Renting vs Buying

Ahh the age old dilemma; what’s better, renting or buying? If you’d asked this question 20 years ago, most would have resoundingly agreed that buying is a far better option. Why pay down someone else’s mortgage when you can pay down your own, all the while building equity and securing your retirement? Unfortunately, it’s really not that simple anymore, and the age old thought process that “buying is better”, is starting to be looked at in a different light. The reality is this: one is not necessarily better than the other; it’s relative to circumstance. So what are the factors? There are really no easy answers to this question, and the fact still remains that buying a home should be a very sound investment. With that said, you’ll need to pound out the numbers and understand what you can and can’t afford. It’s all about circumstance. What’s the Market Doing? This is of course one of the biggest questions you should ask yourself. In Canada, the market has been out of control for years now. Home pricing has been increasing at a rate greater than inflation, which is extremely abnormal. Canada just implemented new mortgage rules meant to tame the market, and it is expected that things should even out shortly. With that said, it’s important to look at real estate trends when deciding to make the leap from renting to buying. The last thing you want is to buy at the height of the market. Buying a one million dollar home at the height of the market may mean that by the time you want to sell, you’re property has actually depreciated in value. This brings me to my next point: How Long Do You Plan to Live in the Space? Buying should be looked at as a long term investment, unless you are a seasoned investor. Even if buying at the height of the market, if you are in it for the long term, things should work out for the better. The market might take a dip, but that’s OK; just wait it out as you’re in no rush to sell in any case. Renting, on the other hand, allows you freedom to be nomadic. Are you single? Is your employment status unsecure? Then you’d better rent. Do you have a family? Is your career secured? Do you want a steady living arrangement for your family? Then buying is a great move. How Much Can You Afford Monthly? In 99% of the cases, a mortgage will cost you more monthly than rent. Will getting that mortgage stretch your finances too thin? If so, you’d better wait it out until your financial status is slightly more secured. If you can easily afford the cost of the mortgage, great! But you also have to factor in maintenance costs and uptake. By renting, your landlord assumes responsibility for all maintenance and repairs. When you’re a home owner, there is no landlord covering your maintenance and repairs. It’s all on you. General rule of thumb, you can expect to pay 2-4% annually of your homes worth on repairs. This is another big expense. Ideally, when you’re ready to sell you’ll make it all back and then some, but this depends on many factors. Do You Want to Rent out a Room? Hypothetically, you could and probably would have a roommate when renting. The roommate will help cover your rental costs, which is great. But when you own your home, you can rent out a portion of the home and have that tenant help to pay down your mortgage. That’s a very different scenario and it takes your home investment to a whole other level. Moreover, you can create income by borrowing against your home. The big question here is if you’re prepared and willing to be a landlord. Equity vs Inflation Here’s a big issue: despite the recent trends we’ve seen, equity typically increases directly in line with inflation. This means that the big take home you’ll get when you sell won’t be nearly as large as you thought. The prospect of buying a home at $500, 000 and selling it a few years later at $600, 000 is a great thought, but remember that the $100, 000 in equity won’t mean the same thing years from now that it currently means. $100, 000 20 years ago was a lot more money than it is now. And more importantly, you’ll have closing costs, land transfer tax, moving expenses etc. So that $100, 000 will actually be a much lower number once it’s all said and done. Do You Plan to Invest Anywhere Else? I would argue that this is possibly one of the biggest factors. For most home owners, their home is their big investment, and they don’t invest elsewhere. However, there are many other avenues of investment, stocks being a major player. With some research and guidance, renting a space and investing elsewhere can actually yield just as strong a return, if not stronger. But with that comes research and resources needed. If this isn’t your forte, then investing in your home may be the best investment for you. Freedom from Responsibility vs Pride in Ownership Perhaps the biggest thing to think about is your lifestyle choice. When renting, you are free from responsibilities. You pay a set monthly fee and that’s it. If a pipe bursts, call the landlord. If a window breaks, call the landlord etc. It’s very low in terms of responsibility. Home ownership on the other hand, is a massive responsibility. This is your property, and without proper maintenance, you can forget about any profit on resale. You need to maintain the property and take pride in it. But isn’t that half the fun? If you feel this way, then home ownership can be an incredible experience. You want to paint the living room red? Go for it! You want to tear a wall down and free up space? Get it done! Home ownership can be fun, albeit a great responsibility. So the truth is there are no easy answers. Financially speaking, both options can actually make sense. It depends on a variety of factors, and you’re best bet is to keep an eye on the market to determine when to buy and sell, and to thoroughly analyze your current financial status, your goals and your strengths.

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by TKM Admin

Property Management: Student Rentals

If you’re a landlord with a rental property located near a college or university, you’ve probably considered student rentals. You’ve also probably been scared off by the notion; students have the bad rep of being loud, noisy, destructive, messy, and faster at wearing your property down compared to regular tenants.  With this kind of a profile it’s understandable why most landlords scoff at the idea, especially those who have signed agreements with bad tenants in the past. With that said, renting out your property to students can be very profitable, and very often students end up being fantastic tenants. Doing your due diligence in regards to a thorough screening process will greatly eliminate the risk of you entering an arrangement with a bad tenant. So consider student rentals. Here’s why:

It’s in Demand

The student rental market is growing at a rapid pace in North America; more and more young adults are enrolling in higher education. The need for student housing is very real, as enrollment has seen a steady growth over the last decade. It’s a niche worth considering; student housing has typically seen a higher rate of occupancy in comparison to residential occupancy, meaning you are less likely to be left with an empty unit.

Less Worry of Receiving your Rental Payments

Parents are normally the one’s covering the cost of their child’s schooling and the added costs that come with it i.e. rent. The parents have already invested a ton of time, money and energy in their child’s future and the last thing they want is to jeopardize their kids living arrangement throughout the school year. Typically, these are responsible parents who will handle the payments without fail.

Parent Guarantors

In the case that the parent isn’t handling the monthly payments for their kid, you can typically get the student to sign a parent guarantor form. This would allow you to go after the parents if the student is in arrears.

Students Are Often Great Tenants

I say this loosely, as there are always exceptions to the rule, but generally, students are among the responsible of the young adults. Responsible parents breed responsible kids. Moreover, student renters tend to be less picky. They’re more concerned with the school year, and tend to have lower expectations compared to non-student tenants. You’ll be far less likely to encounter a “professional tenant”, who can make your landlord experience a living hell. Furthermore, students are far less likely to have pets, smoke, or have a kid of their own. These are 3 very common problems when dealing with standard tenants.

You’ll Often be Paid Up Front

Parents are very willing to pay up front for the year. It’s a lot easier for them to simply cover the payment all at once rather than deal with another monthly bill. Payment up front means you’re covered; no chasing tenants for payment.

If You Own a House, You Can Make More Money

Student rental properties are typically rented by the bedroom. In a non-student scenario, you’ll have a very hard time renting your house out by the room. You’ll likely have to rent out the entire house to one family, or one group of people for a set price. With students, renting out each room can mean a much larger return, as the tallied price of 4 students renting individually can certainly exceed that of an entire house rental. Not to mention, you can convert other areas into other rooms. For example, the basement can be converted into either one or multiple living spaces, making your return on investment much larger.

But What About the Risks?

Sure, there are some risks. With students, this is typically their first time away from home. They are young, impressionable, and may lack maturity. Many university and college towns are also known as “party areas”, so you do run the risk of some parties being hosted in your rental property. Regardless, you run risks by renting out a property either way you slice it. By undergoing a diligent screening process, you can pinpoint potential trouble makers and choose not to rent to them. Again, many young people enrolled in higher education are very responsible individuals who can be trusted. In comparison, very often non-student tenants lack education and maturity. So the students may be young, but they still might treat your property with more respect vs a non-student. That combined with the potential for more income, and the potential of being paid up front/not having to chase your payments every month, makes student tenants a great prospect.

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by TKM Admin

How Should You Price Your Rental Property?

Pricing your rental property can be a tricky subject to wrap your head around. How much is too much? How much is too little? Where’s the sweet spot? Price point is one of the most important aspects for a landlord to keep in mind, as it directly correlates to the quality of tenant you will attract, the amount of applicants you’ll receive, how quickly you’ll attract them, and how much of a return you’ll make on your investment. Here are a few key strategies and points to keep in mind when deciding on a monthly price point.

Upgrades, Upgrades, Upgrades!

Costly upgrades will justify a slightly higher price point than other rental units in your neighborhood. How desirable the unit is will directly correlate to how much you can charge. Costly kitchen upgrades, bathroom upgrades, nice flooring, beautiful windows etc, will all attract quality clients; the kind of client that values their living space, and will respect your property. While price point is typically the deciding factor in the mind of a tenant, a good tenant will be willing to pay a little extra for a nicer living space. With that said, you have to be careful when you price above the neighborhood norm. Over pricing will backfire and leave you with an empty unit. For example, if you see similarly sized units in the neighborhood that are older and less desirable than yours going for around $1200 monthly, you can comfortably ask for $1300-$1450. The tenants that you want will see the value. However, once we start getting into the range of $300, $400, $500 more per month, potential tenants will start to think that the increased cost isn’t justified. By over pricing, you’ll be left with an empty unit. Every month with an empty unit is money lost. This brings me to my next point:

How Much You’ve Invested in the Property Doesn’t Matter!

Ok, so I’m sounding a little contradictory here. My point is this: the rental market is not concerned with your costs; they are concerned with finding a nice living space that is affordable. Renters are renting for a reason. They either can’t afford yet to buy, or are simply looking for a temporary space. In either scenario, the potential prospect will have a cut off in their mind when it comes to how much they are willing to spend. So, while investing money in upgrades will certainly attract a stronger quality of tenant and allow for a slight price increase, you have to remember that the renter doesn’t care how much money you’ve invested in the space. They care that it’s affordable, convenient, and livable. More importantly, remember that those upgrades will justify a higher resale value. There is no need to get greedy on the monthly pricing as when it’s time to sell, those upgrades will yield a strong return.

Don’t Underprice Your Property:

Are you seeing a pattern of contradiction yet? On the one hand, I’m suggesting not to overprice your property. On the other hand, I’m suggesting that upgrades will justify a slight increase. And now, I’m saying not to underprice. The point to take home is here is this: It’s a fine line, and there’s a “right” price point. By underpricing your property, you’ll be left with an overabundance of applications, and the majority will be poor quality tenants. You’re in this to make money, not to undercut your biggest investment. Having a wealth of application forms from poor quality tenants will be nothing more than an unnecessary headache; it will take a ton of time to sift through the applications, and the majority of them won’t be worth your time. Can you imagine going through this process for every poor quality tenant applying for cheap rent? More importantly, you run the risk of losing out on the good tenants who have applied; by the time you get to their application, they may well have moved on. Underpricing to create a bidding war is not worth the trouble. On the flip side, overpricing in hopes to create wiggle room to negotiate also has a strong potential to backfire; you’ll be left with minimal applications and long vacancies.

So Where’s the Sweet Spot?

Monitor the price points of other units in your area. Compare the units to yours. Which units in the area seem to be filling up the fastest? Check out local classifieds, visit properties, and understand your competition. Generally speaking, units on higher floors, with good window viewpoints, bigger square footage, good storage space with balconies etc can be priced a little higher then otherwise. Compare your unit, and if you have one of the better ones, put a slightly higher price point than what you’re seeing. Be honest with yourself in terms of how your property compares when deciding how much higher you’ll price it. Listen to the market, and it will tell you how to price your rental property.

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by TKM Admin

What is Buildings Insurance?

As a landlord, you should never forget that you are running a business. Whether you own a condo unit, an apartment unit, a house or even an entire building, your property is your investment; protecting your investment is crucial. Speaking with a management company like The Bahl Team can give you valuable insights into what provider will offer you the best coverage. We can help you to gain a strong grasp on what should be covered, and what isn’t covered. Let’s take a quick look for the time being: Generally speaking, Landlord Buildings Insurance will cover accidental damage to or theft of: the building structure itself, outside structures such as gates, fences, car parks, drives etc that you own or are responsible for and permanent fixtures and fittings such as kitchen sink or bathroom showers. Some insurance packages may also cover things like ground rent during a period of time in which the property is uninhabitable, the removal of debris, damage caused to the gardens due to emergency services and more. When considering a policy, you can look at features in 2 different categories: “Necessary features” and “Good to have Features”. Let’s start with the “Necessary Features”. Necessary Features: Generally speaking, a good Buildings Insurance policy will cover damage to your home caused by:

  • Fire, smoke, or explosions
  • Vandalism
  • Natural events such as fire, severe storms and floods
  • Subsidence
  • Car and lorry collisions
  • Water Damage from leaking pipes
  • Falling trees
  • Oil leaks coming from your heating system
Good to Have Features: Every insurance provider is different, and some of these features may or may not be available to you. If they seem important, you should ask your provider. Moreover, some of these features may be covered in other policies, such as Landlord Insurance. Underground Services – This covers your pipes and cables supplying gas, electricity and water to your home, as well as sewage pipes. Blockage of Sewer Pipe – If your sewer pipe becomes blocked, this will cover the cost to unblock it. Burst Pipes – If a pipe bursts, the cost to repair will be covered. Glass & Sanitary ware Breakage – If windows, glass doors, toilets and washbasins are broken accidentally, you’ll be covered. Loss or Theft of Keys – If your keys are stolen, or misplaced, your insurance company will cover the cost of replacing all of the locks in your home. Legal Expenses Cover – If you encounter issues related to bodily injury claims etc, than this will cover your personal legal expenses. No Claims Discount – If you haven’t made any claims in recent years, this entitles you to a discount off your annual premium. These are just a handful of the features that you can request, but you may not be granted the coverage. The exact policy would depend on the insurance company that you are dealing with, what they offer and what you choose to include. Unfortunately, more and more insurance companies are incorporating exclusions from their policies, so you’ll want to go over the policy with a fine toothed comb, and read all of the fine print. What isn’t Covered: Ok, so we’ve covered a good chunk of what is covered, and what may be covered depending on your insurer. You should also be aware of what isn’t covered, as you may need a separate policy, and you will also need to know what types of scenarios to avoid. Typically, buildings insurance will not cover intentional damage caused by tenants or their visitors. It also won’t cover willful neglect of the property. Moreover, you won’t typically be covered for damage to outside fences or gates caused by floods or storms. Faulty workmanship, damage caused by insects, birds or pests, and general wear and tear will not be covered, nor will damage from ageing. Lastly, “contents” or “non-permanent fixtures and fittings” such as stoves, free standing fridges, washer dryer, curtains etc will not be covered. Buildings Insurance applies strictly to the structure of your home such as the walls, roof and floors. The cost of buildings insurance will vary greatly depending on the structure of your property, the age of your property, location, age of the policy holder, number of bedrooms, type of property, material of property, stability of the land and the risk of flooding. More importantly, every insurer is different and offers different options for coverage in their policies. Speaking with a team of property management professionals will give you peace of mind knowing that you have the best of the best handling your needs. Let The Bahl Team guide you in the right direction; we’ll handle your investment with the care it requires.

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by TKM Admin

Checklist for Finding AAA Qualified Tenants

Finding AAA qualified tenants for your rental condominium can be a process. Rather than cut corners in the interest of time and effort, you’d be wise to put in the elbow grease involved with an extensive screening process. Potential tenants can be crafty, and failing to do your due diligence may leave you with more headache than the screening process itself. On top of this, it may leave you with financial setbacks due to a bad tenant abusing your property or failing to pay rent. But how do you choose a good tenant? How do you know the potential tenant isn’t simply putting on a show to win you over? We’ve all heard the horror stories related to “professional scammers” who meet you in full suit, speak eloquently, present themselves professionally, and turn out to be a tenant from hell. Avoiding these scenarios isn’t always easy, but implementing a proper screening process can greatly limit the likelihood of you ending up with a bad tenant. Here are the steps necessary to avoid being scammed by a prospective tenant:

Application Form:

If you were an employer looking to hire a potential employee, you’d require the candidate to fill out an application form, yes? Well this should be no different. After all, being a landlord is a business venture in itself. Sample application forms can be found online, or you can request a sample rental application from your local real estate association. You can also create one yourself using a Microsoft Office template. These applications should state that a full criminal background check and credit check will be required, and that the tenant is authorizing a check into his or her financial, employment and personal history. In addition, it should cover the tenant’s financial information, employment information, and personal information including SIN.

Run a Credit Check:

Next on the list is a credit check. This is absolutely crucial. If the tenant doesn’t pay their other bills on time or at all, can you really expect them to pay your monthly fees timely and routinely? You can request the credit check from the tenant directly, asking them to cover the cost, or you can do it yourself. The choice is yours. If the tenant refuses the credit check, there is a good chance that they are trying to cover up a bad credit score. With that said, they may simply be worried about an inquiry affecting their credit. Ask questions, and use your best judgment.

Run a Background Check:

There are companies who are able to offer employee background checks for free. You can also find websites who will offer full online tenant screening, background checks and criminal reports. You typically only need the tenant’s social security number, and you’re off to the races.

Contact the Tenants Employer:

Ok, so the application form is complete, the credit check and background checks look good. Now, it’s time to actually contact the tenant’s employer yourself. Speaking with the employer will give you peace of mind knowing that the tenant has steady work and a consistent flow of income. What’s more is that the employer can give you insights into the tenant’s personality.

Contact the Tenants Previous Landlord:

This is arguably more important than contacting the employer, as the past landlord has insights directly related to how the tenant treats the tenant/landlord relationship; they can tell you if the tenant paid rent on time, and if they were generally respectful and agreeable.

Interview the Tenant:

Everything has checked out so far? Good. Now comes the really important part. Interview the tenant. The interview process will allow you to ask specific questions that the previous steps may not have been able to address, and it will give you direct and personal insight into whether or not the tenant will be a good fit. Here are some good questions to ask:
  • Are you aware that we will require first and last months’ rent? Will this be an issue?
  • Why are you moving?
  • When are you looking to move?  
  • How long do you intend to rent the property for?
  • Are you a smoker?
  • Do you have any pets?
  • Have you ever been evicted?
  • How many people will be living in the apartment?
  • Do you have any questions for me?
Remember, the above questions are a guideline. You should ask questions that are important to you, and omit questions that aren’t. You are OK with pets? Good, because a “no-pets” clause is unenforceable in any case. You can omit that question. What if pets are an issue? Well, you can’t evict a tenant for owning a pet, but you can refuse to rent to someone who admits to having one. So ask away! Following this process will greatly limit the likelihood of a problem tenant. This may seem like a lot of work, but luckily you have The Bahl Team to help. Working with a property management company will ensure that a professional is handling your investment with the utmost care and attention to detail.

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by TKM Admin