The Canadian Landlord's Guide

The ultimate resource for Canadian residential landlords. Anyone can become a landlord, but not everyone will be a profitable landlord. Distilling over 35 years of his first-hand experience, Doug Gray, one of Canada’s most respected real estate authors and experts, guides readers on how to become a successful landlord.  Following the effective and proven formula of his previous bestsellers, The Canadian Landlord Guide fills the void of information on Canadian landlording. Some of the covered topics include:  Principles and formulas for profitable landlording Understanding how the real estate market works The pitfalls of real estate investing and how to avoid them Types of rental formats Where to get information on prospective properties How to finance real estate investments The legal aspects of buying and renting property Tenant selection Property maintenance Filled with easy-to-understand and credible advice, The Canadian Landlord Guide is a must-have resource for all Canadian landlords. Seasoned professionals and aspiring beginners alike will find Doug Gray’s landlording guide to be one of their key tools in their quest for real estate success. Doug Gray, B.A., LL.B. (Vancouver, BC) has been buying, renovating, and renting real estate for 35 years. In addition to being a successful real estate entrepreneur, Doug has written over 28 bestselling real estate, business, and personal finance titles, including Making Money in Real Estate (978-0-470-83620-0) and The Canadian Snowbird Guide (978-0-470-15375-8).

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