“Financial Landlords” Making More Money Than Small Landlords: Takeaways for Smaller Landlords
There’s a new buzzword in the media lately: “financial landlords.” These are larger companies which own many properties, and apparently they are outpacing smaller landlords by a long shot in terms of what they are earning. While they are being positioned as predatory, are there lessons that smaller landlords can learn from them while still remaining ethical? Absolutely.
The media frenzy came about from a study at the University of Waterloo, which revealed that financial landlords are earning an average of 44% more per month on a property than a smaller landlord. One of the conclusions of the report was that financial landlords, unsurprisingly, run their businesses according to financial best practices, with more frequent rent increases. However, they also do not perform as many maintenance requests for tenants, which also saves them more money. They also tend to have adversarial tenant relationships because of these behaviours.
The answer is not to adopt unethical and potentially illegal practices – especially in a market that is rapidly favouring renters – but to use this information as a reality check to make sure you’re running your business according to best practices. As a smaller business, you also have less money to burn in court and in Landlord and Tenant Board (LTB) tribunals, so it is best to stay within what the law allows.
Financial landlords raise rent more often
A financial landlord will raise rent as much as once per quarter. Most smaller landlords only raise rent once per year, and not above LTB guidelines. The study showed that some of the larger firms ignore the guidelines completely on rent-controlled units and rely on tenants not going to the LTB with a claim. They will also more frequently file for Above-Guideline Increases (AGIs) to rent.
Takeaways for small landlords
- File for AGIs When You Qualify
If you have to spend a lot of money renovating or repairing a unit, your taxes go up by a large amount, or you generally end up spending much more than usual on your property, you may qualify for an AGI. There’s no penalty to apply for it, and you may as well if you think you fit the parameters. Here are the LTB instructions for doing it.
2. Consider Raising Rent More Often
If you do not have a rent-controlled unit, consider raising rent by a small amount twice a year instead of once a year. Once a quarter is likely too much for most tenants, and even doing it twice a year may upset some – you have to decide if your situation warrants it. If you have a great long-term tenant who always pays on time, but you also have mounting bills, have a discussion with them about what they would find acceptable. One of the financial landlords in the study raised rent by 9% once per quarter, but they are a high outlier. Something like 5% twice a year is much more reasonable.
If you own rent-controlled properties, you can only increase the rent once per year, and only by the amount determined by the government for that year. Make sure you’re filing the proper forms on time so that you can begin collecting the increased rent as soon as you are able to. Many landlords make the mistake of filing the forms too late, which means they can miss out on the increased rent for the first couple months of the year.
Financial Landlords Perform Less Maintenance
Financial landlords make it difficult for tenants to have maintenance done to save money on the costs of repairs and other expenses. Doing this will set up an adversarial relationship with the tenant and encourage them to look elsewhere for housing, so it’s not recommended. Financial landlords simply don’t care as much about the tenant relationship because they operate more on a “turn and burn” model than attracting good long-term tenants.
Smaller landlords can’t afford to discount the tenant relationship like this. However, you should start to pay attention to tenants who make consistent maintenance requests over and above what you are legally required to carry out. For example, you shouldn’t be changing lightbulbs for tenants inside of the unit – the only spot you have to do this is in public common areas, such as on the outside of the property.
If you suspect that you’re doing too much for a tenant, review the Landlord and Tenant Board’s guidelines for maintenance and repair, and gently push back on any requests that fall outside of those guidelines. Tenants who consistently ask for repairs over and above what the LTB mandates can quickly eat up your profits and your time.
How Hiring a Property Management Firm Earns You More
While you aren’t going to be ever running the same actuary tables or denying legitimate requests for repairs like a larger landlord, hiring a property management firm is going to get you as close as possible to the profits of a financial landlord without the lack of ethics. We know exactly how to price your unit, manage your rent increases, and do all repairs and maintenance that fall under the LTB. Our most important value-add is before the tenant even moves in – we do rigorous tenant screening to ensure you don’t end up with non-paying tenants as much as possible.
We’ll be able to advise you on when you can apply for above guideline increases, and so much more. The key is to hire a firm like ours that puts the tenant relationship at the centre of your business, rather than viewing them as adversarial. Contact us to find out how we can make you more profitable without sacrificing your integrity.
