. REIT distributions are mostly return of capital because they use the depreciation (ie CCA claim) to eliminate their taxable income. You can do exactly the same thing with an individual rental property. You get to claim 4% of the building portion of your purchase price as CCA every year. It does get recaptured when you sell, but if you hold for a long time that is still a big benefit.

I completely agree with your point about REITs having been better recently, although to get the same leverage profile you couldn't buy your capreit with 80% borrowed money, as they have material debt on their balance sheet already, so the underlying properties are already leveraged (although less than 80%). You also can't get comparable debt capacity on REIT shares. You can borrow 80% on property non-recourse secured by the property, margin debt isn't nearly as attractive.

[Fighting Banana Slug]

I think the big thing is realizing (which I think you do) that this is not a passive investment. As a landlord you have obligations to fulfill and you need to deal with many requests (reasonable and unreasonable) that can be a real PITA. You might be reasonably handy, but every little plumbing/electrical type of issue needs to be dealt with, and dealt with quickly.

As Weitz mentioned, figure in some down time finding tenants and filling openings into the equation. It is highly unlikely that you can get tenants in back-to-back without losing at least a month, and I am not sure the average condo renter will stay long term.

[bizaro86]

Originally Posted by Fighting Banana Slug

It is highly unlikely that you can get tenants in back-to-back without losing at least a month, and I am not sure the average condo renter will stay long term.

I disagree with the first sentence based on experience. I almost never have vacancy between tenants and I've done many, many change overs. Covid times were an exception (where people often wouldn't tour an occupied place) but otherwise my success rate at re-renting with no vacancy between tenants is very high (over 90%).

I do agree that condo tenants are less likely to stay for many years, generally the good ones buy a property of their own after a few years.

[blankall]

Originally Posted by bizaro86

I disagree with the first sentence based on experience. I almost never have vacancy between tenants and I've done many, many change overs. Covid times were an exception (where people often wouldn't tour an occupied place) but otherwise my success rate at re-renting with no vacancy between tenants is very high (over 90%).

I do agree that condo tenants are less likely to stay for many years, generally the good ones buy a property of their own after a few years.

Having tenants stay too long isn't the greatest either. You do want to increase rent with the market. Somewhat. I always rent my place below market value, as you attract more tenants and can choose the best one. However, if you've got a tenant staying 10+ years, over time you'll be way too far below the market.

[bizaro86]

Originally Posted by blankall

Having tenants stay too long isn't the greatest either. You do want to increase rent with the market. Somewhat. I always rent my place below market value, as you attract more tenants and can choose the best one. However, if you've got a tenant staying 10+ years, over time you'll be way too far below the market.

In Alberta you can raise rents by any amount once per year.

[Fighting Banana Slug]

Right. My experience has been with longer term tenants (3+ years), so that generally requires a bit more of a refresh, hence the month vacancy.

Perhaps others are more efficient and good for them. The point being that I wouldn't budget 100% tenancy and I wouldn't count on the security deposit covering all damages/expenses on move-out. If you do have the unpleasant experience of a bad tenant, it can un-do a lot of good returns.

[blankall]

Originally Posted by bizaro86

In Alberta you can raise rents by any amount once per year.

Really? That seems quite unfair to tenants. Landlords can basically force an eviction at any time.

[Johnny199r]

Don't do it. Never ending headache with a lot of risk. If you really want to invest in property, buy some REIT shares.

[Mr.Coffee]

Nm

[DoubleF]

Originally Posted by Crazy Flamer

Thanks everyone for the input so far. I've balanced out the risks vs potential reward already. And yes, this is more of a long term play and I'm comfortable taking this on.

But part of the process will be to find renters and good ones at that. I know most rental applications come with credit checks. Is that something I can do on my own or do I have to hire a third party to do that? I'm guessing employment verification is something I can do myself?

Do you know what you're doing? If no, maybe don't self manage.

I tried to find a renter for a few months and it was hell. I didn't know what I was doing... leads kept falling through...

I hired a property manager. He knew what he was doing and he had access to much more complex stuff for cheap due to economies of scale. It cost me basically a little more than a month of rent per year and it was deductible. So worth it. Because it's deductible for tax purposes, it essentially costs me slightly less than a month of rent per year when the taxes are factored in.

I did so little and had so much peace of mind. I kicked back and had rents deposited to my account and basically re-paid damage deposits or property manager fees once or twice a year. My other friends who self manage have to be involved around 1-3 times a month.

If you have a condo that's relatively low leverage, you can get to the point where your yearly rate of return after taxes is like 10-30% yearly. But if highly leveraged, you can barely break even after multiple years.

[photon]

I've had rentals for a long time and have had property managers for some of them. They're nice, but a poor one takes almost as much effort as managing the property itself.

My neighbour has a rule that he never buys properties that are close enough for him to be tempted to manage himself. I think most of his stuff is in the US and he hires property managers.

Most of my tenants have been great but the bad ones outweigh the good ones when you have them. It only takes one bad one to eat up a decade of positive cash flow. And you will have bad ones.. sometimes they look great but end up being terrible. Sometimes people change. My two worst tenants ever looked great to start out with with good references.

Heck even with good tenants things happen.. a plumbing leak in a condo can lead to damage to other units or the common area and it ends up costing you $$. Or the drain can get clogged below your unit and the sink back up into your unit from above and run all your flooring. I've had both. Sure there's insurance but it's still a lot to deal with sometimes.

In hindsight I kind of wish I'd gone the path my neighbour did.

[bizaro86]

Originally Posted by blankall

Really? That seems quite unfair to tenants. Landlords can basically force an eviction at any time.

I guess? I mean, once per year isn't every day. I don't think a tenant should get what are effectively property rights just for signing a lease. Obviously some places feel differently. I'm not unbiased, but I also would never buy investment real estate somewhere with rent control.

[DoubleF]

Originally Posted by blankall

Really? That seems quite unfair to tenants. Landlords can basically force an eviction at any time.

My understanding is that best practice is to sign 6 or 12 month leases only. That way you have more recourse to kick out a tenant, especially one who doesn't pay. You have to give notice (30-90 day notice depending on agreement) for renewal/rent increases for renewal though. Unless that latter part might be just courtesy and not actual law?

That being said, I believe tenants can negotiate a rent change. The landlord can veto of course, but it's not like the tenants have to accept it straight up without saying anything. Most landlords don't want to lose good tenants anyways.

[Vinny01]

I bought a 1 bedroom condo in Sunnyside back in 2008 and have been renting it out since 2011. I have had many tenants and at times I was able to cover all my costs and afford a property manager but the last 4-5 years it is costing me about $175/mth. I couldn’t sell it for what I paid back in 2008 and while I am in no rush to move it if I could get a good price I would much rather sell it and invest the money elsewhere.

[bizaro86]

Originally Posted by Fighting Banana Slug

Right. My experience has been with longer term tenants (3+ years), so that generally requires a bit more of a refresh, hence the month vacancy.

Perhaps others are more efficient and good for them. The point being that I wouldn't budget 100% tenancy and I wouldn't count on the security deposit covering all damages/expenses on move-out. If you do have the unpleasant experience of a bad tenant, it can un-do a lot of good returns.

I definitely wouldn't budget 100% occupancy, but 1 month every turnover is too much, imo. If you're efficient between tenants you can get a lot done in a short time. My record is new plumbing for a euro style washer, new kitchen countertops, new tile backsplash, and a full repaint (one coat no color change) on a 36 hour turnover. When a month of turnover costs $1000+ I don't mind putting in a long day getting stuff done.