Why “Waiting Out the Market” Doesn’t Work for Toronto Real Estate Investment

There are many factors that come into play when deciding to invest in real estate, with price being one of the larger deciding factors. While it may appear wise to take a “wait and see” approach to a changing real estate market in Toronto and the GTA, there are a number of reasons why waiting simply may not be the right choice for you.

 

Lost time is lost income

When planning to make a new real estate purchase with the intention of turning it into a rental property, the time spent waiting around for the market to react can result in a loss of critical rental income. Ideal properties, opportunities, and tenants come and go, but missing the chance to snatch them up can cost you.

 

In fact, the amount of rental income being earned over any period of time is far more significant than any incremental drop in average housing prices that may or may not occur. This source of income is steady and predictable in ways that the Canadian housing market simply isn’t. An interruption or a late start in receiving rental income will hurt your wallet far more than the amount hypothetically being saved by a slight future dip in the market.

 

Canadian housing prices very rarely fall

Perhaps the best advantage to taking the “wait and see” approach when buying a new property is the idea that housing prices will fall below the level they are currently at. While this may seem practical, in most cases it simply won’t happen.

 

Statistically speaking, the Canadian real estate market as a whole has proven year after year that price drops are incredibly uncommon. According to data collected by North Cove Advisors, the last significant drop in Canadian real housing prices was nearly a decade ago. Rather than prices falling outright, the real estate market instead tends to fall into periods of slow growth – not exactly the ideal outcome of the “wait and see” strategy.

 

Looking to the future

One way to know for sure that the “wait and see” strategy is not going to yield positive results in the current Canadian housing climate is by looking to the future of the market. The Toronto Real Estate Board is currently projecting at least a single-digit price increase throughout the remainder of 2017 – all signs currently point to it being correct in that assessment.

 

By analyzing recent developments in the housing market as well as historical data, you’ll soon discover that true dips in the prices of Canadian real estate are rare. Waiting for the “right moment” to buy can leave you sitting on your hands for years, losing a significant amount of potential rental income in the process.

 

If you are considering purchasing a rental property, contact Highgate Property Investments. Our business is both real estate and property management, and we can help you with all aspects of your new real estate venture.

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It’s a Trap! Pitfalls of the new Rental Fairness Act for Toronto Landlords

The Ontario Residential Tenancies Act (RTA) was recently amended by the new Rental Fairness Act to keep landlords from raising rents unfairly. While we’ve discussed the new Rental Fairness Act, it’s important to point out the pitfalls of the new rules, particularly for small landlords which the amendments unfairly target. Here are specific traps that you need to avoid under the new rules.

  1. Don’t include utilities in rent

Before the new rules were passed, landlords were allowed to increase rent if utilities costs were increased. Given the Ontario government’s recent lowering of hydro costs, and its plans to raise them again in a few years, it isn’t a good idea to include any utilities at all in rent anymore where it can be avoided. And not just hydro – you don’t know when water or other utility costs will be spiked, so it’s best to leave them out of your contract and have the tenant pay for them directly. You never know when the tenant you have is going to stay or leave, and if they are a long-term tenant, it will be impossible to recover these costs.

  1. Only evict tenants for your use of the unit if you actually plan on using it

It is now possible for tenants to lodge a complaint against you if you evict them because you or your family plans on moving into the unit and you sell, demolish or change the use of the property after they are out. You have to wait at least a year after the tenant moves out to do anything other than move into the unit. This is especially maddening as it almost means your property isn’t yours to do with as you wish for at least a year – and many things can change in a year. Even still, it is the law and you must now abide by it. This rule was commonly used to get rid of tenants landlords didn’t like, and it can’t be used for that purpose anymore.

  1. Watch out for the new standard lease form

While this portion of the Act hasn’t yet been put into force, the government’s prescribed standard lease form must be used when it does. Failure to use the standardized form will result in a justified non-payment of rent for a month until the landlord provides the proper form. And of course, there is no word on when the new form is coming – to stay up to date, join the Ontario Landlords Association or keep googling government websites. You can bet tenants will find and use this loophole if you don’t stay sharp and keep on top of it.

  1. You can’t claim unpaid rent as “damages” anymore

Landlords used to try to claw back unpaid rent as “damages” when a tenant moved out. This is no longer legal. Damages must be actual damages to the property. This holds true even when the tenant leaves in bad faith and does not pay rent. Landlords must go through the usual channels with the Landlord and Tenants Board to recover unpaid rent.

If you would like to avoid these pitfalls, hire a property management company like Highgate to manage your Toronto or GTA rental property. We’re on top of all of these new changes to the RTA and will ensure that your property makes you money and doesn’t cost you any.

 

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Buying a Condominium as a Rental Property in Toronto and the GTA

Condominiums are the most attractively priced properties in Toronto and the GTA for people looking to take their first steps into the rental property market. But there are special considerations and pitfalls that you need to keep in mind when purchasing a condo as an income-generating property.

 

Before you buy: Check that you are allowed to rent to tenants

Each condominium property has a condominium board that sets specific rules and regulations for the property. Some may not allow long-term rental of the property, and almost all do not all short-term rentals (e.g. AirBnB) on the property. If there is any doubt about anything you are reading, contact a member of your condo board to clarify, ideally before purchasing the property.

 

Can you make your tenant adhere to condo rules?

While you are going over the document, ensure that the rules are reasonable enough that you can ask your tenant to follow them without violating their rights under the Residential Tenancies Act. Most rules aren’t egregious, but it is the owner and not the tenant that is responsible for ensuring that the rules are adhered to.

 

Do a price check on condo fees and historical increases

Setting your rental rate is one of the most important steps to ensure that your income property is actually generating income. Check how much condo fees go up each year and make sure they are built into your rental rate, in addition to any projected fee increases in the future. You can guess at this reasonably by looking at historical increases for the past few years, and some condominium agreements have fee increases built in to the agreement.

 

Get condominium and rental property insurance

While your insurance broker or agent is the best guide for this, you will need both condominium and rental insurance for your property. Condo insurance has additional items built in for damage to common areas, and rental insurance covers your use of the property as a rental property. On the plus side, condo insurance is typically less expensive than traditional home insurance.

 

Watch out for clashes between condo rules and the RTA

A common example of where you can run into problems is a tenant who decides to purchase a pet after they move into the unit. Many condos have strict no-pets policies. However, under the Residential Tenancies Act (RTA), you cannot evict the tenant for having a pet. The condo board is well within its rights in this situation to bring action against you, the property owner, and not the tenant. This is why you have to step up tenant screening for a condo property, and preferably have it done by a professional Toronto property management company such as Highgate. It is possible to find the right tenant that won’t bust condo rules on a whim, but you have to know what to look out for; most first-time rental property owners don’t.

 

Set an emergency fund aside for non-payment of rent

If your tenant isn’t paying rent, the condo board is still going to want its fees to be paid, and can register a lien against your property if they aren’t paid. To avoid this, make sure you set aside an emergency fund to cover things like condo fees, minor repairs in the unit, and so on. Again, a professional property management company can help you find the right tenants that will pay rent reliably and on time.

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Home Prices Still Steadily Rising in Toronto

Industry experts are starting to call the problems in the Toronto housing market a “blip” rather than a bursting bubble. While it is true that in some areas, housing prices are going down, overall prices are still up year-over-year in the Toronto area.

Flood of listings sellers trying to cash in at “peak”

The primary driver behind the dip in Toronto home prices has been a flood of supply on the market, mostly from sellers looking to cash in on what experts had determined was the “peak” of the housing market in early 2017. Generally, when you are told prices are the highest they are going to get, you’re going to make the decision to sell.

However, the new listings are high-priced, and there are a limited amount of buyers that can afford the average home price of $746,218 across the GTA. Even condos, which used to be the entry-level option to the housing market, have an average price now of $519,000 – which is definitely out of reach of the single income individuals who usually purchase these properties. So while sales have decreased, prices remain steadily growing at a single-digit pace, in accordance with the Toronto Real Estate Board’s prediction earlier in 2017.

Will buyers come in off the sidelines after seeing steady price increases?

There are three things that could happen with prices in the Toronto housing market. The first sees sellers lowering their prices significantly in order to sell their properties. But since the primary driver for these sellers was to “cash in”, this is highly unlikely – although it is what buyers want to happen. The second option – the inventory will be pulled off the market or turned into rental properties, as there is a rental crunch in Toronto and the GTA, and non-selling properties could make their owners more money if they become rental properties.

A third option, and one advocated by the TREB which has so far predicted every move in the Toronto housing market correctly for 2017, is that buyers waiting on the sidelines for prices to decrease see them increasing instead, and decide to purchase homes in the fourth quarter of 2017 and the first quarter of 2018. Those hoping for a deal will see steady price increases month-after-month and will realize that the deals won’t materialize. What remains to be seen is if there are enough people with the incomes to afford Toronto and GTA housing at current prices to snap up the current supply.

 

Sales need to decline for a number of months to see a price drop

Big price drops don’t realistically happen unless sales decline over a long stretch of time – and there are other factors at play, such as sellers deciding to convert their properties to short-term or long-term rental properties rather than selling them if they don’t get the price they want. For now, real estate agents and industry experts are predicting an “insane” fall season for property sales in Toronto and the GTA.

 

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Keeping Your Air Conditioning Running at Your Toronto Rental Property

Summer in Canada is thankfully short for landlords that have to deal with air conditioning systems. Room air conditioners are generally cared for by tenants unless there is a major failure, but central air systems need care and attention to ensure that they are running properly. Following these tips can help you avoid expensive emergency repair calls in the middle of a heat wave.

 

Tips for Central Air Conditioning Systems

 

Turning the AC Back on After a Power Outage

You can’t control power outages, but you should be ready to manually switch on central air conditioning when the power comes back on if the air conditioning doesn’t automatically switch on. You may not know about a power outage at your tenant’s location, but they will call you if their AC isn’t working. Power surges can cause the air conditioning system’s circuit breaker to overload and make it switch off as a safety feature. Follow these steps to safely turn it back on. You should do this yourself or have a contractor do it, don’t rely on the tenant to do it properly as they may not.

 

Test and Perform Necessary Repairs and maintenance in Spring

Ideally, you will turn on your air conditioning system and test it in the Spring, before the hot weather hits. You’ll find out quickly if you have to do any repairs or maintenance on the unit. Consult your unit’s manual to ensure you are doing the proper maintenance to keep it in working order; if you no longer have the manual, search the manufacturer’s website for your unit’s manual and/or maintenance needs.

 

Turn Air Conditioning Off in Fall

Consult your system’s manual to find the master switch which will allow you to turn it off at the source in the fall. This will ensure that it isn’t accidentally turned on during the winter, and protect it from power surges and other potential failures.

 

Have a Technician on Hand for Emergencies

 

Line up contractors in advance in the event that you may need emergency service. Generally, technicians will respond more quickly and better to people they have an existing working relationship with, so mine your current contractors first to see if they perform these services before looking for someone else.

 

Tips for Room Air Conditioners

 

Room air conditioners should be installed and tested in the Spring, when heat is less likely to be lost and before warm temperatures hit. You should perform this installation yourself or hire a contractor to do it to keep the tenant from damaging window frames and other structural components of the property. They should be removed in the Fall, preferably before heat is required in the property to avoid heat loss. If there is a failure during a heat wave, they should be repaired or replaced immediately.

 

If you don’t want to worry about air conditioning at your Toronto rental property, or anything else, talk to us about our property management services. We also offer repair and renovation services if you are looking for someone to install or maintain your air conditioning systems at your property.

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Highgate Cycling Team Member Emily Marcolini Heading to Canada Summer Games

Emily Marcolini has always been active in sports. She started out as a cross-country runner for Cambrian College in Sudbury and raced for Cambrian for a couple of years. Injuries from running made her look around for a different sport, and a friend suggested she try cycling. After a visit to the Sudbury Cycling Club, she joined and has been making serious headway for herself in the sport ever since. In December 2016, she saw an ad for the Real Deal Racing Team in Toronto, which Highgate sponsors, and became a member of our team, alongside Highgate Property Investments President, Jonathan Maloney.

She’s started 2017 in peak form; earlier in July she won a bronze in the 2017 Global Relay Canadian Road Championships in Ottawa. Marcolini is heading to the Canada Summer Games in Winnipeg, which take place July 28-August 13. This national race has been Marcolini’s goal for the past two years, and she is very excited to be a part of it. She will be participating in three events at the Games; Road Race, Time Trial, and Criterium.

 

Marcolini’s training regimen: skiing, biking and strength training

 

Training is nearly a full-time job for Marcolini. When weather is good, she focuses on cycling. Two weekdays a week, Marcolini will do practices with the Sudbury Cycling Club which follow anaerobic intervals, which are sprints of 2-3 minutes in duration. The three other weekdays are easy rides, and she goes on longer rides on the weekends. In winter, which comes much earlier and lingers longer in Sudbury than southern Ontario, she does cross-country skiing and strength training to stay in top form.

 

Marcolini: Join a club if you are interested

 

Marcolini advises those who want to get into the sport to dive in with their local cycling club. “Don’t be afraid to try it. A lot of people are nervous about coming out and riding with other people, but there are lots of resources and coaches to help. Find a local club and give it a try.” Local clubs offer encouragement, a team of people reaching towards the same goal, and the competitive environment you have to get used to if you want to cycle competitively.

 

You can read more about Emily’s achievements in these two articles from the Sudbury Star:

 

Sudbury in Summer is the Best

Marcolini a Quick Study on Wheels

 

You can follow her progress at the Games – and elsewhere – on her Twitter account.

 

Highgate is very proud of our rider and will be cheering on her progress at the Canada Summer Games.

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Toronto Real Estate Board: Expect Single-Digit Price Increases Through 2017

The Toronto Real Estate Board’s June Market Watch outlined a number of key trends in Toronto and surrounding area real estate. An increased supply of listings has led to less price growth than we have been used to seeing in the market, but the price growth is still healthy at 6.3% year-over-year.

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