How do I kick a tenant out of an investment property?

How do I kick a tenant out of my investment property?

We have many clients come to us for advice on how to approach problem tenants.  There are a variety of reasons that you may need to kick a tenant out of your investment property. The best way to stop problem tenants is to do a thorough screening and reference/credit check prior to accepting the tenant in the first place- however despite our best efforts and “good feelings” from time to time every landlord has to kick a tenant out.

Over the next few blog posts we will outline a few of these reasons:

1.  notice to terminate for non payment of rent

2.  notice to terminate for an illegal act

3.  notice to terminate tenancy at end of term

4.  notice to terminate tenancy for landlord or purchasers use

5. notice to terminate tenancy at end of term for conversion, demolition or repairs

6. notice to terminate a tenancy early- because of damage, interference with other          tenants, too may people living in the unit etc.

Process for Evicting a Tenant for Non Payment of Rent from an Investment Property.

Here are the steps you must take according to the Landlord Tenant Board

  1. You need to give them the form N4 found from the Landord Tenant Board. You must give your tenants 14 days from the date you deliver the notice to pay the rent or they will have to move out.

Click here to access the first form N4

http://www.ltb.gov.on.ca/stdprodconsume/groups/csc/_ltb/_forms/documents/form/stel02_111567.pdf

  1. If they don’t pay the rent before the 14 days or move out by that date, on the 15th  day you can then put in an application to evict the tenant and collect the rent the tenant owes.  You will need to fill out the L1 form for this and it is a $170.00 fee.  If the tenant decides to pay everything they owe and stay, they will owe you all the rent plus the $170.00 fee you paid.

Click here to access the L1 form
http://www.ltb.gov.on.ca/stdprodconsume/groups/csc/_ltb/_forms/documents/form/stel02_111558.pdf

  1. If they still don’t vacate the house the sheriff will have to be the one to evict them.

An order issued by the Board is similar to a court order.  Most of the terms and conditions of Board orders can be enforced through the courts.  For example, an eviction order can be filed with the Court Enforcement Office (also known as the Sheriff’s office) to be enforced; or an order for payment of money may be filed with the Small Claims Court for enforcement.

  1. If you can work an agreement out with them to terminate the lease without going through the eviction process have them sign this N11 form :

http://www.ltb.gov.on.ca/stdprodconsume/groups/csc/_ltb/_forms/documents/form/stel02_111574.pdf

  1. If your tenants tell you they wish to terminate their Tenancy at any point in the lease have them sign the N9 form to protect you from them not vacating the premises once the lease is up.  Tenants notice to terminate N9 form:

http://www.ltb.gov.on.ca/stdprodconsume/groups/csc/@ltb/@forms/documents/form/stel02_111572.pdf

Here is a link for more info on the eviction process from the Landlord Tenant Board:
http://www.ltb.gov.on.ca/en/Key_Information/STEL02_111884.html

If you have any questions at all regarding Tenant issues please do not hesitate to call Curt or Erin.  We are happy to help.

Tip: always document your conversations, notices, and contacts you have with your tenants in case you need to reference back to it later.  You will also need to provide copies of all notices to the court if you have to go that route.

You can contact the Landlord and Tenant Board at 416-645-8080 or toll-free at 1-888-332-3234 or visit the Board’s website at www.LTB.gov.on.ca.

Row Townhouse 7 Units!

This months featured property is a Row Townhouse with 7- 2 bedroom units complete with garages.  This is a brand new build with all appliances included (fridge, stove, dishwasher, microwave range and washer and dryer)  Each unit has 2 large balconies.

 

Asking Price $1,820,000

 

Estimated rents are $1150-1250.  Tenants pay all of their own utilities

Units are currently being registered as condo so there is potential to sell of individual units.

Please call if you would like any further information or to schedule a viewing.

 

 

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Advantages and Disadvantages of Rent-to-Owns

 

ADVANTAGES

DISADVANTAGES

SELLER


TENANTS TYPICALLY PAY HIGHER
THAN MARKET RENTS


TENANTS LOOK AFTER PROPERTY BETTER BECAUSE THEY MAY OWN IT IN FUTURE


DEPOSITS ARE TYPICALLY NON
REFUNDABLE IF DEFAULT


GET AN UP FRONT DEPOSIT


ON TIME  PAYMENT OR TYPICALLY NOT CREDITED
TOWARDS PURCHASE


AGREEMENT CAN BE WORDED SO BUYER IS RESPONSIBLE FOR REPAIRS AND MAINTENACE


FINAL PURCHASE PRICE IS
GUARNETEED


DELAY IN GETTING PROCEEDS OF SALE- SELLER MAY NEED $ ASAP


WHAT IF THE BUYER DOES NOT
QUALIFY FOR THE MORTGAGE AT END OF TERM? MAY NEED TO RE RENT OR TRY TO SELL


CANNOT SELL TO ANOTHER BUYER EVEN IF BETTER OFFER

BUYER


GOOD FOR PEOPLE WITH CREDIT
ISSUES OR NEW RESIDENTS TO THE COUNTRY


FORCED SAVING PLAN


GOOD FOR NEWLY SELF-EMPLOYED
AS BANKS WANT 2-3 YRS HISTORY OF INCOME TO QUALIFY


FREE TO DO RENOVATIONS OR
IMPROVE VALUE OF THE HOME


DEPENDING HOW THE AGREEMENT IS WORDED THERE MAY BE PRICE PROTECTION FOR THE BUYER IF THE VALUE HAS GONE UP SINCE THE INITIAL AGREED UPON PRICE


RENT WILL NOT BE RAISED
DURING THE AGREEMENT EVEN IF RENTAL RATES ARE ON THE RISE


IF THE BUYER CANNOT QUALIFY
FOR A MORTGAGE AT END OF TERM THEY RISK LOSING THEIR DEPOSIT


NEED TO PUT BUDGET PLAN IN
PLACE (HARD FOR MANY)


IF MARKET DROPS BUYER IS
STILL ON HOOK FOR AGREED UPON PRICE

How Does a Rent-to-Own Work?

Recently I have had many clients come to me and ask “how does your typical rent to own work?”

Rent to owns have been around for a long time but with increased exposure on the internet and lawn signs they are more visible than ever.

Here are the basics:

If a seller advertises that he or she will consider a rent to own deal, this means they will be looking for someone to lease the house with two contracts.  The first contract is a typical lease and the other deals with the purchase of the property.  It is very important that both contracts been signed.  If only the rent to own (purchase) agreement is signed then none of the rules and regulation under the Landlord & Tenant Act will apply if you need to evict because technically they are not a tenant without a formal lease in place.

The rent to own or purchase agreement will be for a period of time agreeable to both parties (Seller & Buyer) typically anywhere from 1-5 years. It is a common misconception that the seller will simply set aside some of the rental money as a down payment contribution, but this is not exactly the case. The buyer will have to pay the regular amount of rent, and in addition they will have to pay a monthly installment that will be credited towards the down payment. (Canada Real Estate Advisor, 2013)

Each rent to own agreement is structured differently but typically there are clauses in the contract that state if the buyer is late or misses any payment, the contract is null and void. As well, the buyer may be responsible for repairs and maintenance; some sellers will write into the contract that they can keep any monies and or the deposit paid toward the purchase contract if the buyer is in default.

It’s important to keep in mind that house prices are always changing. The calculations for the purchase agreement are based  prices when the contract was entered into, and it can be next to impossible to calculate what the house may be worth in the future given market conditions. (1-5 years down the road)  This can be addressed by agreeing to a certain percentage increase for each year of the term, or sometimes sellers will ask the buyer to agree to pay the appraised value of the house at the end of the term. (In this case, you may have to pay a little extra at the end of your term to meet the 5% down payment.) The seller will typically want a minimum of $5000. (Typically less than the standard 5% banks charge)

In simple terms think of a car lease.  You put a deposit down and make payments for specified period of time at the end of the lease you have the option to purchase the car for a predetermined price.

For more…

See blog post on Advantages and Disadvantages of Rent to Owns.

4 Rules of thumb for Real Estate Investing

There are number of quick formulas or rules of thumb that are common place in the Real Estate Investment world.  It is important to note that none of these should be relied upon solely for any investment decision.  They are typically used as a quick checks and if positive then further investigation would be warranted.  For a long term look at an investment property a yield capitalization and discounted cash flow approach would be more accurate.  We will outline the 4 rules of thumb below and discuss their applications and limitations.

4 Rules of Thumb

1.  Cash on Cash
2.  Payback Period
3.  Break-Even 
4.  Gross Income Multiplier

 

Cash on Cash

-is the relationship between a single years cash flow before taxes and the equity invested. (also called return on equity of equity dividend rate)

-takes debt service into account when assessing return

-useful comparison of investments assuming no change in value (purchased for annual income not appreciation)

Formula – Cash on Cash

=cashflow before taxes / equity invested

 

Limitations

-no consideration for appreciation- this can dramatically impact return

-no after tax comparison

-no recognition of significant factors that may affect income and expenses (major repairs in the future?)

Payback Period

-is the number of years required for cumulative cashflows before taxes to equal the initial investment (time needed to recoup initial investment)

Formula- Payback Period

=equity invested / cashflow before taxes

Limitations

significant limitations – similar to cash on cash

 

Break Even Ratio

-financial ratio used for property comparison based on gross operating income

-takes into account expenses including debt service but not taxation

Formula- Break Even

=operating expenses + debt service /  gross operating income

Limitations

-does not take  into account return on equity

-no consideration for appreciation of the property

 

Gross Income Multiplier

-is the ratio of sale price to gross operating income

-can be a monthly or yearly ratio (usually yearly)

-typically used as a quick check before a more detailed analysis

Formula- Gross Income Multiplier

=sale price / gross operating income

 

Limitations

-assumes high comparability of properties (most properties differ to some extent)

-does not take expenses into consideration (operating expenses, taxes, debt service etc)

-must use comparable income data for reliable results

 

 

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Can Waterloo Support the Student Housing Boom?

If you have driven down Columbia, King, Ezra, or Bricker st. lately (to name only a few), I am sure you will have noticed the transformation that the Waterloo cityscape is undergoing.  Large multi unit student buildings are popping up all over.

If you are like me, I am sure you have wondered to yourself can the student population support such a massive influx of student accomodation?

I decided to do a little research.

University enrollment across the province is on the rise. According to the Council of Ontario Universities enrollment has increased steadily from 2000-2001 academic year to at least the 2009-2010 academic year. Between 2008-2009 and 2009-2010 undergraduate full time enrollment in all Ontario Universities increased from 352,945 to 367,615 or 4.2%.  Graduate full time enrollment increased from 48,370 to 51,041 or 5.5%..

Waterloo Universities are no exception to this trend, According to the Student Accommodation Study Monitoring Report prepared by MMM Group Ltd for the City of Waterloo it is anticipated that there will be an extra 1000 students coming to the city each year, with about 700-860 new students that will require off-campus housing each year.

Click here to view a table showing past and projected enrollment for both Waterloo Universities.  (excerpt from the Student Accommodation Study)

So there is a demand.  But is it really big enough to support the construction explosion we have witnessed over the last few years?  What did the students do before?

The Student Accommodation Study also took a look at apartment construction and proposals in and around the universities from the period between 2008-2011. During this time apartment construction and proposals  amounted to more than 19,825 new beds potentially* being brought to the market.  Click the link to view the stats from the study-Student Buildings New Construction

The study also found that student lodging houses account for another 6209 beds. (click here Student Lodging Houses)

So if we take the total number of beds from lodging houses and  new apartments we end up with  26,034 available beds.  When we compare this to the estimated demand  for off campus housing for 2012 of 25,729, we can see that there is more availability than demand.

It should be pointed out that many of the new construction beds are not yet finished so these numbers are somewhat skewed.  The stats above also do not account for other forms of off campus student accommodation such as Class A & B rentals, or staying with family members.

So what does this all mean?

It appears to me that there is (or will be) more inventory than demand. Yes we are seeing an increase of approx 700-860 students per year but looking at the construction going on throughout the city- it appears to be outpacing the need.  There is no doubt that the new rental bylaws introduced in the City of Waterloo will have a large impact on driving students out of single family homes and smaller rental units and into larger multi student dwellings like these but in the end when there is more inventory than demand this inevitably drives rental prices down.

The big loser will be the small investor.  The new rental bylaws have created a paperwork nightmare and added substantial dollars to the average investors bottom line through application fees, inspections etc.  I understand its purpose- many rentals were not safe and too many students were being crammed  into small homes- placing pressure on the cities infrastructure and  deteriorating once desirable  neighbourhoods

I think lodging houses will begin to find it difficult to compete with their newer mutil unit counterparts that often have the added bonus of location and amenities to offer to potential renters.

Despite the smaller single detached rentals losing ground I feel there will always be a niche for single detached homes in the unversity rental market- after all who will hold the parties?

For more information on this topic and for estimates of typical bedroom rents see link below:

http://www.thecord.ca/?p=11733

We are always interested in your feedback and comments.