Welcome to this month’s installment of Dear urbaneer, where we help our clients by answering housing questions that have been troubling them. This time around, our client is considering buying an investment property. Excited at the prospect of being able to generate rental income, he wonders how best to go about securing tenants.
After researching the property investment market, and after having looked at a number of properties with you, I think we're getting close to making a decision on what constitutes a good rental property that generates a reasonable income and solid future return on investment. Now that I’m getting the bricks and mortar part of being a landlord sorted out, how do you recommend I find good tenants? And how can I encourage them to stay for the long term?
Landlord Looking To Land Quality Tenants
Here's our response:
Congratulations on being one step closer to becoming a landlord! This is a growing phenomenon in the City of Toronto, where owning an investment property can be a very lucrative business, given both the ability to grow real estate as an asset and with a growing need for quality rentals. Whether you are looking at converting part of your current home as an income supplement, buying a duplex with plans to inhabit one suite and rent the other, or buying a whole property simply for the purpose of renting, growing this asset with rental income to pay the mortgage is a shrewd investment strategy. However, there is a lot to know about becoming a landlord.
That said, you won’t be generating any income if you don’t have a solid tenants. Securing quality tenants should be at the top of your list - along with convincing them to stay in the long term - so one it's critical you employ a strategy to do so. Having good tenants will make or break (sometimes literally) your rental property. It’s also far less expensive to secure good tenants for the long term, rather than redoing the whole process every time a lease is up for renewal when you can incur an income loss for vacancy as well as refreshing the finishes in a suite. Here's a recent article by Scott McGillivray from the television show Income Property that goes into the topic in-depth.
The Business Of Advertising
You should treat your landlordship like a business - because it is: A relationship-based business. You’re providing a service and generating income for it.
It makes sense, then, to employ some business strategies to support your success, starting with advertising. Good advertising comes with knowing your target market and how to lure them in. You don’t want to cast a wide net and settle for whatever you drag in. You want to be selective; this is essentially the first step in a successful long term landlord-tenant relationship.
What is your market (i.e. students, professionals, families, etc.)? While you’re going to get the bulk of your interest coming from online portals (and make sure your ad reflects that - read on below), there is still value to advertising in more low-tech ways as well, say, on post boards at university campuses. Focusing on your specific market and connecting with them through advertising is an optimal way of generating qualified tenants.
Style, If Not Stage It
Housing is a visual business. Your rental unit has a lot to offer a prospective tenant, so make sure that it stands out from the competition. When you’re selling your house, it’s a no-brainer to stage it to make it more appealing; the same applies to a rental, although perhaps not to the same extent. Just as when selling, it’s best to keep your palette and finishes in neutral territory, simply because you’re going to appeal to a larger pool of potential tenants. Not only does staging put the best version of your property forward, it also gives you leverage to ask for top dollar. In my own rentals, I always include unique fixtures that make my places stand out from the competition. Adding elements like great pendant lighting, ceiling fans, large rainshower heads, or colourful carpet runners are inexpensive ways to elevate your rental that most landlords don't think of. Then, make sure your photographs capture some of these details, while still showing the entire space accurately.
While a picture is worth a thousand words, make sure that your copy is impactful as well. Be conscientious in writing down all of your property’s features and benefits, highlighting anything that you think might be a selling feature (layout, proximity to amenities, parking, high-end finishes, outdoor living space, etc.). Avoid confusion possible by detailing what is and isn’t included (from utilities right down to snow removal, and yard maintenance).
Yes - you are advertising your property in hopes that prospective tenants will want it. But don’t forget that this is part of a process to determine if you want them as well.
We always encourage landlords to schedule all showings and interviews in a solid block of time. Scheduling back to back viewings (or all viewings in the same time window) is optimal for time management and is a good sales tactic. Also, if you advertise a set time for viewings, those who are most keen and in need of a rental will show up within the time frame, automatically helping you with the qualification process.
When you're showing your property, listen as much as you’re talk, so that you can make some quick intuitive judgments. Obviously, you’re not going to get to know a person thoroughly in this short window, but you can observe a few things right out of the box that could be potential flags for a rocky tenant-landlord relationship. Firstly - why are they moving? Were they on time for their showing? Are they badmouthing their landlord? While there are two sides to every story, past behaviour is often the prediction of future behaviour. Like any relationship, this one needs to be based on mutual respect - especially if you are looking to the long term.
Always tell any prospective tenant that, in addition to filling out an Application Form, you will be completing a credit check and calling their references. Shady tenants will attempt to convince you not to complete this critical stage of the approvals process, whereas the bona fide will have no issue (or may even proactively bring letters of employment, credit reports and references with them to secure the place). This is one of the most essential steps of choosing good tenants.
** Did you read "The Tenant from Hell: how a serial fraudster took advantage of Toronto’s red-hot real estate market" in Toronto Life Magazine? It's an essential read on the importance of vetting your prospective tenants.**
Getting Your Tenants To Stay
So you’ve successfully shown your rental property, and vetted out a tenant that you think will be a keeper. How do you go about getting them to stick around year after year?
For starters, establish open lines of communications. Make sure that the rules are clearly stated (you can’t expect someone to follow rules if they don’t know what they are). Likewise, make sure that you let them know that you are available and accessible should they need something.
Be proactive. If you think something will need to be repaired and replaced, do it before it is broken. Not only will this make you look good ('I really care!'), but your tenant will appreciate your effort and that their lives go uninterrupted. Look at ongoing maintenance as a way of working towards a long-term relationship with your tenant.
If something does break or need attention, attend to it as quickly as you are able. Some complaints will need more immediate attention (i.e. a broken lock, plumbing not working, heat not working) because of health and safety concerns, but ensure the less pressing problems are dealt with in a timely fashion as well.
When it comes to collecting rent, be reasonable. Obviously, if you have tenants that are chronically late or who are trying to take advantage of you, it’s a little bit of a different story. But if your tenant has a legitimate situation (job loss, change in marital status, or death in the family) in which they’d benefit from a grace period in which to pay rent, this act of kindness may go far in cementing a long-term relationship.
Finally, sometimes it's better to keep your market rent reasonable so your tenants know they've got a good deal. Don't forget, if your tenant vacates your $1800 a month rental and it stands vacant for a month, that $1800 a month loss amortizes to $150 a month over the course of year, effectively bringing you $1650 a month. If you had kept your tenant you may have been ahead financially in the long run. One other great way to keep a long term tenant, is to pay them for their services to help manage your property (like snow and garbage removal, or landscaping duties) which can be used to reduce the rent. If you give them $50 a month it becomes a property expense you can provide your accountant, and it gives the tenant a financial break while increasing their investment in treating the property as their home. (One note: if you're not increasing the rent each year per the Landlord and Tenant Act in Ontario, do provide the tenants a notice in writing apprising them of what the legal rent could be, as you're grand fathering the right to increase it to said sum in the future.)
Are you about to become a landlord? Or maybe you’re starting to look at the possibility of taking on a rental property? At urbaneer, we have decades of experience finding homes to help our clients not only enrich their lives, but as part of a shrewd real estate investment strategy.
Here's some of our past blogs on the topic including:
The Income Property Proposal, which outlines my own journey into buying an income property.
What Property Will You Invest In? which suggests different properties you might invest in.
5 Essentials For Toronto Real Estate Investment, which offers a guideline on purchasing a real estate investments
How To Become A Toronto Real Estate Landlord which overviews the responsibilities of income ownership.
Can I Have An Income Suite In My Residence? that addresses the legalities of separate suites.
On Financing An Investment Property, which vary according to use, zoning and occupancy.
Rent Controls For Ontario Landlords And Tenants which dictates annual rent increases for many domiciles.
The Taxman Cometh: Things Property Investors Should Consider, which summarizes accounting and a paper trail.
And here's some of examples of Income Properties we've sold to past clients- along with their stories
August 2015 Home of the Month - Playter Estates (investment)
March 2014 Home Of The Month - St. Clair / Bathurst (owner-occupied with income supplement)
September 2013 Home Of The Month - Wallace Emerson (owner-occupied with income supplement)
August 2013 Home Of The Month - The Annex (owner-occupied with income supplement)
July 2013 Home Of The Month - South Annex (investment)
May 2013 Home Of The Month - Little Italy (investment)
September 2012 Home Of The Month - Wallace Emerson (investment)
Have questions? Please know we’re here to help!
~ Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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