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The Business of Owning Income Properties





Lets talk about how to run the best and most profitable housing business. That’s right: you are in business now.

A neophyte mistake people make when they end up with an extra property is to fail to recognize that they are in a whole new business, with rules, regulations, and demands specific to that business. In short: they don’t do their homework. They just figure they’ll rent out their property and everything will be fine. In my business of renting out properties on behalf of owners, I have met hundreds of landlords and this is the most common way landlords get ripped off.

Know the Rules

When landlords do end up at their province’s “quasi-judicial” landlord and tenant agency because they have problem tenants, they learn that the standards for landlords are higher than the ones for tenants. The reason is because landlords are in a business: they are supposed to be professional; they are supposed to know the laws; they are the ones who make a profit. Why shouldn’t they be held to a higher standard? This is not the best time to start learning what you have to do to remedy whatever breach your horrible tenant is causing. The best business practice is to learn the legislation and the way it is applied before you even have a tenant and long before you really need it.

Here are the provincial governing bodies:

Let me share an analogy I use when explaining this to landlords. I enjoy cooking. In the past I have hosted dinner parties to rave reviews. If decide to go out and start a restaurant, I have crossed a significant threshold: I have stopped being a “good cook”, and become a “restaurant owner”. The way I cooked in my house for my guests, and the equipment I used are no longer appropriate. There are now laws I have to comply with in order to operate a restaurant: I must maintain my fridge at a certain temperature; I must have different areas for preparing meat and vegetables; different sinks for washing different things, etcetera. As a new restaurant owner, I absolutely must learn my business and comply with the laws so that I can maximize profits.

My challenge to landlords is to stop complaining about your business environment and resolve to be the best and most professional you can be. I will freely admit that in Ontario the laws are skewed towards the tenant! If you don’t like it (and I don’t) get involved in an organization that tries to make legislative change such as the Greater Toronto Apartment Association (GTAA). Put your money where your mouth is, and pay your paralegal to review the orders you think are inequitable.

So what, as a professional landlord, do you need to know? At the minimum, read your province’s information on landlord and tenant law. On the Ontario Landlord & Tenant Board website, there are brochures available to inform landlords about numerous subjects, plus actual Orders of rulings made by the Adjudicators.

If you do find yourself at the Board, remember it’s not kindergarten, where the teacher mediates ”I said he said” arguments. You need proof. You need witnesses. You need documentation. You are there to win or make the best of a bad situation, not to vent, protest, cry or complain. It’s almost impossible to be calm and composed when faced with the worst of the lying cheating deadbeats. If you don’t deal with these types of situations well, do yourself a favour and hire a paralegal or other professional to represent you.

So why am I embarking on this bit of a rant? I want you to keep you out of real trouble and I want you to be successful and make money.

Treat Income Properties as a Business

Some of you are likely wondering what I am talking about. Here are examples of actual situations I have dealt with in Toronto: I have entered houses with visible mould on the walls; I have seen places so dirty I wouldn’t allow my dog to enter the premises; I have seen places without kitchen cupboards, doors or drawers. These are all places the landlord considered rent ready, or that they wanted me to rent “as is”, or that they agreed needed to be changed, then reneged when the tenant rented.

The industry as a whole needs to stop thinking in terms of “landlord” and “tenant”, and start thinking of themselves as “housing providers” and “customers”. That means providing customer service. Our customers pay us thousands of dollars annually and we need to respect that, even if some of them are not respectable. It’s just good business to treat our tenant clients well.

You must provide them with decent service. The best of tenants can turn into nightmares if you abuse them by leaving them without heat or hot water and generally not maintaining your property. I have seen this happen time and time again. Don’t let this happen to you.

Select the Right Tenants

So what else can you do to ensure your success in the housing provider business? I cannot stress this enough: to make money you must attract the best customer. Tenant selection is absolutely essential to profit.

What criteria make a good tenant? I have learned that most people are the way they are in all areas of their life. If they pay their other bills on time they’ll pay their rent on time as well. So, my preferred candidates would exhibit strong money management skills and an organized life. I don’t recommend the method of one landlord I know who picks tenants using astrology. (Selecting great tenants will be a whole other post soon.)

In my years in this business I have seen both the best and the worst of landlords. I urge you to rethink your business practices to set your self up for success rather than for problems. Look at your processes and how they can be improved. If you have staff, check on them. There is no profit and a world of aggravation for slumlords. Refuse to compare yourself to the lowest common denominator and strive to maximize your asset, your profit and your peace of mind.

About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.





16 Comments, Comment or Ping

  1. 1. PawDoc

    Thanks Rachelle, I like your view point. I look forward to reading more by you in the future.

  2. 2. Steve

    Very good post. When I was in university I rented from several different landlords. One of them “got it”, realizing that making your tenants happy will make you happy. Two of them did not get it.

    Unfortunately, most landlords of student housing in my area were immigrants, and did not understand legalize at all, let alone the tenancy protection act.

    I had to make myself quite familiar with the TPA do defend my rights and roommates rights on several occasions. The worst of which was when I had to call the police. The landlords believed it was their home, and they could do whatever they wanted. After the police told them they were breaking the law and better get a lawyer, they did, in order to find loopholes to evict us (claimed daughter would move in) but instead started renting out to other immigrant students and refused to sign leases so everything was off book.

    Eventually the sold the house for a steep loss after tenants had pretty much destroyed it.

  3. 3. Mitchell

    Hi Rachelle, Thanks for taking the time to put a fresh outlook on the rental income property game. I suspect that like many other service type industries that there are too many “owners” in the game to make a quick buck; without investing the time to ensure year over year success.

    M

  4. 4. Alexandra

    Great post – looking forward to hearing more.

  5. 5. Rachelle

    You guys are making me blush….

  6. 6. Sean

    This comes at a great time, as we are finalizing our first rental this week!
    I’ve been doing a lot of background into the legalese & am treating it very much like a business.

  7. 7. Jungle

    I have been a landlord for almost a year and I believe it’s in your best interest to keep your tenant happy as they can screw you over big time. Select them well, keep them happy and do what they ask within reason.

  8. 8. Peter B

    I always joked around with my friends about eventually becoming a slumlord. But all kidding aside, customer service is key in any business and I will be a ‘housing provider’ sooner rather than later.

    Great post!

  9. 9. Future Money-Bags

    Very Great post, worth staying awake 5mins longer for! Thanks Rachelle.

    And thanks to FT for continuing to have many good guest-writers, as well as yourself, write about RE Investments. I am young and I’m trying to learn as much as I can, as fast as I can; In order to maximize the benefit of buying a place this year.

    I will keep studying and hopefully be in the business soon!

  10. 10. DavidV

    I’m buying my tenants a BBQ this summer. I figure that it will make their summer more enjoyable, keep them positive about the place, and when they eventually leave, it’s something I can offer to other tenants.

    I was told that small things that can set your place apart are key. A BBQ isn’t expensive (and is a tax deduction), but even if you could get a free one, the cost to you as landlord is minimal, but the fact that the tenant can use it and they can bbq is a big thing for them.

    Great post as usual Rachelle. For those that like this post, she posts a lot of great things on the Canadianmoneyforum in the Real Estate Section. I’ll let her share her username.

  11. Great post! Selecting the right tenants is a crucial step when owning income properties. I hope to one day be able to own income properties but I must first generate money to buy my property. I know it takes a lot of work to own an additional property- much more work than we can think of prior to purchasing. The information you provided is very detailed and much appreciated.

  12. 12. NorthernAlex

    Rachelle, thanks for pointing out how it should be! Great article. I own approx. 18 doors and co-manage/supervise/advise for friends and family another 20 doors- and it “seeing it as a business” is the most important step.

    Seeing it as a business also means acting like a business. Not only being nice to the clients, but also knowing their and own rights and acting by them.

    Good clients should also be rewarded if they are good clients. And they should know it.

    I write to the good tenants a personal (hand written) Christmas card in December and add a gift card. I NEVER give a rent rebate as it would cost me potentially if I would consider to sell the property because of lower revenue.

    It is not rocket science, but can be nerve-racking (if you have a “professional” tenant) or time consuming (if you had a fire or the neighbor and your basement is now full of water)…., but it is often rewarding if you are allowed to accompany some tenants through life!

    I m looking forward to read more from you.

  13. 13. used tires

    I current have tenants that work for a reputed company so the company handles the payment and that makes my life a lot easier. The only downside is a slightly higher tax but it’s worth it for the peace of mind. It’s definitely wise to scan them first, that’s for sure.

    Till then,

    Jean

  14. 14. David

    Rachelle, I must say I agree with most of your post, I have been a landlord for several years, and this is how I run my rentals, running it professionally helps get good tenants and keep good tenants, and this is the type of people I want to deal with. Having said that, there are low life people out there, who will never take care of a place, and these people do need somewhere to live. They generally look for the lower rent properties, and there are landlords (or slumlords) out there that do provide this; a lower class rental for a lower price for a lower class person. I for one do not want to deal with these people, so I do not offer this type of property, but there are landlords out there who do this, can deal with it, and make a business of it, and I believe they are needed.

  15. 15. MJones

    I live in a semi-detached house I own, unfortunately, next to a slumlord. He always gets lovely families in the house connected to mine, and then treats them very badly. He never does repairs, when he does he botches them because he refuses to hire professionals, there is mold on the walls due to pipes he won’t fix. The last tenant was actually locked into her house for two days because all of her doors froze shut in the winter–An issue that happened because of one of his botched ‘fixed-it’ jobs!

    He does the same thing to every possible tenant. Claims the tenant before them did the damage, etc., but as a neighbour who OWNS the house attached to his, I know for a fact that the issues are long standing, if not permanent. He once left a tenant with small children without heat for an entire weekend in the dead of winter and got angry when she called the city to get the furnace repaired and he got the bill. And yes, I’m a damn good neighbour. I tell the tenants about the problems previous tenants have had. In my mind, the landlord is a crook who is possibly causing damage to the house I actually own–There is a crack in his foundation he is refusing to fix. I suspect it is the cause of some small wet spots in my basement, because no one can find the source of it, and our basement isn’t a damp swamp like his.

    Basically, if you are a landlord and you plan on being one who ignores the law and treats your property like a holey tent and your tenants like they are just a check you get regularly, chances are they aren’t the only ones likely to complain. No one wants a slumlord in their neighbourhood, especially another property owner. You will get reported, and you will face some pretty hefty fines. What was said in this article is so important–Being a landlord is a JOB. It is a BUSINESS. Treat it and your customers and the law with the proper respect and you will not have any problems.

  16. 16. Walton

    Can I claim rental expenses and CCA if my property has not generated rental income yet?
    If my rental property is idle for a year, even though I try hard to rent it out, how are the tax rules applied in this case?

    Thanks for advice !

    Walton

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