The Canadian Landlord's Guide: Expert Advice for the Profitable Real Estate Investor

Preface xix

Chapter 1: Investing in Rental Real Estate 1

Investing in Property 1

Tallying the Advantages 2

Buying Properties to Rent 5

Sizing Up a Home, Sizing Up an Investment 5

Sizing Up Your Goals 5

Learning the Basics 7

Courses and Seminars 7

Helpful Organizations 8

Getting a Grasp on Management 9

Assessing Your Aptitude 9

Matching Skills with Properties 10

Capitalizing on Gains 10

Planning for Success 10

Trading on Success 11

Enjoying Your Success 11

PART I: GETTING STARTED

Chapter 2: Understanding the Rental Property Market 15

Understanding Market Cycles 15

Getting to the Roots 15

Recognizing Spheres of Influence 16

Recognizing the Influences 18

Understanding the Real Estate Market Cycle 19

Seller’s Market 20

Buyer’s Market 20

Balanced Market 20

Understanding the Mortgage Market Cycle 21

Lender’s Market 21

Borrower’s Market 21

Balanced Market 22

Understanding the Rental Market Cycle 22

Landlord’s Market 22

Tenant’s Market 22

Balanced Market 23

Recognizing Rental Market Influences 23

Chapter 3: Establishing an Investment Strategy 26

Assessing Yourself 26

Identifying Strengths and Weaknesses 26

Identifying Skills 27

Determining Your Goals 29

Building Wealth 29

Supporting the Family 29

Funding Retirement 29

Determining Your Likes and Dislikes 30

Location 30

Asset Type 30

Buying with Others or “Buy” Yourself? 33

Determining Your Financial Status 33

Calculating Net Worth 33

Drafting a Budget 34

Gauging Resources 34

Carrying Debt 34

Determining Your Future Needs 35

Setting the Clock 35

Setting Priorities 35

Setting Limits 35

Knowing the Limits of Financing 36

Developing an Investment Strategy 37

Time Frame 37

Financing 37

Scheduling 37

Know the Market 38

Be Competent 38

Be Professional 38

Chapter 4: Avoiding the Pitfalls of Property Investing 39

Avoiding Partnership Troubles 39

Selecting Business Partners 40

Co-tenancy 40

General Partnership 41

Limited Partnership 41

Corporation 42

Joint Venture 42

Syndicates 43

Planning for Survival 44

Goals and Objectives 44

Expertise 44

Liquidity 44

Liability 45

Compatibility 45

Getting It in Writing 46

Avoiding Fraud 47

Fraud for Shelter 47

Fraud for Profit 48

Staying Clean 49

Selecting Advisors 49

The Broker 50

The Lawyer 50

The Appraiser 51

The Accountant 51

The Financial Planner 51

Other Professionals 52

Chapter 5: Choosing a Property Type 53

Scouting Rental Properties 53

Residential 53

Recreational 53

Commercial 54

Industrial 54

Raw Land 54

Knowing the Formats 55

Residential Properties 55

Recreational Properties 59

Commercial Properties 61

Industrial Properties 63

Raw Land 64

Chapter 6: Choosing a Residential Property 66

Principal Residence with Rental Suite 66

What to Watch For 67

What to Ask For 67

Insurance Considerations 67

Second Home for Seasonal, Periodic, or Full-time Rental 68

Keeping a Balance 68

Keeping Up Appearances 68

Residential Property Ready for Rental 69

Renovating and Renting 69

Buying with Intent 69

Renovating with Intent 70

Building a Rental Unit 70

Commerical Tenants 71

Keeping the Distance 71

Seeking Tenants 71

Seeking Advice 71

Chapter 7: Sourcing Information on Rental Properties 72

Sources of General Information 72

Bank Reports 72

Newspapers and Magazines 73

Courses and Seminars 74

Books 74

Online Sources 74

Conferences and Trade Shows 74

Drilling Down to Specifics 75

Statistics Canada 75

Canada Mortgage and Housing Corp. (CMHC) 75

Brokerage and Board Reports 76

Real Estate Agents 76

Municipal Planning Department 77

Municipal Tax Department 77

Economic Development Organizations 77

Police 78

Fire Department 78

Home Builders’ Associations 78

Building Inspector 79

Neighbours 79

PART II: BUYING A PROPERTY

Chapter 8: Do the Numbers Work? 83

Drafting a Business Plan 83

Initial Financial Requirements 83

Ongoing Financial Requirements 84

Planning for Revenue Growth 84

Targeting Value 84

Building a Buffer for the Unexpected 85

Doing a “SWOT” Analysis 85

Strengths 86

Weaknesses 86

Opportunities 86

Threats 86

Crunching Numbers 87

Comparing Incomes 87

Comparing Returns 88

Getting Advice 89

Chapter 9: Financing Real Estate Investments 90

Determinging Your Budget Requirements 90

Gauging Expenses 90

Gauging Income 91

Knowing What Lenders Want 92

Credit Rating 92

Property Value 92

Security 94

Identifying Financing Options 95

Sizing Up Mortgages 96

Conventional Mortgage 97

High-ratio Mortgage 97

Condominium Mortgage 97

Leasehold Mortgage 98

Blanket Mortgage 98

Collateral Mortgage 99

Construction Mortgage 99

Vendor Mortgage 99

Assumed Mortgage 100

Government-assisted Mortgage 100

Second Mortgages and Others 100

Second Mortgages 100

Deferred-interest Mortgages 101

Variable-rate Mortgages 101

Obtaining a Pre-approved Mortgage 102

Using Leverage 102

Negotiating Financing 102

Amortization 103

Term of the Mortgage 103

Interest Rate 104

Interest Averaging 105

Open or Closed Mortgage 105

Payment Schedules 105

Prepayment Privilege 106

Assumability 106

Portability 107

Renegotiating a Mortgage 107

Chapter 10: Understanding the Purchase Process 108

Selecting the Right Realtor 108

What You Bring to the Table 109

What the Agent Brings to the Table 110

Determining a Property’s Value 111

Just the Facts, Please 111

Considering Other Factors 112

Preparing the Offer 114

Negotiating Strategies 114

Presenting the Offer 115

Name of Purchaser 115

Deposit 115

Price 115

Closing Date 116

Financing Terms 116

Conditions 116

Giving a Deposit 120

Making a Deal 120

The Bid 121

The Counteroffer 121

The Decision 121

Using a Lawyer 121

General Insurance 122

Title Insurance 122

Closing the Deal 122

Finalizing the Price 123

Rewarding Advisors 124

Chapter 11: Understanding the Legal Aspects of Buying Property 125

Understanding the Purchase and Sale Agreement 125

Elements of the Contract 125

Backing Out of Contracts 126

Preparing the Offer 128

Amount of Deposit 129

Conditions and Warranties 129

Additional Clauses 131

Services Provided by the Purchaser’s Lawyer 133

Before the Agreement Is Signed 134

After the Agreement Is Signed 134

Just Before Closing the Transaction 136

On Closing Day 137

After Closing the Transaction 138

Services Provided by the Vendor’s Lawyer 138

Before the Agreement Is Signed 139

After the Agreement Is Signed 139

Just Before Closing the Transaction 140

On Closing Day 140

After Closing the Transaction 140

Insurance 141

Buying Rental Property in the United States 141

Resident vs. Non-resident Alien 142

Buying Rental Property in Countries Outside Canada and the U.S. 142

Chapter 12: Understanding the Legal Aspects of Renting Property 144

Local Government Regulations 144

Zoning 144

Other Considerations 145

Provincial Government Legislation 146

Residential Tenancy Legislation 146

Commercial Tenancy Legislation 146

Human Rights Legislation 147

Privacy Legislation 147

Employment Standards Legislation 148

Tenancy Application 148

Lease Agreement 148

Residential Tenancy Agreement 149

Commercial Tenancy Agreement 149

Checklist of Property Condition 150

Eyes Wide Open: Legal Risks to Watch For 150

Chapter 13: Understanding the Tax Aspects of Rental Properties 152

Taxing the Transaction 152

Taxes on Purchase 152

Taxes on Sale 153

Operating with Taxes 153

Sales Taxes 153

Property Taxes 153

Taxing Property Income 155

Income Tax 156

Capital Gains Tax 156

Keeping Records 156

Knowing What to Keep 157

Developing an Effective System 158

Developing a Retention Strategy 158

Managing and Reducing Taxes 159

Sales Tax 159

Property Tax 159

Income Tax 160

Capital Gains Tax 161

Special Cases 161

Employees 161

Taxation of U.S. Rental Properties 162

Taxation of Rental Properties Outside Canada and the U.S. 164

Getting Advice 164

PART III: OPERATING PROPERTIES

Chapter 14: Marketing Rental Properties 167

Drafting a Marketing Plan 167

Reviewing Personal Objectives 167

Reviewing Investment Objectives 169

Drafting a Marketing Plan 170

Getting the Word Out 172

Basic Elements 172

Print Media 173

Online Options 174

Word of Mouth/Signage 175

Assisted Marketing 176

Getting Creative 176

Discount on Rent 177

Tenant Improvements 177

Chapter 15: Working with Tenants 178

Defining the Tenant You Want 178

Knowing Yourself 179

Knowing the Tenant 179

Attracting Tenants 181

Screening Tenants 181

The Invitation 182

The Viewing 182

The Application 183

The Review 183

The Follow-up 184

Keeping Tenants 184

Be Friendly 184

Be Responsive 185

Be Attentive 185

Be Respectful 185

Be Thrifty 186

Dealing with Difficult Tenants 186

Resolving Minor Troubles 187

Resolving Major Troubles 188

Getting Rid of Tenants 190

Chapter 16: Managing Rental Properties 191

Self-management 191

Gauging Interest 191

Gauging Abilities 192

Gauging the Demands 193

Resident Management 194

Selecting a Manager 194

Defining Duties 195

Setting Pay 195

Professional Management 195

Chapter 17: Maintaining Rental Properties 197

Drafting a Maintenance Plan 197

Looking In 198

Looking Out 201

Recognizing Room for Improvement 203

Cosmetic Improvements 203

Capital Improvements 204

Securing Tenant Support 204

Damage Deposits 205

Tenant Incentives 205

Maintenance Between Tenancies 205

Besting Pests 206

Rodents 206

Birds 207

Insects 208

Supporting Rent Increases 210

Chapter 18: Improving the Bottom Line 211

Increasing Rents 211

Raising Room Rents 212

Tenant Fees 212

Amenity Fees 213

Other Options 215

Decreasing Expenses 215

Improving Performance 216

Getting Deals 216

Maximizing Write-offs 217

Maximizing Tax-efficiencies 218

GST/HST 218

Income Tax 218

Capital Gains Tax 218

Property Tax 218

Seeking Professional Advice 219

Accountants 219

Appraisers 219

Designers 219

Chapter 19: Commercial Properties: A Primer 220

Understanding Commercial Properties 220

What Makes Commercial Properties Different 221

Risks of Commercial Tenancies 224

Choosing the Right Ownership Structure 225

Investing in Commercial Properties 227

Developing an Investment Plan 228

Finding Commercial Properties 230

Arranging Financing 230

Buying Commercial Properties 230

Doing the Due Diligence 231

Renting Commercial Properties 232

Marketing Commercial Space 233

Selecting Commercial Tenants 234

Dealing with Tenants 236

Managing Commercial Properties 238

Avoiding Pitfalls 238

Knowing the Legislation 238

Getting Help 239

Chapter 20: Managing Risks 240

Assessing Risks 240

Risks to People 240

Risks to Property 242

Reducng Risks 244

Preventing Injuries 244

Preventing Crime 244

Preventing Fire 245

Recovering from Events 247

Seeking Insurance 247

Types of Insurance 248

Tenant Insurance 250

Shopping for Insurance 250

Reducing Insurance Costs 251

Chapter 21: Preparing to Sell 253

Knowing When to Sell 253

Determining Your Reasons 253

Determining Your Timing 255

Determining Your Strategy 256

Understanding the Sale Process 257

Timing and Pricing 258

Preparing Documentation 258

Priming Advisors 259

Priming the Property 259

Setting Limits 259

Calculating Costs 259

Preparing to Sell 260

Identifying Markets 260

Preparing the Property 260

Advising Tenants 262

Closing the Sale 262

Setting Conditions 262

Counting the Benefits 263

Advising Tenants 264

Moving On 264

Reinvesting Proceeds 264

Paying Taxes 264

APPENDIX

Checklists

Real Estate Assessment 266

Investment Property Analysis 275

Business Deductions 278

Real Estate Purchase Expenses 280

Landlord-Tenants Suite Inspection 282

Mortgage Selection Criteria 286

Investor and Landlord 290

Property Maintenance 300

Charts

Recovering on Renovation Costs 303

Criteria for Determining Real Estate Cycle 304

Samples

Application for Rent 305

Residential Tenancy Lease Agreement 307

Worksheets

Income Approach 314

Projected Cash Flow 316

Personal Net Worth Statement 318

Helpful Websites 323

About the Authors 326

Further Education and Information 327

Glossary 328

Index 339