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?

House Manual for Dummies

All seasoned investors have had the late night calls… 

“I’m locked out.”

“The water pipes have burst.”

“The dryer is on fire.”

If you are a seasoned investor, you have had the late night calls.  If you are a novice, get ready!  While these types of call are a rarity, they do have a tendency to happen at the worst possible time….like when are on vacation in Mexico!

While I don’t mean to scare off the novice investor, we need to prepare ourselves.  A simple list of contractors and emergency information can go a long way when you are in a bind in the wee hours while a pipe has just burst and you are on scouring the Yellow Pages trying to find a plumber who is on call!



Photo Credit: cosmeticcompare.com

 A typical contact list would look something like this:

 

Fire (non emergency)

Police (non emergency)

Plumber 1

Plumber 2

Electrician1

Electrician 2

Locksmith 1

Locksmith 2

What goes hand in hand with having an emergency contact list?....a home manual!  If a pipe bursts in the kitchen or bathroom and there is no shut-off valves, will the tenant know how to shut off the water?  Maybe they will, but do they know where the building shut-down valve is located?  Maybe not.

These tid bits of advice are crucial in an emergency when the landlord may not be around.  And don’t just give them the piece of paper….chances are they will not read it.  Make sure you go through the list with each tenant to make sure they understand everything.

Other things to include in the house manual? Click on the link below to see an example for one of my houses!

Example House Manual

Lesson 1: Be prepared

Lesson 2: Don’t assume your tenants will know how to do ANYTHING in the event of an emergency.