Fractional Reserve Banking....Legal or Ponzi Scheme?

late September, the U.S. Justice Department filed a civil suit against Full Tilt Poker, an online gambling site.  They claim that thousands of online poker players were defrauded out of more than $300 million that is still owed to them. The government said that, in total, the 23 owners of the site had taken out $444 million in distributions over the years.

According to the Wall Street Journal…..On March 31, 2011, Full Tilt owed approximately $390 million to players around the world, but the company had just $60 million in its bank account, the government said in its filing Tuesday.  (Quick math…this is about 15% money on hand vs what is owed).

Credit: chadelliot.com

Enter “Fractional Reserve Banking”.

For those that do not know, Fractional Reserve Banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves.  Typically the reserve ratio is 10%, meaning that for every $1 that the bank has in the system, they can create loans for up to $10. 

Funny how this is legal, yet Full Tilt Poker is a Ponzi Scheme.

Now I know that these examples are different.  The owners of Full Tilt Poker were clearly stealing the money, however if they were intending on putting this money back into the “pool”, should this have been allowed? 

Canadians ought to know that the banking system has their own set of rules.  Sometimes this is a benefit and sometimes it can build a foundation for a catastrophe (see “Lehman Bros.”)

Thoughts?

Whack-a-Mole your stress away!!

Every once in a while, things happen in the real estate business that seem to put a damper on things…a really big damper.  

The game of real estate is an ever changing battle with unforeseen events popping up all around you….much like the game of “Whack-a-mole”.  They key is to whack the mole as quickly as possible and then be on the lookout for the next one!

I’m here to tell you to hang in there!!

Even the most seasoned investor has times where he thinks “Man, things are getting tough….maybe I’m not cut out for this.”…..but the seasoned investor quickly puts these worries aside and fixes the problem… and then move onto the next one……Whack a mole!!

Credit: smartboardgoodies.com

The thing they don’t tell you is every time you deal with a problem, the better you are equipped to deal with the next one.

Speaking from experience, I often look back and laughed at what I considered “stressful”.  The problems I have faced in the past seem smaller and smaller each time something comes up!  Things like a leaking tap or broken stove seemed to be keeping me up at night.  Now it is a phone call and a $50 repair bill.  No big deal. 

As I have said in the past, being able to handle stress is a competitive advantage.  And the more stress you can handle will give you the fortitude to drive forward in the face of adversity!

Hang in there everyone!! And one day real estate may set you free!!

Fire Prevention – Document , Document, Document

In my real world job, I recently went through a fire at one of my properties.  The fire was in late August and I am still dealing with the fallout today.  Luckily almost everything was in place and there was limited push back from the Fire Department. …..luckily….

The main point I want to get across is that you NEED TO DOCUMENT EVERYTHING.  I cannot stress this enough and this goes for the smallest landlords to the biggest landlords.

When it comes to big landlords, there are numerous things to organize and take care of.

Typically for smaller landlords, there are only a few things, however having your affairs in order and properly documented can make all the difference.

photo credit: westperth.com

For those out there with smaller properties, here are some things to think about:

1.       Smoke detectors:  These have a 10 year life span at max and the batteries should be changed every year.   Having the detector hardwired is much better and you don’t have to change batteries…just push the button to test it.  These also come in a battery-backup version.  Remember: document all of your inspections, tests and battery changes including dates and times.

2.       CO detectors:  Even if you don’t have a gas burner appliance or wood stove, it is a good idea to have at least one of these.  Again, test it frequently and document this.

3.       Fire extinguishers: Make sure these are charged properly and have an inspection tag if possible that is updated monthly.

4.       Fire Safety Plan: This is usually reserved for bigger properties (ie, larger than 10 units) however those buildings with fewer units should still have a plan.  This plan should be put to the test with quarterly fire drills and practiced escape routes.

5.       Letters of acknowledgement:  All of the above should be signed off by the tenant at the property…not just the landlord…and have this witnessed by a third party.  This insulates the landlord from any potential lawsuit.

Does anyone else have any other tips for fire prevention??  Comments welcome!!

Enough Already!!!....and Thanks Rock Star

Lately I have been sick and tired of the negativity that has surrounded me.  It seems as though I cannot escape the people bitching, complaining and telling stories of hard times and how “tough it is out there”.  These have been typically people in their 40s and 50s who are well into their working lives and still several years from “retirement”. 

I have one request of these people…..Please keep the negativity to yourselves. 



photo credit: http://www.daimanuel.com/



Why?  Negativity breeds negativity….and I have had just about all I can handle recently.  Everyone is dealt a different deck of cards and some have got the short end of the stick…..but there are people out there who have been wildly successful having been dealt a very poor hand (think Robert Herjavec).

Lucky for me, I recently read an inspiring blog post on the Rock Star Real Estate Blog entitled “Two Monks Lost in Corporate Communist Canada”.

Basically the jist of this story is that…..as Rolf Potts puts it…. “We end up spending (as Thoreau put it) “the best part of one’s life earning money in order to enjoy a questionable liberty during the least valuable part of it.”

However, the guys at Rock Star do a good job of motivating people who follow their blog.

Their response to this?

“Keep reading, keep saving, keep investing, keep building.

It may seem like slow progress at first but each little step you take towards personal independence will pay off.

Stay focused.  Stay disciplined.  Don’t get frustrated and give up – it’s too easy to do that.

Find people that are doing what you want to be doing.  Go and hang out with them.  Listen to their language, watch their actions, examine their results.

And one day you’ll wake up realizing that all those little steps have taken you to an entirely new world.  One where you’re the boss.”

Thanks for the much needed motivation Rock Star Team.  I needed that one.

Bathroom Reno Pics

Hi All,

I finally got around to painting the trim and getting some pictures taken so I would like to share the before and after pics of the new bathroom!  Here are the before and after shots:

A ton of work went into this reno and I am very happy with the results!  I'm not sure I ever want to do it again though! :)

Comments?

Fixed vs Variable (And Why I Now appreciate my Economics Professor)

I always cringe when I see this heading in an article.  “Here we go….another article about fixed vs variable…..”  What else could they say this time that hasn’t been said a thousand times before?

Until recently, I was quite content going with a fixed mortgage as I told myself that I wanted to sleep at night, knowing my rates were not going through the roof.  I got my first mortgage in 2009 and second in 2010, so needless to say, there was some serious turmoil in the markets and people had begun to look at the low variable rates as something that simply could not go on much longer.

Well here we are in 2011, and the most recent news is that the US has promised to keep interest rates at their current levels until at least 2013.  Suddenly my fixed rates that I took out in 2009 and 2010 are costing me money…..and lots of it.  Had I gone with variable for both, I would have close to $300 in extra cash flow per month.  For arguments sake, I will say that I will have lost out on 36 months of this cash flow….which comes to over $10,000 that I will have left on the table.

Stupid right?  Well, hindsight is 20/20…..and at the time, I thought I was making a smart decision…..and part of me still thinks this was the right decision as I was a new investor and the thought of vacancy loss, repairs and management of my first properties was stressful enough, let alone if I had to watch the ticker everyday looking for signs that interest rates were on the rise.

Overall, I am happy with the returns I have seen over the last couple of years, but with more experience comes the appetite for more risk….

My most recent lease –to-own deal which closed in August, is a variable mortgage at prime – 0.65, which works out to 2.35%.  Because this is a relatively short term, 3 year, investment, I thought I would give it a shot.  I could have gone with a 3.35 fixed, however the cash flow would have been $100 less per month. 

My rational for this choice was as follows:

-         US recent announcement that interest rates would be held until 2013

-         Fact that Canada mirrors the US very closely…whether we like to or not

-         If Canada raises rates, we risk inflating our dollar even further as new foreign investment comes to Canada

-         My cash flow on my three properties combined is very strong and so a fluctuation in rates on one of the mortgages will not land me in the poor house

-         I remember Garth Turner’s book Greater Fool when he said….”If you are going to borrow……borrow like a man”…(funny how these types of comments resonate in your brain….I read this book almost 4 years ago)

You know, I never thought my university economics classes would ever be beneficial.   Who cares what happens to the dollar or interest rates?  What does it matter that foreign investment is coming to Canada?.......well now it matters to me…..in a BIG WAY. 

When you run a real estate business……and it IS a business no matter what anyone tells you…..you have to be conscious of all market factors, both MACRO and MICRO.  Just be sure you are getting the best information you can from the most reputable sources.

Hire a Contractor or DIY??

This is an age old debate with property owners and investors alike. Do I leave it to the pros? Do I try to save some $$ and do it myself?  Unfortunately, I am here to tell you that I don’t have the answer….because it is different for everyone. 

Fortunately, I have a few key points in my decisions making process that will hopefully help guide you in the right direction!

In no particular order, here is what you have to ask yourself.

Am I reasonably handy?

Can you turn a screwdriver? If not, then stop reading this post and call a contractor….but seriously, you will need to have some basic skills.  The ability to use a power drill, hammer, tape measure, mitre saw, level come to mind.  These are some of the bare minimum required to attempt a repair. 

How can I learn?

Even if you have not done any repairs/renovations in your life, doesn’t mean you should give up.  Don’t laugh, but I find the most useful resource out there is…….YouTube……yes, you read that correctly.  I find that this saves a whack of time versus flipping through books and manuals.  Just type in what you want to do, ex. “How to change a faucet”, and you will have hundreds of options to choose from.  DISCLAIMER  Many of the people in the videos are NOT pros and you may have to sort through some junk videos to find what you are looking for.

Is there a chance that I may be injured?

If there is even a remote chance that you could be injured, please think twice before attempting the job.  If you electrocute yourself or fall off the roof, it’s your own fault for not hiring a pro.

Do I have the necessary tools or are they available to rent at a low cost?

If you plan on doing your own repairs in the future, buy some good tools and the right tool for the job.  I only had to battle through one day of cutting baseboard with a hand saw and mitre box before I bought a power mitre saw.  It was $150 and WELL worth the time that I will save in the future.

Are permits necessary to complete the work?

If so, I would recommend consulting a professional or at least look into getting the permit on your own.  It is usually inexpensive, but somewhat of a headache.

How much time do I have?

If you work 80 hrs per week, hire a pro!  Maybe I should have put this one at the top so you people who work 80 hrs per week would stop wasting time reading this….

Is it worth my time to attempt the repair?

OK, so you don’t work 80hrs per week, but do you want to give up a Saturday morning….which may turn into an all day adventure…..to save a few bucks?

What are the contractor rates for this particular item?

Get at least 3 quotes for any job that is over $200.  You will likely find a HUGE range to do the job.  During my basement leak last year (old post) I inquired about some drywalling and received quotes ranging from $280 - $800!!!!  And this was for a relatively east job.   BUYER BEWARE on this one….cheaper is not always better. However you will have to judge the job.  Is it an easy job like drywalling?  OK, cheaper is likely fine.  Is it a specialized job like electrical?  Better look into the contractor who gave the lowest price. Is he licensed?

Will my personal life suffer if I decide to take on these small jobs, which may turn into big jobs?!

My last post touched on my bathroom reno, which took WAY longer than expected.  Try to get a good understanding of the time involved in these projects before going ahead.  Believe me, everything always takes MUCH longer than you think.  Make sure you let your significant other know what you are getting into so they don’t expect you home for supper….and you show up at 2am.

My opinion:

As my rental business is expanding, I am still trying to do most of the work on my own, however I am starting to see the benefit of just having a contractor do the work.  If you have one or two rental properties and a job that is not too demanding, go ahead and do the work yourself.  You will learn skills that you can use the rest of your life (which I have!) However, I can see how my time may be better spent on projects of greater value.  Ie, do I save myself $500 this weekend by drywalling myself?  Or do I spend the time researching new deals that may make me $$thousands the future?  The choice is up to you.

Anyone else have other ideas about this?

First off, my apologies (again) for not keeping up to date with my blog.  The last 3-4 weeks have been a whirlwind for me which includes the following:

1. full scale bathroom reno at my property in Guelph (more details in a later post)
2. landing a new position with an up-and-coming REIT (very excited)
3. aquiring another rental property in the GTA (more details in a later post)
4. moving from my temporary Toronto situation, back to Guelph (also very exciting)

Now I don’t want to complain, because I know that there are many people out there with much more going on (think a wife, four kids, a dog and a cat….plus all 4 points above).  So thankfully I am still young enough to tackle everything now….while I don’t have too much “real life” responsibility.

My original intention for this post was to be about my recent bathroom reno, which I did mostly myself (thank you very much)…, however as I type this I think I need to post something along the lines of “life/work balance”.

So here it goes…

I have always been the type to keep busy.  I’m not really the type to “put things off” or “do it tomorrow”.  That’s not to say that I can’t procrastinate with the best of them….it just bothers me when I do this.

So needless to say, all four of the things I listed above happened at the same time and I most certaintly did not plan it this way.  #2 and #4 are related, however the other items just sort of happened…partial out of coincidence and partially out of my own stupidity.

As I was entering the due diligence phase of #3 (I apparently forgot how time consuming it is to acquire a property), I decided that the next weekend would be a good weekend to start a full scale bathroom reno….because I could “finish it in three days for sure”.  Turns out it took myself and another guy 6 days….with one tiling day going until 3:30am…..up at 6:30 for work = terrible.   And after the 6 days of work, I am still doing finishing touches every night…..a little paint here, some grout there, and all of the accessories that a bathroom seems to need (think vanity, storage cabinet, mirror, towel racks, TP holder, storage shelves for the shower, shower curtains, towels, etc).

At the same time, I was in the process of switching jobs, which meant travel to and from Guelph/Toronto, tough decision making, and having to move my belongings from Toronto to Guelph, which I still have not 100% completed yet.

All of  this has resulted in some serious stress over the past month.  Stress on my physical health (no gym…although working on the bathroom each night helps), stress on my mental health, and stress on my relationship.  Believe me, getting home at 5:30pm, saying “hi hunnie, how was your day?” and then going straight to work until 10:30pm on the bathroom, is not the greatest relationship builder.

So what has all this taught me? 

1. Things ALWAYS take longer than expected……as I mentioned in a previous post….stupid me.
2. Try not to do items #1-#4 all at the same time.  Sometimes unavoidable, but sometimes not.
3. You cannot always predict when an opportunity comes along, but you have to jump at the chance.  “I’m too busy right now” is not a good excuse.
4. Getting ahead, means you have to work…HARD.  And this means sacrifice, so make sure your significant other is on board with your plans.  Thankfully, my girl is the greatest in the world and has been super supportive through the past month. ;-)
5. Although you must work hard, there needs to be some time off, even during these processes.  Setting aside at least one or two nights per week to do nothing, or at least a fun activity, goes a long way in pacing yourself….and not making yourself, and others around you, go crazy.

Anyone else have some stories of crazy busy months?

Befriend the Neighbours

First off, I apologize for no post last week.  I was in Winnipeg on holidays....and after my first day back to work....I need another holiday!

The reason I am sharing this story with you is to prove that befriending the neighbours has fairly significant benefits.  If you show some kindness and maybe give them a bottle of wine, they will have no problem being your eyes and ears when you are not around.  However, this all revolves around taking care of the property. (See previous post entitled "Student Rentals - Don't Make it so Obvious!").

This past summer, right after I had completed my landscaping, I knocked on the doors of the neighbours on both sides of my property to introduce myself.

It went something like this:

“Hi my name is Andrew and I own the house next door……yes, the one with the gorgeous landscaping”.

OK, so it wasn’t exactly like that, but something close.  I went on to say that I had purchased the property last year and that I was interested in keeping it as clean and tidy as possible.  I gave them my phone number and made sure they understood they could call me at any hour of any day if there was a problem with the house.

Why would I do this?

-         I will be the first to know if there are loud parties, thus avoiding bylaw enforcement and fines

-         If the power goes out and the tenants are not home, the neighbours will let me know

-         They may offer to help out with grass cutting, etc if you are not around

-         If someone suspicious is around the house, they will call me

-         If the delivery boy keeps shoving flyers in mail box until it overflows, I will find out how to stop it!

All great things if you ask me!  So remember, befriend the neighbours and it will make your life that much easier!

Book Review!

Lately I have been on the hunt for good reading material that can expand my knowledge while still being easy to read.  I don’t want to read a 400 page novel and I need it to be short enough to finish in two or three sittings, while still providing great information.  Sounds simple enough right?

  The book that I read this week after a recommendation from Rock Star Real Estate was “The Top 10 Distinctions Between Millionaires and the Middle Class” by Keith Cameron Smith.

Smith has several other books that are similarly laid out and easy to get through quickly, while still providing great information!

To sum up, here are the Top 10 distinctions that he lists:

1.     Millionaires think long-term. The middle class thinks short-term.

2.     Millionaires talk about ideas. The middle class talks about things and other people.

3.     Millionaires embrace change. The middle class is threatened by change.

4.     Millionaires take calculated risks. The middle class is afraid to take risks.

5.     Millionaires continually learn and grow. The middle class thinks learning ended with school.

6.     Millionaires work for profits. The middle class works for wages.

7.     Millionaires believe they must be generous. The middle class believes it can’t afford to give.

8.     Millionaires have multiple sources of income. The middle class has only one or two.

9.     Millionaires focus on increasing their net worth. The middle class focuses on increasing their paychecks.

10.    Millionaires ask themselves empowering questions. The middle class asks themselves dis-empowering questions.

I was going to elaborate on each one separately, however I found a blog that already did it for me….thanks Leroy! J

L.A.'s blog - book review

Student Rentals - Don't Make it so Obvious!

First off – I was once a student…and not that long ago.  I know the stigma that can be associated with “student rentals”.  When I first started investing in student rentals, some of the feedback that I received was pretty harsh.

“You are investing with student rentals??!!??  Are you nuts?? Students are terrible tenants and will destroy your place!!”

In a student’s defence, I know what they are going through.  In many cases, it is the first time they are away from home and “free” from their parents and rules.  Some of these students have never taken out the garbage, washed a countertop or even know how to turn on a vacuum.  However, with a little management and stern words, you can run a clean, efficient and money making rental!

Here are a few things that are dead giveaways when driving through a neighbourhood that has student rentals:

-knee high grass

-weeds between the cracks in the driveway

-tire tracks on grass

-piles of garbage outside house or on front lawn

-couches on front lawn

-flags in the window

The last one, flags in the window, is pet peeve of mine.  So much so, that I have included in my lease that “proper window coverings must be used at all times”.  Yes I know that legally I cannot enforce this, however I have been successful in being able to manage avoiding this.

Some of the things that landlord’s can do to avoid owning a “typical student rental.”

1. If you live out of town, hire a company to cut the crass every couple of weeks.  Even hiring a neighbour or a kid in the area can work well!  This will only cost a couple hundred bucks for the whole summer at most – and maybe free if you have nice neighbours.  What some investors don’t know is that if you don’t cut your grass, the City will cut it for you.  Sound good?  Yes it does, until you receive a bill in the mail for up to $400.  And don’t try avoiding the bill.  If you don’t pay it, they will add it to your property taxes.
2. Use vinegar for weeds in and around sidewalks, driveways and other areas where you don’t want them to grow.  This is a safe and environmentally friendly way of keeping your property clean and appealing.  Doing this once or twice a summer is usually enough to keep the weeds away, but be sure to keep it away from plants that you want to keep!  Vinegar will kill all other plants around the grass as well. 
3. Make sure your tenants are aware what days garbage is picked up because chances are they don’t know.  Include a clause in your lease that if you receive any garbage violations, the tenants are responsible – plus an extra fee for your trouble to having to pay the fee.  This usually scares students into being responsible about garbage and recycling.
4. As mentioned above, have a clause in your lease that does not allow flags or any other type of ugly window covering (posters, bed sheets…you name it!!) If you encounter pushback, just spend the $25 yourself and buy some drapes….at least for the windows that are visible from the street.

All of these tips will have several benefits:

-         better curb appeal, which can lead to higher rents and resale value

-         neighbours who will respect you as a landlord and investor

-         no complaints about the property which leads to city inspectors and possible fines

If you want a copy of the student lease that I use, which includes all these clauses, email me!!

Could it Be??

Well it’s official…….almost.  Winnipeg will once again have an NHL franchise, pending the formality of having the NHL Board of Governors vote on the relocation.

Please forgive this post as I go off on a non-real-estate-related tangent for the first time since I started my blog.

Being from Winnipeg, I was a Jets fan through and through as a youngster playing hockey.  I was at the final Jets game (a loss to Detroit in the first round of the playoffs) and it was a sad day for everyone in the city and surrounding area.

Photo Credit: blogspot.com

The prospects for success look good, especially considering the immediate response from the city and community.  The only question is will the novelty eventually wear off?  The original NHL franchise never really amounted to much and fan support only seemed to pick up when the prospect of the team relocating seemed imminent.  Let’s hope that doesn’t happen again……because it did in Atlanta (For those of you that don’t know, this was actually the 2^nd failure of the Atlanta franchise – the first being the relocation of the Atlanta Flames to Calgary).

I wish the new franchise all the best, but approach the entire situation with cautious optimism.  The rink is the smallest in the NHL (even Gary Bettman mentioned today that “this will not work  unless the building is sold out every night”……seriously Gary?....Winnipeg already hates you enough….do you have to be a Negative Nancy on the day of the news conference???), the fan base is the smallest (yet probably the loudest) and it may be tough attracting talent to city with two seasons – Winter and Mosquitoes……..OK, it’s not that bad….really.  I love the place….most of the time.

Realistically, I think it will work out, although I wish the city and True North would have had the foresight to believe that an NHL team could return….and not build an area that is the size of a sardine can….but beggars can’t be choosers.

With the name of the new team…and the colours…..still up in the air, it looks like I will have to wait a while to buy my girlfriend a new jersey for her birthday J

For lack of a better signoff…..Go Jets Go!

AGI – Eventually You Have to Give it Back!

For those of you who invest in multi-family properties, you likely know what an Above Guideline Increase (AGI) is and the steps involved.

Picture Credit - http://www.seoserviceonline.net/

Each year, the Government of Ontario announces what the “Guideline” rent increase will be in the following year.  This amount, expressed as a percentage, is based on the Consumer Price Index (CPI).   For example, the guideline for 2010 was 2.1%.  The guideline for 2011 is only 0.7%.  Applying for an AGI, allows the landlord to raise the rent further than this guideline.

All landlords can apply for an AGI for the following reasons:

1. If the cost of taxes or utilities have gone up by more than the guideline plus 50%.
2. Operating costs related to security services have increased.
3. The landlord has gone through with eligible capital expenditures.

The process for applying for an AGI is fairly straightforward, however it can be very time consuming, as landlords must submit every single receipt proving that taxes increased and/or capital expenditures took place.  Obviously you have to be very organized to apply!!  And while I won’t get into great detail, this can be very lucrative for landlords if they have put a significant amount of cash into a building. 

Once the application is submitted, if everything is legitimate and documented, the AGI usually goes ahead as planned.  In sum, if the numbers are there, the AGI is a go…….the tenants may wish to dispute the AGI, and sometimes this will take place during a long court hearing, however most cases are usually mediated and the landlord settles for an amount that is just slightly lower than the total……I just went through one where we had applied for 1.35% and we settled for 1.3%. 

Now the part they don’t tell you about…..if your application is based on capital expenditures – YOU HAVE TO GIVE IT BACK!!!!

Yes, that’s right, you have to give it back…eventually.

As of 2007, the Landlord and Tenant Board began associating a “useful life” with the work being done on buildings.  For example, a roof will be given a useful life of 20 years; a boiler will have a useful life of 15 years, etc.  Based on the cost of each item in the AGI, they will associate a “blended useful life” – say 15.4 years for all items on average. 

If the AGI is for 2.0% above guideline, after 15.4 years, all tenants who were still in the building at the time of the original application must have their rent REDUCED by 2.0%!! 

Please re-read that last sentence!

The onus is also on the landlord to know when to reduce the rent….. If a landlord is caught not complying with this law in the future, they will face penalties and/or fines.

Now, some landlords say that this does not matter, as most tenants will not live in a rental building for 15 years.  This might be true, but what if you have long-term tenants? 

Please share your questions and comments!

Lesson 1: AGIs can be very lucrative when used for multifamily properties.

Lesson 2: Be aware that you have to give back an AGI in the future, depending on the circumstances.

Lesson 3:  If you are thinking about buying a multi-family property, make sure to get a hold of any AGI paper work that was processed in the past 4 years.  You don’t want unknowingly have to reduce rents in the future!

For more information, visit the Landlord and Tenant Board website.

Landscaping and Underestimating

This past weekend was spent landscaping and other “exterior” work at my student rental property in Waterloo.  I had planned on spending all day Saturday and Sunday doing this, and as usual, I was amazed at how much time it took to get so little done!  I figured if I planned on working from 9-5 on both days, I could get everything done…but in reality, I failed to factor in three key items:

1. Home Depot runs – inevitably I forget at least a few tools or find out that I need a new tool to complete a particular project.  Maybe one day I will have all the tools known to man!...well, probably not, but it would be nice.
2. Troubleshooting – something always comes up and things never go according to plans when completing repairs and maintenance.  It is actually amazing how many times I find myself on YouTube trying to figure things out.  Don’t laugh, YouTube is an amazing resource for household repair tips and guides.
3. Getting sidetracked by the newspaper flyers at Coffee Time during lunch.  Embarrassing, I know.

Getting back to landscaping…..Why, you may ask, am I doing landscaping at my student rental??  Are they not called ‘student rentals’ for a reason?....So that you can just take your cheques to the bank and not worry about how the property looks?

Sadly, in some cases, this is 100% true…..however in my case, this could not be further from the truth.

You see, I have long term aspirations for my real estate investments.  I like knowing that I have some of the best ‘student rental’ curb appeal in the business.  I like knowing that my website pictures look fabulous with colorful landscaping and bright green lawn.  I like knowing that this will go a long way in attracting the right type of students for my property.  And most of all I like knowing that not only will this have a positive impact on the rent that I can ask for, it also will increase the re-sale value over the long run!  Key point: LONG run.  “Forced appreciation” is the easiest way to earn capital dollars!

My focus for my landscaping at both properties is simplicity.  What will give me the most bang for my buck, make the property look great and require very limited upkeep?  My answer to this has been shrubs and perennials.  With shrubs, there may be a little pruning here and there, and with perennials the biggest challenge is finding plants that bloom at different times of the year so your yard is colorful year round!  Hardly a chore and if you need help, Google is always a click away.

Lesson 1:  Try to underestimate what you can get done in a day when it comes to household repairs.  This way, you will feel better about yourself when you complete projects that were not on your list.

Lesson 2: Perennials and shrubs are my keys to beautiful curb appeal with limited upkeep.

Lesson 3: YouTube is an amazing resource.

Before

After!

Utilities: Tenant or Landord?....And a Way to Get The Best of Both Worlds!

There has long been a debate over which is the best course of action.  All inclusive vs tenant paying utilities?

To compare the two strategies, I thought I would weigh the pros and cons of each:

All inclusive:

Pros

-    Encourages energy conservation on landlord’s part (upgrading insulation, toilets, faucets, etc).  Yes, this costs money, but in the end, you have “forced” the appreciation of your asset.

-    Landlord does not have to worry about having the utilities in the tenant’s name, which can lead to non-payment issues.

-    Potentially attract more tenants as many would prefer an all-inclusive lease.

Cons

-    Typically higher utility consumption by tenant (I have heard from several reputable sources that consumption can go up by 35%(!!!!) when the lease is all-inclusive).  While this may or may not be accurate, it is reasonable to assume that utility usage will go up somewhat.  This leads to a decrease in cash flow.

-     Increased wear and tear on appliances, plumbing, etc as there is an increase in use when conservation is not the first thing on a tenant’s mind.

Tenant paying utilities:

Pros

-         Encourages energy conservation on tenant’s part.

-         Fewer variables in cashflow calculation and expected rate of return.

-         Less wear and tear on appliances, etc as mentioned above.

Cons

-         Can lead to non-payment issues if utilities are in tenant’s name.  In certain cases, utility companies have gone after the landlord after the tenant did not pay, even when the lease clearly stated that it was the responsibility of the tenant!!

-         Potentially reduce tenants interested in your property as mentioned above.



Photo Credit:  kitchenandresidentialdesign.com



Now how can I get the best of both worlds?  My solution has been Equal Budget Billing....Landlord Style!  Full credit goes to Ned Coates, a broker in the Guelph, Ontario area, who was the first to expose me to this type of utility structure.

How does it work?  Tenants pay all utilities; however the landlord pays the bills on the tenant’s behalf, meaning that all bills are in the landlord’s name.  The landlord collects the estimated monthly cost of utilities on top of the rent each month.   At the end of the year, the bills are reconciled and if the tenants paid too much, they get a refund.  If they paid too little, they owe the landlord.

Another tip is to make sure you have them pay a little extra than what you expect the utilities to be.  This way, there is a greater chance that the tenants will get a refund.  Tenants seem to be much happier paying a little more upfront and getting a refund, than paying a little less and getting a surprise bill and the end of the lease term J

Not only does this strategy ensure that the bills are paid, but it also helps to avoid having to chase down each tenant for his or her portion of a water, gas and hydro bill.  Yes, there is some additional management and book-keeping involved in this method, however for me; it has been well worth the effort!

Here is an excerpt from my typical student-rental lease.  Each of the 5 students pays $60 per month over and above the rent to cover utilities:

UTILITIES: Utility charges for the gas, electricity, water and sewer will be paid for by the Lessee.

****It is understood and agreed that the landlord pays the utilities on behalf of the tenant.  The utility charge is based on a monthly average usage.  The tenant agrees to pay $60 per month for the utilities to the landlord.  Once a year, there will be a reconciliation of the utility charges.  The tenant agrees to pay the landlord for any excess usage and the landlord agrees to reimburse the tenant for any overpayment.

***PLEASE NOTE THAT THIS DOES NOT MEAN THE RENT IS ALL INCLUSIVE***

Anyone else use this same approach?  Anyone else have different approaches?