INSIGHTS

Are Free Assignments Actually Free?!

Published on 19th February 2020

Are free assignments actually free? If you’ve ever bought a pre-construction condo or have done some research, I’m sure you have come across something called “Assignments”. On certain pre-construction projects, you’ll see incentives such as “Free Assignments, Value of $5,000”. The question we’ll break down in today’s Insight Article is whether this so-called free assignment is actually free or is it marketing lingo just thrown in there to grab your attention… because you know, who doesn’t like free?

What is an Assignment and its Purpose? Let’s start with some background and context. An assignment is essentially the process in which one person sells the rights and obligations of a contract to someone else. In the case of a pre-construction condo, when you assign a contract to someone else, they will get the benefit of closing the specific unit stated in the contract upon its completion in addition to fulfilling the other contract obligations. A similar process takes place when you are transferring a leased car to someone else.

The Origins – The reason why assignments became such a big incentive on basically every pre-construction project is because back in the day (circa 2008), it was a very common strategy to buy pre-construction and sell the contract to make a profit. This was all before the CRA decided to clamp down on these capital gains plus builder’s also started requiring more than just 5% deposit.

So Does Free Mean FREE? Yes and no. Prior to these free assignment incentives, it was the wild wild west for contract assignments. I’ve heard of builders charging $33,000 to allow assignments before. So from that perspective, yes “Free Assignments” nowadays are free. However, in recent years, there have been additional “legal fees” added in order to have an assignment executed. I’ve seen legal fees upwards of $3,000 – those are some expensive lawyers! With the larger builders, it’s becoming more common to waive the legal fees. We shall see how “free” the assignment and legal fees become when the current projects are due in a few years.

Knowing how the assignment process works is critical when it comes to selling or buying a pre-construction condo on assignment because its not a standard agreement of purchase and sale. There are many ways to structure the deal depending on the position of the seller or buyer. This includes a seller that needs to sell because they can no longer close, whether it be due to the new stress test or for personal reasons. On the other hand, a buyer could be willing to close fast with a deal in the assignment market (if you know where to look for assignments, you can usually find a few.  We know where to look) as long they have the funds available to fulfill the seller’s needs.

Traditionally, buying a home that is not on assignment requires 5-20% down payment. However, with an assignment, this is different. Most of the time, the seller wants to be relieved of most of their obligations in their contract. This is important is because it requires more than your usual 5-20% of the purchase price to fulfill the transaction.

Here’s an Example to Put Things into Context:

The original pre-construction buyer, Bob, purchased a pre-construction condo unit in 2017 for $500,000 and paid 20% deposit to date (i.e., $100,000).

Fast forwarding to 2020, Bob lists his property as an assignment for $600,000 dollars.

Jane wishes to buy Bob’s pre-construction assignment for $600,000 because it’s under market value. However Jane doesn’t need 20% of $600,000, or $120,000. Jane actually needs $200,000 or 33% of the funds in order to fulfill the assignment in cash.

There are 2 streams of cash in this example:

  • Jane needs to pay Bob for the deposits that he’s paid to date with the builder, or in other words, his initial $100,000 deposit amount.
  • Jane also needs to pay Bob his profits, $600,000 – $500,000, or $100,000.

Whoa, $200,000… and in cash?! Why can’t I use a mortgage for this $200,000?

In order to get a mortgage with a bank, you must own the property (i.e., be on title). When you close the assignment transaction, you have just bought a contract; you haven’t exactly closed on the property yet so the title would still be under the original buyer (title hasn’t transferred yet at this point). As a result, you cannot get a mortgage on the $200,000 amount.

If you have the capital ready, we can definitely find you a great assignment deal. We’ve executed many assignment deals for our clients who were in similar situations before. You just need to have the funds ready.

Read the Fine Print! When you are selling your assignment, you need to watch out for a few things in addition to whether or not the “Free Assignment” is actually free. One of the key components is knowing who and where to sell the assignment. The builder will not allow you to simply put your assignment on MLS 90% of the time, thereby ultimately reducing your unit’s visibility on the market. Trust me when I say that I’ve seen a lot of Realtors just list an assignment on MLS without knowing because they’ve never read through the original 30-50 page agreement of purchase and sale. You must be careful of these situations because oftentimes, there are provisions in the original agreement that says if you post the contract for sale on MLS, you are violating the contract and the contract can be terminated. This means that all appreciation you have gained can disappear – just like that! I’ve seen cases of this happening before, so you MUST be careful, especially when listing your assignment. This is just one of the many reasons for working with the PPTO Team as we have many assignment deals before.

The Wrap – So whether you’re looking for an assignment deal or looking to sell your pre-construction condo via an assignment, reach out to me at Zhen@PrimePropertiesTO.com so that we can align your strategy and positioning. We’ll be sure to have you come out on top in this assignment game!

Until Next time, happy real estate-ing,
Zhen

Oh Sh*t… Not Again…

Published on 12th February 2020

For as long as I’ve put out the PPTO newsletter, I’ve never combined the contents of an Insight Article with a PPTV video only because I didn’t bother with both mediums talking about the same thing and being repetitive. However, I think I’m going to break that rule this week. Check out this week’s Market Watch video titled, “Wow, What on Earth?!” Some of the numbers that I refer to in this Insight Article will be from the video. In the video, I give a pretty good explanation of why I was partially in panic mode for most of January. Now that I’m writing this Insight post a few days later after the shoot, I think I’m at about 75% panic mode right now – yes, it has escalated!

Here are the numbers you’re probably seeing:
Number of Transactions: 4,581, up 15.4%
Average Price: $839,363, up 12.3%
Number of New Listings: 7,836, down 17.1%
MOI (Months of Inventory): 1.71

Over the the past few days, I went on a few showings in different parts of town at different price points (i.e., properties in the core under $700K, properties in York Region under $800K and condos under $500K). Coincidentally (or not), these were categories of properties that I talked about in my video. Let me tell you about my experience with two of them.

Let’s start first with the $700K condo. This was a condo downtown listed on Monday, February 10, 2020 for $649,900. This was in an older building in the downtown core that had to replace their Kitec plumbing. I would give this building an A+ location. This was a 1+1 unit with 692 square feet, where the den could basically be used as a second bedroom. I like older condos because there is simply more space and the appliances are larger than your current standard of 24” appliances. In 2019, this building traded just a bit shy of $1,000 per foot, maybe less depending on how you want to price the parking spot. The view looks directly into another building.

With the listing being priced under $1,000 per square foot, I knew it was positioned for multiple offers. I immediately told my client that we should go see it ASAP. This product fits the bill of a super sought-after 1-bedroom unit with parking, which is generally around the $750K+ price point right now (yes, the market did get there). When I went to see the property, I had to line up to get the key… Yeah, I know right – that’s how many people were trying to view this property! It was insane. For reference, this rarely happens when I go see properties at 1:00 PM in the afternoon. When I got into the unit (and keep in mind this property was listed on the market for a mere 1.5 days at this point), there were over 30+ Realtor cards already, which would equate to almost 1 showing every hour that it was listed for… which means showings ran right through the night. This was also listed on a Monday, rather than just before the weekend rush. Oh and here’s the kicker, it ended up selling on an unconditional and over-asking offer that same night. That’s intense!

Secondly, here’s the freehold experience. Over the weekend, I was in York Region to see a few houses with a client, namely townhouses under $700K. As we went during the weekend, half of the showings were during an open house, which is no biggie as it’s fairly normal. However, the open houses were SO busy. Two of the open houses that we attended felt like a party with the large number of cars and people on the properties. For one of the properties, I felt that it was reasonably under-priced to hold offers the following Tuesday, but it was so ridiculous that it started getting offers immediately after the open house so we left the open house. Once one offer starts, the trickle-down effect begins. Luckily, my clients weren’t too interested in the property, but if they were, I was ready to pull out my laptop and draft an offer on the spot for them. By the time we were done our showings, 2 hours after that open house, the house already had 5 offers. Is that crazy or what?!

The Thinking Cap – So given the insane chain of events that I had experienced combined with hearing other crazy but similar things from colleagues, I put on my thinking cap Sunday evening during the Oscars. I didn’t want to wait 3 hours to see who won the best picture when I could just google it Monday morning. So instead, with my thinking cap on, I tried looking for more similarities between January 2020 (crazy!) and January 2017 (before the hot market of 2017 happened). This is what I found:

As you can see above, January 2017 and January 2020 have eerily similar numbers. You can see that the number of sales jumped in 2020 much more than in 2017, but let’s just chalk that up to a weak January 2019. Then you look at the prices and luckily, we’re not as crazy as 2017 with a 22% price increase year over year; but a 12% jump in price is pretty unsustainable as well. If you exclude the increase in sales, this January is half as crazy as 2017. However, that doesn’t mean we’re off the hook yet from potentially more craziness because we are still having an inventory issue by looking at the months of inventory – we’re down 29%, and that’s not a good number if we want a more balanced market.

In continuing to look for trends while I still had my thinking cap on, I figured that I may as well look at the month of December. This is what I discovered:

Again, this is eerily similar to what led up to the craziness of 2017. In late 2019, you can see from the above stats that we had a lot fewer listings and a lot more sales year-over-year change than we did in December 2016. We didn’t get that 20% increase in price as we saw in December 2016, but a 12.3% increase year-over-year in December 2019 is already really high. As some would say, same same, but different. You can interpret these stats in whichever manner you wish, but that’s my two cents on the matter.

The Wrap – Overall, I would tread lightly. As these numbers are talked about more and more, we could be creating the FOMO mentality and the buyer’s psychology could ramp up. At the end of the day, all of the numbers that I looked at with a thinking cap aligns with what I’ve been saying for the last little while in that we do not have enough inventory. Despite any measures the government may try if the market gets out of hand in the future, we need to resolve the supply issue. Until then, we’ll keep seeing prices on the rise with an increasing population to boot.

If you’re making a move this Spring, it’s imperative to hire a good Realtor, such as myself, to make sure that you are guided through these market conditions carefully and thoughtfully. The last thing you would want is to overpay for a property or leave money on the table. Tread lightly!

Until Next time, Happy real estate-ing,
Zhen

Public Service Announcement: Don’t Trust the List Price!

Published on 5th February 2020

The market is on FIRE right now. At the time of writing this Insight Article (which is exactly Tuesday, February 4th, 2020 at 5:20 pm), there is this uneasy feeling that I’m getting which is highly reminiscent of April 2017. In case you forgot, April 2017 was basically the peak of the market in 2017 before the Liberal party’s Fair Housing Initiative was implemented. In the months leading up to April 2017, we were seeing record increases in year-over-year prices, that is, 20%, 30%, and as ridiculous as 35%. Of course, we all know what happened after that – the housing market cooled, specifically the freehold market.

Stats Tell the Story – As at the time of writing this, the stats for January 2020 haven’t come out yet but I think we’re going to see some freaky numbers that we haven’t seen in a while. Back in December, I recorded a market watch video about what really happened in December 2019. I alluded to December being a rare statistic where there were more sales than listings, which we only saw in the months leading up to April 2017. I said that I wouldn’t worry too much about this statistic as December was an anomaly because it was December after all and people are on holidays more than anything. However, I was hoping to see some more inventory in January. Well, January came and went, but it still feels like December as we didn’t get enough listings. I’ve been part of offer situations on both sides with 10+ offers. I’m also hearing other colleagues and their listings presentation dates with 10+ offers. What’s even more ridiculous is the small detached house in Brampton that received 77 offers – that’s not a typo! Good grief, does this remind you of April 2017 or what?!

Market Trust Issues – I tell you all of this because the way that a property is sold in a buyer’s market and the way that a property is sold in a seller’s market are two totally different things. The way you sell a condo is also different from the way in which you sell a detached home. The selling strategy is also different for different neighbourhoods. All of this is important because you need to know to NOT TRUST THE LIST PRICE. This point is especially important in this current market where there are clearly more buyers than there are sellers. In the right area with the right property, you can simply just under-price the property to get 20+ showings in a weekend and hold offers to see who comes with the highest price.

For example, that 500 SQFT, 1-bedroom condo with a beautiful view and functional space that is listed for $499,000? Yeah… it’s not selling for anything less than that in the downtown core. If it sounds too good to be true, then it’s probably not true.

I pulled up the last 193 transactions in the downtown core under the $800,000 price point and the average sold price percentage was 104% (above the list price). Take a look at the stats below:

This is Reality – Based on the above analysis, that means your average property sold for 104% over asking. This is a combination of agents who understand how hot the market is right now and are listing the property at a price point that is lower than what it’s worth, and the fact that there are evidently more buyers than sellers right now. This is the current market condition we are in; it’s reality.

If I filter the chart above to only factor in properties under $600,000, the average becomes 106%. This goes to show that the affordable properties are the ones that are highly sought after right now. On the other hand, the properties over $1.5M are not moving because they are not within reach for many people. So despite the stress test being around for about 2 years now, most people are still limited by what they are able to afford (which is usually 5 times their gross income). This means that a couple making $60K each, or $120K in total, can afford that $600K condo ($600K / 5 = $120K) – this is the space that they would be competing in. Many Torontonians fall in and around this category. When you get to the $1.5M house, you’re really looking at the people who earn over $300K income to even qualify for that kind of house – they exist but are more rare.

Calling in the Experts – So this whole idea of not trusting the list price is true and it really should be normal practice in order to avoid disappointment. So whether you buy or sell, you need a good agent who understands the market. You don’t want to buy with an agent who doesn’t know the market because you’ll never win the bid. You don’t want to sell with an agent who doesn’t know the market because you’ll leave money on the table. An agent who knows what they are doing is imperative especially during market conditions like this. We have highly qualified agents on our team, so if you’re in need of some expert advice, then send me an email at Zhen@PrimePropertiesTO.com and let me know what you are trying to accomplish so that we can put a personalized plan in place for you accordingly.

As this market becomes tighter and treads towards being a super strong seller’s market (circa 2017), get ready to see more agents utilize the under-pricing strategy more often. This will only push the market prices higher and higher. In January 2020 alone, there was a bachelors unit in the downtown core that sold for $1,700 per square foot and a 1-bedroom that sold for $1,300 per square foot. The following chart illustrates where we stand in the downtown entertainment district as of February 4th, 2020.

Source: Condos.ca

The Wrap – With confidence, I predicted that we’ll hit $1,100 per square foot by the end of 2020, but it seems like we’re already here and have even passed that mark for the 1-bedroom units. I worry that we won’t get more listings in the coming months and we’re really going to be screwed. But until that happens, I pray with optimism that we do because as much as I would like our real estate prices to go up for personal reasons, this type of growth and lack of supply really isn’t the most ideal situation for sustainable growth. Like I said before, I prefer consistent annual growth rather than spikes. Here’s to a more balanced month of February, but if not – get ready, we’re going to see some craziness upon us!

Behind the Curtain: What My Clients Look Like!

Published on 30th January 2020

I was speaking with some friends this past weekend about the ability to own real estate and how people perceive those who own real estate versus those who don’t. It brought up a very polarizing point that I think most Torontonians have at least thought about or discussed with someone else. It’s causing a fairly large divide with Torontonians. The main divide is that it’s becoming increasingly difficult for those who don’t have real estate to actually buy their first property. For those who have already bought their first property, their equity gives them the flexibility to keep buying and to build up a larger portfolio. There are even talks of rent-shaming people who cannot own. It’s an unfortunate divide that keeps getting bigger and bigger in Toronto.

Two Sides of the Coin – I don’t want to get into a deep dive on why it’s getting more difficult to own and why there are no issues with renting because I’ve been on both sides before. Growing up, my parents didn’t have much, so we always rented. Since immigrating to Canada when I was 5 years old, my parents and I moved a total of 12 times, hopping from one rental property to the next. When I made the plunge into home ownership, it was difficult but it wasn’t nearly as difficult as it is right now that’s for sure. Furthermore, I always talk about how you can roll equity from one property into the next as long as you get your first one. So that’s why getting your first property is so important – get into the market as soon as you can! I hear the arguments from both sides of the coin and the struggles of trying to bridge that divide of not owning a property.

Behind the Curtains, Here it is! All I can say is to do your best to bridge that divide because after the first property, it gets easier. Another point that often gets brought up and is blown out of proportion is the talk of foreign investment. So I’ve decided that today, I’ll peel back the curtain and give a breakdown of how my clients (who buy real estate) look financially. I’ll break this comparison into 7 category groupings that should give you a good idea of my client portfolio, but obviously without giving away their identity. These categories are:

  1. First Time Home Buyer
  2. Down Payment Gifted
  3. Second+ Property
  4. Business Owner
  5. Works for a Company
  6. Income over $100,000
  7. Lives in the GTA

Oh Canada! The first point that I’ll address is the “Lives in GTA” category. Despite the large number of people who think our market is dominated by foreign investment coming into Toronto and disrupting the market, it’s actually not that much. Based on my client portfolio, 94% of my clients live in the GTA and are citizens here. I was even quite liberal with the percentage because I added people who were Canadian but didn’t live in Canada for more than 6 months of the year. You may think that sounds weird but, it actually isn’t. A lot of my Chinese/Hong Kong clients are Canadians who don’t fully live in Canada, but they still pay taxes here. The reason for that is because they want their kids to have a better western education and being Canadian allows them to accomplish that. Plus, everyone complains about winter. It’s also a lot easier to get into Universities in North America than it is in Asian countries. Plus, getting into great public schools is as easy as buying a home in the school district, which I talked about in last week’s Insight Article. I will say one thing that is mostly true – the first-generation immigrants from Hong Kong and China who are entering Canada are coming with money. I’ve said this before and I’ll say it again – if 1% of the population of China is “rich”, then that’s already more people than all of Canada combined. So that’s just some perspective, and trust me they love Canada!

Cash Gifts – The second point that I’ll address is the first time home buyers. Approximately half of these first time home buyers receive their down payment in the form of a gift. This gift normally comes from the parent’s equity in their home or direct savings. Whether that’s the full down payment or partial, I’ve included it in my stats. This should be a good indicator for you to understand that getting the down payment is super difficult with the escalating prices. Furthermore, most of my first time home buyers are making over $100,000 income.

Bringing in the Dough – So that brings me to my third point, which is that over 64% of my clients make $100,000 or more. This is not to say that I only have “wealthy” clients. It’s actually just a metric and reality; you need almost $100,000 to buy real estate with the stress test, new mortgage restrictions and the rising price of real estate. I would argue that the percentage is even higher than 64% because sometimes I don’t interact with the spouse/partner. The total household income is probably well over $100,000 in those instances.

Doubling Up and More – Now let’s take a look at those who have a second property or more. To hammer the point home again – if you own real estate and hold it for a long time, it gives you options. Many of my clients are rolling their first property into the next two, three, four or even more. Incomes can’t catch how fast real estate prices are growing, but real estate itself can! Whether you’re buying a property for your kids or investment property to secure your retirement, the second property is much easier if you leverage your first. That’s why it’s imperative for anyone who has home ownership dreams to get into the market ASAP.

Leverage Your Pay! The last point that I’ll make with these stats is that business owners tend to have higher incomes but what they report on their year-end tax returns could be less, which makes qualifying for mortgages a lot harder. I’ve noticed that clients with professional jobs in IT, accounting, engineering, finance, legal and medical are all able to qualify for mortgages very easily. Plus, they qualify for the next few properties even easier as their income is consistent. If you’re in one of these high paying careers, do leverage it as much as possible to get as many investment properties as possible.

Oh Canada! The first point that I’ll address is the “Lives in GTA” category. Despite the large number of people who think our market is dominated by foreign investment coming into Toronto and disrupting the market, it’s actually not that much. Based on my client portfolio, 94% of my clients live in the GTA and are citizens here. I was even quite liberal with the percentage because I added people who were Canadian but didn’t live in Canada for more than 6 months of the year. You may think that sounds weird but, it actually isn’t. A lot of my Chinese/Hong Kong clients are Canadians who don’t fully live in Canada, but they still pay taxes here. The reason for that is because they want their kids to have a better western education and being Canadian allows them to accomplish that. Plus, everyone complains about winter. It’s also a lot easier to get into Universities in North America than it is in Asian countries. Plus, getting into great public schools is as easy as buying a home in the school district, which I talked about in last week’s Insight Article. I will say one thing that is mostly true – the first-generation immigrants from Hong Kong and China who are entering Canada are coming with money. I’ve said this before and I’ll say it again – if 1% of the population of China is “rich”, then that’s already more people than all of Canada combined. So that’s just some perspective, and trust me they love Canada!

Cash Gifts – The second point that I’ll address is the first time home buyers. Approximately half of these first time home buyers receive their down payment in the form of a gift. This gift normally comes from the parent’s equity in their home or direct savings. Whether that’s the full down payment or partial, I’ve included it in my stats. This should be a good indicator for you to understand that getting the down payment is super difficult with the escalating prices. Furthermore, most of my first time home buyers are making over $100,000 income.

Bringing in the Dough – So that brings me to my third point, which is that over 64% of my clients make $100,000 or more. This is not to say that I only have “wealthy” clients. It’s actually just a metric and reality; you need almost $100,000 to buy real estate with the stress test, new mortgage restrictions and the rising price of real estate. I would argue that the percentage is even higher than 64% because sometimes I don’t interact with the spouse/partner. The total household income is probably well over $100,000 in those instances.

Doubling Up and More – Now let’s take a look at those who have a second property or more. To hammer the point home again – if you own real estate and hold it for a long time, it gives you options. Many of my clients are rolling their first property into the next two, three, four or even more. Incomes can’t catch how fast real estate prices are growing, but real estate itself can! Whether you’re buying a property for your kids or investment property to secure your retirement, the second property is much easier if you leverage your first. That’s why it’s imperative for anyone who has home ownership dreams to get into the market ASAP.

Leverage Your Pay! The last point that I’ll make with these stats is that business owners tend to have higher incomes but what they report on their year-end tax returns could be less, which makes qualifying for mortgages a lot harder. I’ve noticed that clients with professional jobs in IT, accounting, engineering, finance, legal and medical are all able to qualify for mortgages very easily. Plus, they qualify for the next few properties even easier as their income is consistent. If you’re in one of these high paying careers, do leverage it as much as possible to get as many investment properties as possible.

The Wrap – The truth is that not everyone will fit nicely into these categories and not everyone will be able to buy real estate even if they are in one of these categories. However, the reason why I’m providing you with all of these insights is to give you an idea of the type of buyers who are transacting in today’s market. They’re all financially capable to purchase right now with limited inventory.

That said, if someone cannot financially afford real estate, then there is no need to rent-shame them. Renting is a lifestyle choice and it is normal, not shameful. Quite frankly, some people who are more than capable of being a homeowner make a lifestyle choice to not have a mortgage, so therefore they rent instead. In other major cities such as New York, London, and Shanghai, renting is more common than owning.

However, if you are financially capable, you should 100% be picking up investment properties given the growing population in Toronto and for the purposes of building wealth. If that’s you and you want to know how to roll your existing real estate into more investment properties, or perhaps to pick up your first property, do reach out to me at Zhen@PrimePropertiesTO.com. Chat soon!

Until Next Time, Happy Real Estate-ing!
Zhen

*New Updates* – The Real Estate Treasure Map

Published on 23rd January 2020

Over the last few years, there have been many factors that are reducing the ability for Torontonians to move. Starting with rent control, tenants with grandfathered rents are now hard-pressed to move as it could easily cost them an extra $500 per month in rent. New condo owners aren’t moving into low rise houses as the average cost in Toronto has exceeded $1 million. With all of the above plus the stress test, low inventory and many other factors, it has made any real estate move in Toronto very difficult.

Downtown Density, Addressed – Ultimately, this stagnation in real estate mobility will mean inter-generational family homes and families being raised in condos. This is normal in major cities around the world, but this is just a transitional phase that Toronto is going through now. There could be some growing pains and complaining along the way, but all of this could also mean better things ahead (from a glass half full perspective). For instance, the increased downtown density has led to 2 schools being built in the downtown core where many families are slowly moving in. There were 2 schools that opened up in the heart of CityPlace during the first week of January 2020, Jean Lumb Public School and Bishop Macdonell Catholic Elementary School. Together, they will house an approximate total of 1,000 students from junior kindergarten to grade 8. The schools are in brand new, multi-facility buildings right beside the over-sized canoe at CityPlace (geographical satellite location pictured below).

The School Factor – These much-needed schools in the downtown core are going to drive the prices up at CityPlace and the school district’s surrounding areas. If you look at the downtown core school map (reference below), you can see that there are really no schools that service the downtown core prior to the opening of these 2 new schools.

Keep in mind that there have been hundreds of condos (i.e., thousands of units) completed in the downtown core (blue area above) in the last 20 years. Combined with the stagnation in real estate mobility, many families are going to be living (or, are currently living) within that blue downtown area. As a result, this will drive up demand for nearby schools and a premium will likely be put on condo units that are in the school district of Jean Lumb or Bishop Macdonell. Here is the treasure map of condos that will likely experience that level of price appreciation.

Education Marks the Spot – You can see that ‘X’ marks the spot largely in the areas of the South Core; that is, south of Front between Bay and Bathurst. If these schools rank high after its inaugural year, expect a good appreciation for condos in the area above. Being in a school district is very important for families. I’ve seen families willing to pay significantly more for real estate just to be in a school district because there is almost 100% chance that their child will be accepted into the school. This was very true for Earl Haig Secondary School in North York, which was one of the reasons why Willowdale is now so expensive. This was also true for Unionville High School in Markham, and similarly, is the reason why the Unionville area appreciated so well. I have oversees clients who tell me that they want their child to attend this school or that school, specifically, so the property they are buying must be within the school’s district. Education clearly matters for families, and decisions based on this very factor alone happens more than you may think.

The Wrap – So if you are looking for downtown investment condos, please be conscious of the school map above. There are a few condos that I always target for investment purposes in this area, even prior to the openings of these 2 schools. However, now that these schools have opened, there is even more upside than before. If you want to know which condos I target in the map above, reach out to me at Zhen@PrimePropertiesTO.com and we’ll plan your next investment accordingly.

Until next time, happy real estate-ing,
Zhen

Fake News? Trudeau Promises a Change to the Stress Test

Published on 16th January 2020

At the end of 2019, Canadian Prime Minister Justin Trudeau asked Finance Minister Bill Morneau to consider reviewing the mortgage stress test. The public words were “Review and consider recommendations from financial agencies related to making the borrower stress test more dynamic”. I had a few questions on these comments that I know I’ll never get the answer to, such as: What does “more dynamic” really mean? According to the dictionary, dynamic as an adjective can be used in 2 ways:

  1. (of a process or system) characterized by constant change, activity, or progress.
  2. (of a person) positive in attitude and full of energy and new ideas.

I’m assuming dynamic refers to the first point above. So does that mean we are going to change the stress test constantly?

Another question I had was: Which financial agencies is Bill Moreanu taking recommendations from? The banks? The government? Bank of Canada? CMHC? Office of the Superintendent of Financial Institutions (OSFI)? The source of the recommendation matters because each of those financial bodies has their own agenda, goals and underlying objectives.

One thing is for certain – the news of reviewing the stress test has gotten many people in the lending world very excited. It’s almost as if everybody is expecting the stress test to be removed or made “less stressful”. However, all of this sounds like political jargon to me.

The Political Possibilities – Regardless, this affects the “dynamics” of the market and it has a lot of people talking about what changes could be made. There are so many levels that I could take a deep dive into on this matter. I could probably write 2,000+ words on this topic but I’ll keep it short and sweet with 2 key topics of discussion at hand.

  1. Changing the Stress Test Percentage – The stress test is based on an interest rate of 5.19% right now, which is the Bank of Canada’s 5-year benchmark. The major discussion point right now is to potentially reduce this rate by 1%. If this happens, then the availability of credit increases by approximately 10% (i.e., you could borrow 10% more).
  • Why this may not happen: The Schedule A banks (i.e., TD, CIBC, etc.) are highly motivated to keep this benchmark high for their own profit margins. A higher stress test interest rate means that more people are locked into existing mortgages with higher rates because they can’t re-qualify under the stress test to a different lender. Ultimately, this means that when mortgages are up for renewal, the homeowner must take whatever rate their existing banks give them otherwise they become homeless (i.e., they can’t re-qualify under the stress test with a different lender).
  1. Increasing the Amortization Period Back to 30 Years – As of right now, only buyers with 20% down are able to qualify for a 30-year amortization period. This is important because a 30-year amortization means that you are paying less each month over a longer period, which ultimately allows you to borrow more money. You’re tested on how much of your income goes into repaying your loans. If your monthly loan payment is less, then you could borrow more. Note that if amortization is increased to 30 years, that’s approximately an increase of 10% in available credit.
  • Why this may not happen: This makes no sense. If they allow buyers with less than 20% down payment to get a 30-year amortization, it defeats the very purpose of the stress test. The stress test was designed to prevent home buyers from overextending themselves when purchasing a home but if buyers are able to borrow more with less down payment, then it goes against that design. That just seems hypocritical. Starting from the early 2000’s, the mandate has always been to reduce the amortization period. We went from 40 years to 25 years and now we’re trying to increase it back to 30 years. Either make up your mind or stop intervening with the free market!

Mixed Messaging – It seems like they are making the rules too “dynamic” by constantly changing it. All of these “potential revisions” look like they are targeting the first-time home buyer segment of the population – the Millennials, who are having a difficult time getting into the market in Toronto and Vancouver. I don’t hear affordability issues coming from other Canadian cities. Is it a coincidence that Toronto and Vancouver is where the majority of Trudeau’s votes came from? Maybe… but I won’t go there.

There have already been other incentives for first-time homebuyers that were implemented, such as the new CMHC “interest-free loan” to buy a home and increasing the first-time home buyer RRSP withdrawal limit. These incentives go against the purpose of the stress test. As you know, the government wants to make sure Canadians, especially first-time home buyers, are financially responsible by having the stress test to reduce the amount money they can borrow to buy a house. However, at the same time, the government is giving them an interest-free loan and are allowing them to borrow from their retirement funds to buy a house. By now, are you as confused as I am with all of these government policies and incentives floating around?!

The Wrap – Like I said earlier, I could probably write more than thousand more words on this topic but I won’t digress. Even if I did write more on this topic, I don’t have the answers. All I see are problems with these band-aid solutions, and no “real” plan to move forward (cue: the ongoing Gardiner Expressway mess). My only suggestion to Mr. Trudeau is to really look at the supply issue that we have on hand. Perhaps make it easier for Builders to develop? Enforce less Builder delays? Lower taxes? Either way, I won’t look at this “dynamic review” of the stress test as a saving grace to the rising affordability crisis that we have in Toronto.

Until Next Time, Happy Real Estate-ing,
Zhen

Is Toronto Real Estate Market Recession-Proof?

Published on 9th January 2020

Recession-proof? Is there such a thing? If there is, does the Toronto Real Estate Market fit into this category?

I’ve always wanted to write this Insight Article but previously, I thought it would be too bold of me, and that I may be permanently labelled as a super-bullish person after giving my opinion on the matter. However, as I had time to reflect while I was abroad, I told myself, “sure, why not? I should just give my 2 cents!”

I don’t believe in absolute certainty as anything can happen, but Toronto’s real estate market has a lot of upside going for it that makes it as close to recession-proof as possible (relative to other markets). If you missed last weeks’ Insight Article where I compared the cost of living to other major Asian cities I recently visited, you can read it here: CLICK HERE.

Recession-Proof Factors – With the comparisons out of the way and equipped with a newfound appreciation for the Toronto real estate market, I’m even more bullish than ever now. Allow me to explain. I’ve always monitored 3 factors when it comes to the stability of the Toronto real estate market – these factors are:

  1. Availability of credit (i.e., mortgage)
  2. Job creation

I’ve touched on 3) Job creation with Toronto turning into Maple Valley (a.k.a., Canada’s Silicon Valley), so I wanted to elaborate on the other 2 factors today.

Canada vs. The World – Population growth is also something that I’ve written about many times in the past. However, allow me to elaborate further. Canada gets a ridiculous amount of immigration in proportion to how many citizens we have. Furthermore, our new immigration selection process is much more rigid, wherein Canada allows immigration based on economic output – in other words, if you can pay more taxes in your profession or if you are bringing in lots of money to Canada.

Many people compare our immigration system to our neighbours down south, the United States, and simply dismiss how much immigration we have relatively speaking. However, you must compare apples to apples.

Size Matters – As per the chart above, the US has the most number of immigrants. However, if you look on the right-hand side of the chart that is highlighted in purple, one should realize that immigration ought to take into account the actual size of the country. Canada is at 21%, which is 5% higher than the US which is at 15.1%.

Another way to look at this metric is the number of immigrants in which a country gets per capita. You can see in the table below that for every 1,000 inhabitants, the forecast was for Canada to receive 6.6 new immigrants, compared to the US’s 2.9 new immigrants. Therefore, Canada’s immigration rate is more than double that of the US!

Also to further this point, most immigrants who come to Canada land in Ontario, and when they land in Ontario, where do you think they are most likely going to settle? If you guessed the Greater Toronto Area, you got it!

Show Me the Money – The second reason for Toronto being fairly recession-proof is the availability of credit. We all know that the stress test has made the ability to get a mortgage more difficult. Although that can be seen as a negative point, in some ways, it is a positive as well because we’re over-qualifying applicants in case of a recession. However, what I actually wanted to explain here is the delinquency rate or default rate.

Dangers of Default – In Canada, as per the graph below, we’re at a very low 0.24% default rate on mortgages, which means that there is only 1 mortgage default for every 4,166 mortgages. That’s a staggeringly low default rate!

Now, when you look at Ontario specifically, we’re actually 0.09% or other words, 1 mortgage default for every 11,111,111 mortgages. That’s even lower than the rate in all of Canada, that’s one in 11 thousand! It looks like Ontarionians want to keep their houses!

When compared with our US counterparts, their default rates are 27.22 times higher than Ontario (10.20 times higher than Canada) as their current default rate is sitting at 2.45% as per the chart below.

The reason why I bring this up, and why it’s important, is because if a recession were to be on the horizon and if the availability of credit is reduced, the default numbers show us that there is more emphasis in Ontario for citizens to keep their houses and mortgages during the rough times. The mortgages in Ontario and Canada are less likely to end in default. The mortgage defaults are what caused the US recession in 2008 (when the mortgages were not backed by any substantial collateral).

I also purposely mapped out the default rate during the 2008 recession for both countries. Canada wasn’t affected too much by the recession as the Toronto market was still fairly strong during that time. The default rate in Canada was only 0.33% at the time, and now we’re sitting at 0.24%, so the default rate wasn’t that much higher during the 2008 recession. In comparison, the US default rate was 7.96% during the 2008 recession – that’s in 1 in 12.5 mortgages that defaulted in the US during the time of the recession, compared to only 1 in 3030 in Canada. That’s some perspective for you!

Equity vs. Debt – Another important fact is that the average equity in a Canadian house is 74%, according to Purview. This means that the average Canadian already owns 74% of their house, while only 26% is mortgaged. There are 2 ways in which you can look at this metric, and both are good. 74% means that most Canadians bought their house a while ago and they own 74% of its current market value; in other words, their mortgage payments are low and as such, they are not as likely to default on their mortgage payments. Alternatively, it could also be interpreted as 74% of the mortgage loan has already been paid off. In either case, a metric of 74% points to stability and a lower likelihood of mortgage default. Given all of these compelling factors that push the Toronto real estate market forward, this is why I am so bullish on the market.

The Wrap – The world is chaotic right now; it’s like a storm. Toronto is right in the middle of that storm; the eye of the storm where it is the calmest. Everything around Toronto is chaos but when we look at Toronto, the real estate is nice, calm and steady. Does that make us recession-proof? There is a good chance, but only time will tell.

As long as you buy correctly and your properties cash flow positive, I don’t see why you would not benefit financially from the rising tide that is the Toronto real estate market. If this is something that you want to benefit from in 2020, please reach out to me at Zhen@PrimePropertiesTO.com.

Until Next Time, Happy Real Estate-ing
Zhen

How We take the Toronto Real Estate Market for Granted

Published on 3rd January 2020

I was originally born in Guangzhou, China but immigrated here when I was only 5 years old. As a result, my memory and recollection for anything related to China was essentially non-existent. My memories of China only started jogging when I went back to China for the first time in my early 20’s. I’ve been so ingrained in my Canadian upbringing, that when I recently went back to visit my family in China, they told me that I had an accent when speaking Cantonese (my native tongue). Strange phenomenon!

Discoveries Abroad – Over the last 10 years, China has changed SO rapidly, especially my birth city, Guangzhou. I recall my initial thoughts during my first visit back about 10 years ago – I had discovered a newfound appreciation for how great the air in Canada is and how clean Toronto is relative to Guangzhou. This time around, during our honeymoon stopover to visit family abroad, I found Guangzhou to be incredibly clean and well-kept. It is now so clean that I would even argue it’s cleaner than certain parts of Toronto! There are also no more illegal street vendors and all of the ground-level retail stores have been re-developed into fancier, newer retail storefronts. The city is incredibly high-tech and everything runs from mobile phones. Citizens no longer need to carry anything else besides their phone because literally everything resides in their phones – money, ID, everything you could possibly imagine and more. You can pay for everything using WeChat Pay or AliPay. From transit to night market vendors to even beggars on the street, they all have a QR code for acceptance of electronic payment. The city has developed incredibly fast from what I once remembered it as.

Change is What You Make of It – So the point that I’m trying to get across with all of this is that things can change, and sometimes very fast. You may not even notice the change. Over the last 10 years, Toronto has changed – the price of real estate in Toronto has changed and I’ve changed. The trip back to China this time around was the first time that I’ve returned to China since owning real estate property in Toronto. As such, with real estate always being on my mind (I can’t help it!), it has spurred me into doing some further research on how Toronto’s market has stacked up against the other major cities that I’ve visited. Let me tell you this – as a real estate investor, Realtor, and a Torontonian, we 100% take for granted how great Toronto truly is!

Make Toronto Great Again – To fully appreciate how great Toronto is, let me list some of Toronto’s statistics for comparison purposes.

Toronto, Canada
Population: 5.9 million (GTA)
Price of real estate relative to average income: 14x

Guangzhou, China
Population: 13million
Price of real estate relative to average income: 33x

The greater area of Guangzhou has approximately 35% of the population in all of Canada. In Guangzhou, you can take the subway from one end to the other in less than 2 hours. That should give you an idea of how dense Guangzhou is and why the price of real estate is so high relative to income. The cost of living in Guangzhou is not very high. When you compare the cost of groceries to Canada, it’s actually quite low. However, like with most Asian cities, the population is so high that it drives up real estate prices. More people equals higher demand. Speaking with all of my cousins in China, all but one don’t own any real estate and have completely given up their dreams of owning any real estate as it is just not realistic at this point. The city is growing and the price of real estate has actually dropped in the last 2 years – despite all this, housing is still unaffordable.

Hong Kong, Hong Kong
Population: 7.3 million
Price of real estate relative to average income: 48x

Hong Kong is known for having the most expensive real estate in the world and at 48 times the average income, owning real estate in Hong Kong is unattainable to say the least. My uncle owns a 620 SQFT 2-bedroom unit purchased in 2003, in what I would say is the “Yonge & Eglinton” equivalent of Toronto. The current market price for such a unit is about $1.35M CAD right now – that’s $2,183 per square foot for a 17-year old unit! Good luck buying anything when you also need a 35% down payment in Hong Kong (i.e., $472,000). The price of my uncle’s apartment has nearly quadrupled since his purchase in 2003. As a reference point, Toronto prices have only increased by about 2.5 times since 2003. Relatively speaking, Toronto still seems somewhat sustainable compared to Hong Kong. Many who Hong Kongers who want to live in Toronto and Vancouver can easily trade in one of their properties in Hong Kong for 2 or 3 Canadian properties. That’s some perspective! It’s no wonder why a lot of them have come to Canada in search of buying real estate here.

Ho Chi Minh City, Vietnam
Population: 9.3 million
Price of real estate relative to average income: 28x.

Ho Chi Minh City was definitely the least expensive city we visited on our Honeymoon adventure. The cost of a cup of coffee was approximately $0.30 CAD. However, I can’t say the same for real estate. Like many developing countries, there are pockets and nodes that are much more developed than others. We stayed in an Airbnb in the central part of Ho Chi Minh City, the “Yonge & Dundas” equivalent if you will. The 3-bedroom condo that we stayed at was approximately 1,000 square feet with 2 washrooms. Build quality was about the same as what we would get in Toronto. The cost to purchase this unit was approximately $1.1M CAD, which puts the area at approximately $1,100 per square foot. This is practically identical in pricing to downtown Toronto. The only catch for locals is that their average income is only a fraction of ours. As a result, affordability is at an all time low in Ho Chi Minh City. Oh, and here’s the kicker – Vietnam just opened up its economy to foreign investment recently, so expect real estate prices to increase even further.

Bangkok, Thailand
Population: 8.3 million
Price of real estate relative to average income: 27x.

The stats are very similar to Ho Chi Minh City. However, Bangkok is more developed. It has a fairly extensive subway system unlike Ho Chi Minh City, which has no subway. The word on the street is that lot of Chinese money is being invested into Bangkok. Surely enough, our Airbnb hosts in Bangkok were from China. We stayed in a very new 1-bedroom condo that was approximately 350 square feet. Surprisingly, the finishes were better than what we are accustomed to in Toronto. The size, although it sounds very small, was quite livable. For reference, builders in Toronto are selling 1-bedroom units that are approximately 450 square feet in the downtown core right now. Similar to Ho Chi Minh, affordability in Bangkok is at an all-time low.

The Grass is Greener Here – As you can see from the examples above, the cost of real estate in all of these major cities are approximately the same price or higher than that of Toronto regardless of whether you compare that as a ratio of average price-to-income or just apples-to-apples comparison in Canadian Dollars. The lifestyle and quality of life in Toronto, in my opinion, is much better than any of the major cities mentioned above. Furthermore, the currency and the value of the currency that we earn is much higher in Toronto as well. Effectively, this makes the ability for us to own real estate much easier.

The Wrap – Without a doubt, every time I come back home to Toronto, I have a newfound appreciation for how awesome our city is. This time around, in addition to all of the usual appreciation for comfort and lifestyle, I also have a newfound appreciation for how great our real estate market is and how affordable our city still is relative to other cities around the world (despite all of the constant chatter about how unaffordable Toronto is). Yes, Toronto is indeed becoming more unaffordable, but relative to many other cities in the world, we are by no means in a crisis yet.

Until we see the forest for the trees, Toronto is changing so fast that I think most Torontonians have taken for granted how amazing and affordable this city still is. We’re growing, we’re developing, and we’re getting bigger as more and more people around the world want to immigrate to and live in Toronto. You’ve heard it from me once and you’ll hear it from me again – Toronto is a world-class city that is only going to get more expensive as time goes on. Simply put, don’t take what we have for granted!

Landlord Lesson #7 -Understanding Rent Control

Published on 26th December 2019

Rent Control – love it or hate it, as an investor, you must understand rent control because how much rent you can charge for your investment property becomes your lifeline for how much cash flow you can produce and how much profits you’ll make. Depending on who you speak to regarding rent control, it can either be a blessing or a disaster. My honest opinion on rent control is that it has temporarily frozen the rental market and spiked the prices up ~20% since its inception. It was so bad that it had to be lifted. However, we are still feeling the ripple effects of some of the properties that haven’t had their rent control lifted yet.

How It All Started – The full story of rent control in Ontario dates back to 1991. There are 3 pivotal dates that come up often in the context of rent control, and they are:

  • November 1, 1991 (referred to as 1991 in this Insight Article);
  • April 20, 2017 (referred to as as 2017); and
  • November 15, 2018 (referred to as 2018).

Prior to 1991, rent control was applicable across the board in Ontario. It wasn’t that much of an issue as Toronto was really not deemed as a world-class city (just yet anyways). What we didn’t know was that it was eventually going to become a world-class city over the next few decades. We had very little skyscrapers and condos in the late 1980’s. Shortly post-1991, rent control was lifted on all apartments that were constructed after the 1991 date. At that point though, there was really no construction of condos in the downtown core because buying a detached house was still $500,000. So the removal of rent control in 1991 didn’t really affect the market too much.

In the early 2000’s, the condo market started blossoming and condos were being built – CityPlace was developing, Bay Street Condos were being built, Yonge Street commercial space was being rezoned. This was just the beginning of the condo boom.

When the supply became very problematic and prices were increasing at 10% per month, the Liberal government introduced the Fair Housing Initiative in 2017 to re-introduce rent control on all properties. BAM! Just like that rental rates became stagnate and rental inventory just fell off a cliff. Anyone who had a vacant rental property immediately increased their rental rates. This was ironic because I truly believe the intentions of rent control were to help tenants, but ultimately, it ended up doing the opposite. There is speculation that this was all caused by a CBC report about one landlord doubling the rent on their tenants.

The Fair Housing Initiative also put a major damper on the demand for freehold properties, and so, the second condo boom started. No inventory, prices increased and no rental supply… this was a recipe for disaster. Then came the Conservatives after being elected – they vanquished rent control again but with a caveat: Rent control still applies to all buildings completed before 2018. This left us exactly where we are now – all properties finished prior to 2018 are subject to rent control and all properties finished after 2018 are not subject to rent control.

Investor Impacts – So why and how does all of this matter to you an investor? Basically, if you own a property that is completed after 2018, you can freely increase rent over the allowable limit of 1.8% on all renewals. Just don’t be ridiculous.

If you own a property that was completed prior to 2018, then you can only increase the rent by a maximum amount of 1.8% (2019 rate) on renewals. It’s actually quite low given what the inflation rate is. However, if your tenant decides to leave, you can increase the rent above the rent control limit.

So this leaves us with a lot of tenants who have existing under-market rental rates from leases prior to 2018. These people will never move (if they don’t have to move for other reasons) because their rent cannot be increased past the maximum allowable limit of 1.8%.

Common Situations – Here are some common situations that come up with the rent control legislation:

  • You are only allowed to increase the rent after your 1-year term by 1.8%.
  • If you do not sign a new lease, the tenant goes to a month-to-month tenancy and you cannot evict them.
  • During the month-to-month tenancy, you can still increase rental rates by 1.8% if you provide them with an N1 form.
READ: Why You Should Always Increase Your Rent
  • New legal basement suites completed after 2018 are not subject to rent control

I have some clients with existing properties who are waiting until the day their tenants move out, so that they can increase their rent. Some tenants with leases circa 2011 are still paying about $1,500 per month for a nice large 1-bedroom unit in downtown Toronto. Imagine that! How amazing is it for these people who have low grandfathered rental rates when the average 1-bedroom units are going for $2,300 per month on the market. Investors – if you are in this situation, the honest truth is that there isn’t much you can do, unfortunately.

The Wrap – I’ve had people inquire about their options to buy their first home knowing that that they are living in a rent-controlled property with rental rates increasing very minimally each year. If that is the situation you’re in, then you should 100% buy an investment property and continue living in your rent-controlled property. This is a form of what others refer to as “house-hacking”. By undertaking this approach, you can essentially create enough cash flow from your new investment property to cover your below-market rent. If you are interested in doing something with this approach, make sure you reach out to me at Zhen@PrimePropertiesTO.com. We’ll set you up nicely for some house-hacking!

Until Next Time, Happy Real Estate-ing,

Zhen

Landlord Lesson #6 -Understanding the Landlord Tenant Board

Published on 19th December 2019

All investors need to arm themselves with the know-how and knowledge of what the Landlord Tenant Board does and how it impacts your investments, especially if you are self-managing your property. With the rise of professional tenants and disastrous issues that have happened in the past few years, plus the new regulation of rent control (more on this next week), tenants have become way more savvy and knowledgeable about their rights under the Landlord Tenant Board. Ultimately, this makes tenants more difficult to deal with.

The Rise of Professional Tenants – The Landlord & Tenant Board can be seen as the judge who ultimately makes the call on how to settle a dispute between a landlord and a tenant. Of course, getting to the point where a judge is put into place can be a very long and drawn-out process. This gave birth to what we call “professional tenants”. These are tenants who know the Landlord & Tenant Board inside-out and can manipulate the system to live rent-free for extended periods of time. Don’t worry though, it’s not as bad as you think. That said, do continue reading the rest of this Insight Article to understand how you can protect yourself from these professional tenants.

Knowledge is Power – First off, everything at the Landlord & Tenant Board is super backed up and getting a hearing takes forever. Secondly, in order to get to the hearing, you must file the appropriate forms.

Obviously, you never want to be in the situation where you need to use the Landlord & Tenant Board, but in the case that you ever need to, you should equip yourself with the relevant knowledge well in advance. As a side note, if you ever get to the Landlord & Tenant Board, it doesn’t matter what your lease says because if it cannot be upheld in the Landlord & Tenant Board, then the actual signed lease itself means nothing. All rights of tenants and landlords as per the Landlord & Tenant Board will superceed the language used in any lease. An example of this is prohibiting pets in a rental unit. As per the Landlord & Tenant Board, you cannot forbid a pet from being in your unit, so it actually doesn’t matter if it’s in the lease or not.

The FAQ – The 2 most common questions that I get are, “How do I increase rent?” and “How do I evict a tenant?” I’ll break down these 2 common questions below in further detail.

#1 – How do I increase rent?

You simply need to fill out the N1 form (Notice of Rent Increase), which you can find in the link below.

N1 Form:

Make sure you adhere to the maximum allowable rent increase as per rent control. In 2019, the maximum allowable increase is 1.8%. We’ll soon find out 2020’s allowable increase. I highly doubt it’ll be much more than that of 2019. If you are not sure whether your investment property is under rent control, all you need to know is if your unit was completed before or after November 15th, 2018. Other than a minor exception for major renovations, if your investment property was completed before November 15th, 2018, then your property is subject to the rent control rules. If the property was completed after November 15th, 2018, then your unit is not under rent control and you can increase your rent past the maximum allowable amount on lease renewals.

#2 – How do I evict a tenant?

The most common reason for evicting a tenant is a result of late rental payments, so I’ll use that as an example. If you wish to evict a tenant for late rental payments, then you must file an N4 form (Notice to End a Tenancy Early for Non-payment of Rent). This form can be found in the link below.

N4 Form: 

The N4 is the notice that must be served to your tenant in person or by mail before eviction. The N4 is the legal notice from the Landlord & Tenant Board telling your tenant that they must pay rent. You can only take the next steps of submitting a L1 form (Application to Evict a Tenant for Non-Payment of Rent and to Collect Rent the Tenant Owes) only after 14 days from when the N4 was served if handed to the tenant in person, or 19 days if mailed. From there, you will be in the queue to go to the Landlord & Tenant Board and get a date. If the judgement is ordered for an eviction, a Sheriff will then be hired to evict the tenant and give you vacant possession. This entire process can easily take anywhere between 4-6 weeks.

So if you don’t treat your investment properties like a business and file the N4 immediately, even if your tenant is 1 day late, it could spell trouble for you because it’ll only delay the 4-6 weeks that it normally takes to evict a tenant. Imagine giving the N4 notice 2 weeks late. This means it’ll take 8 weeks or even 2 months for you to evict your tenant, and during that period, the tenant doesn’t have to pay any rent.

The “professional tenants” who understand this can manipulate the system and I’ve heard horror stories about tenants taking as long as 6 to 12 months to be evicted, meanwhile the landlord is out of pocket for all of those months. At the end of the day, again, this is why you should always treat your investment properties as a business!

The Wrap – Do not worry if you’re reading this and the entire process scares you. Our team has contacts with paralegals that have dealt with this situation before. This is simply another perk for working with our team. If you’re ready for your next investment property, then make sure you reach out to me, Zhen at Zhen@PrimePropertiesTO.com to get started and more importantly, to protect your investment!

If you have any further questions regarding the Landlord & Tenant Board, you can read up on their frequently asked questions page here: http://www.sjto.gov.on.ca/ltb/faqs/#faq5

Until Next Time Happy Real Estate-ing,

Zhen