Monthly Archives: January 2015

As the price of #TorontoRealEstate increases the demand for #TorontoRentals increases

The above tweet references a timely article written by Susan Pigg of the Toronto Star. It appears as though we are coming full circle. You may recall that the Toronto housing market was in a vicious correction from 1990 – 1996. Those were very bad years with the price of housing falling significantly. Those who bought in 1989 were the most hurt. Prices fell so low that for a period in the late 1990s, it actually cost more to rent than to own. In other words the rent to purchase price ratio was very high. Translation – it was very expensive to rent. This was a significant factor in fueling what has been probably the longest real estate boom in Canadian (certainly Toronto) history.

We have now reached 2015. The ratio of rent to purchase price is now very low. Translation – it’s getting very very expensive to buy. Hence, the demand for Toronto rentals is high.  The question has now become:

Is it worth buying Toronto real estate at current price levels? It is now longer assumed that residential real estate is a good investment. Renting residential property can be the right choice for many.

The headlines include:

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Ontario Rent Increase Guidelines and rent control

Welcome to 2015. As you know Ontario has “rent control” for existing tenants. This means that a landlord is limited to the amount that he can increase the rent in any given year. The limitation is designed to protect tenants.

Some things to remember:

1. Ontario has had rent control since the 1970s. That’s the reason why there are almost new rental complexes in Ontario.

2. The lack of “rental housing” in Ontario has been mitigated by the large number of condominiums being built. Many condominiums are being bought by investors and rented out. The demand for Toronto rentals has made investor owned condominiums viable. In other words, small investors (Landlord Relief provides property management services for small real estate investors) are contributing to the supply of rental housing in Ontario (especially Toronto). It will be interesting to see whether Toronto condominiums are a good investment. Opinions differ.

3. Rental properties placed in service after November 1991 are NOT subject to Ontario rent control. That said, the rent charged for every rental unit must be competitive with the rents of similar rental units.  Your success as a landlord depends on getting and keeping good tenants. It is important that you understand how to select your tenants carefully. Higher than market rent will result in more tenant turnover. Tenant turnover is your biggest cost for a landlord.

4. Every year the Ontario Government issues a “Guideline for Ontario rent increases. The Ontario rent control “Guideline” for 2015 is 1.6%. You can find Ontario rent increase  guidelines for previous years on this page at the Landlord and Tenant Board.

Should a landlord raise rents in the Toronto real estate market?

5. Rent control is a “use it” or “lose it” principle. In other words, if you don’t raise the rent for the year, that “rent increase” is gone forever. On the other hand, you must remember that “the best rent for a residential property is not necessarily the highest rent“. In some cases (if you have a really really good tenant) you may NOT want to raise the rent.  How you decide this? Here are some principles for deciding whether to raise rents. (But, I would suggest that the principle of “possible non-raising rent” only works if you are renting one unit. Read on.)

6. If you own a multi-until building you really are forced to raise rents every year. This is necessary to maintain the value of the building. Please remember that the value of a rental building is proportional to the revenue that the building generates. The higher the rent, the higher the value of the property. The lower the rent, the lower the value of the property.

7. Remember that the rent increase guideline tells  you how much you can increase the rent. It doesn’t tell you how to increase the rent in accordance with the Ontario Residential Tenancies Act.

Happy landlording for 2015!