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?