Go down in Alberta rent?

svalkama

sami@exitratrace.net
REIN Member
Oct 15, 2011
10
3
3
Kelowna
#1
We own properties mostly in Alberta. A current Airdrie tenant is asking for a lower rent with a lease renewal. This is due to the family's income being lower than before (or she checked the current rent levels).

We are looking for advise on how to handle this as the Alberta economy is what it is...

The tenant is good, pro-active and always pays rent on time. She is asking $1,600 vs current $1,850 for a higher end 3BR townhouse. The property would still cashflow $300.
 

CorySperle

Senior Forum Member
REIN Member
Sep 1, 2010
660
400
63
Edmonton
#2
You have to be proactive and lead the market to the current reality. Ask youself if losing 3K is worth the headache of finding another tenant, maybe having to upgrade, and having a vacancy for a month or two? I know what I would do.
 

ThomasBeyer

Senior Forum Member
REIN Member
#3
I would take it. Budget that rents are down about 15% in Alberta in 2016 from peak in 2014. What they ask is in line with what you would get, without any vacancy, if you re-rented it. Hanging on in AB is the name of the game to 2017. Some landlords / house owners will get crushed in 2016 in AB due to excessive leverage, excessive rent assumptions, far higher vacancies and lower rents.

It will get better in 2017, most likely. Until then, cash is king and cash-flow is queen (TM).

Of course, the recent flare up between Iran and Saudi-Arabia due to the execution of a prominent cleric might be just the beginning of escalating tension between the two largest oil producers in the Middle East, perhaps used by either side as a good excuse to bomb each other's oil infrastructure. Oil might shoot up $20 in short order. As such, what happens there, far far away, might affect you in Airdrie, AB.

Also, since there is no rent control in AB, you can always go higher $200 in a year or two when market becomes tighter again ( unlike in BC or ON).
 
Last edited:

kfort

Senior Forum Member
REIN Member
Sep 1, 2010
1,468
250
83
#5
Take it, write it up as the FINAL month of their lease reduced by the total (in your case I think that's free) IF, all previous months are paid on time and there are no other breaches of the contract. Let them know this is their bonus for being awesome and that while it may be difficult, it gives them more than what they will likely need to hire movers should they decide to leave at the end of the term.

Essentially, push the rebate till the end to keep them paying on time
 

markbrad

Inspired Forum Member
REIN Member
Oct 25, 2007
144
3
18
47
Stettler, Ab
#6
May I suggest keeping the rent the same on the lease and offering a monthly rental rebate if rents paid on time. Does 2 things.... ensures your rent is on time, and gives a solid number on your lease for the bank to work with should you look at doing any financing options
 

alaas

Frequent Forum Member
REIN Member
Apr 24, 2011
287
74
28
Edmonton
#7
May I suggest keeping the rent the same on the lease and offering a monthly rental rebate if rents paid on time. Does 2 things.... ensures your rent is on time, and gives a solid number on your lease for the bank to work with should you look at doing any financing options

Good idea in theory, however the banks often still require proof of payment to match the lease, i.e. cheque stubs, bank deposits etc.
 

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
840
339
63
Calgary
#8
Lower rent is a reality in AB...as I've been saying for the past 8 months.

If they are good tenants, pushing the rebate to the last month is a good strategy as indicated by Kristopher above.

Keep in mind that you are dealing with a January turnover. For smaller investors, never put your turnovers beginning December - end February as you will almost always have more difficulty managing the turnover. It is now time to be creative with the lease! Consider a six month fixed term lease or something similar to get you out of the gloomy Alberta feelings going on in the paper right now. You will not need to give any notice to get out the tenant and it is a lot easier to manage the turnover in the summer. There is no law that the lease needs to be 12 months. Pick 3, 5, 7, 9, 12, 15 months.... whatever works best for you.

Don't take Alberta's temperature based on December - February lease turnover rates either. My philosophy is as close to zero vacancies as possible. So lower rent means a better customer (if you know how to advertise). Set the rent lower in these months, fill up the suite. If you wait one month for an extra $100 / month rent and lost $1200 / month having it vacant you lost money in my books.
 

RedlineBrett

Senior Forum Member
REIN Member
Oct 24, 2007
2,290
46
48
Calgary
#9
Do your own homework to see what you could rent the suite for if it was on the open market. If the difference is 8% or more (so one month's rent) most tenants will walk across the st. for the difference. You raise rents when them market bears it, andyou lower them if it won't...
 

MonicaPaslawski

Frequent Forum Member
REIN Member
Nov 27, 2010
98
33
28
55
Grande Prairie
#10
Great conversation - I just had the exact request in Grande Prairie. He is currently on a month to month Lease. I dealt with it by offering a fixed lease at $1645 or a new month to month at $1725. He liked the second option and seems to be happy with the deal. I really appreciate the above comments and especially the financing bit. I don't like the month to month lease, but agreed to it a year ago as he is into his third year with me. He's a decent tenant, and pays rent on time.

Here is another question for the group. This is a newer side by side duplex. The other side is rented at an effective rate of $1800 per month with the lease ending in May. Great renters - better than the side I just gave the deal to. Take care of the place beautifully. Should I offer them the same deal now, or wait until their lease expires?
 

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
840
339
63
Calgary
#11
^ I might hold off until the end of January. I would greatly try and avoid multiple month to month leases. It is a bit of a false savings in my opinion in a market that might jump up with vacancy at any moment.


Source: http://www.qp.alberta.ca/documents/Acts/R17P1.pdf

With a month to month tenancy, you are owed one single month notice. You could end up with two vacant units in the same month.

I would personally start the conversation about what their plans are and ask what they are looking for in the coming year. You might be able to provide some property enhancements (new closet doors, new appliances, ect. ) and not need to adjust the rent at all. I would not personally offer the same deal without knowing what the customer wants.
 

eatarini

Betty Anne Tarini, Realtor, Baxter and Associates
REIN Member
Oct 18, 2007
17
4
3
Calgary, AB
#12
Metro News has big ads today offering $500 off February rent for new tenants, which is enough to get my tenants thinking of a move (we are solely in Calgary). I haven't had calls yet from tenants asking for rent reduction, but I've had calls from other management calls for references on tenants who haven't given me notice yet. And I have 4 stubborn vacancies for which the phone does not ring, despite constant tweaking of rental incentives. This recession feels different than the last one. Even Calgary Housing is advertising on Rentfaster!
 
Likes: Rickson9

ThomasBeyer

Senior Forum Member
REIN Member
#14
. This recession feels different than the last one.
Because it is not a normal temporary recession but a calibration down to a new normal: wages, taxes, government incompetence, debt levels, growth, house prices, rent levels ... 2016 will be brutal in Calgary and may improve in 2017 or perhaps only in 2019 with a new provincial government. Severe headwinds until then from low gas prices, low oil prices, pro Union policies, higher taxes, higher minimum wages, utterly inept provincial government out to handcuff Alberta's core businesses including Canada's largest industry, the oil sands plus an indifferent federal government ready to sacrifice the colonies for more votes in Ontario and Quebec.
 
Last edited:

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
840
339
63
Calgary
#15
As an investor in Alberta right now, you are going to very quickly see the bones of your portfolio. Did you develop properly? Does the property compete with the huge stock of empty and incoming rental product? How leveraged are you?

If you developed suites with 80% initial LTV and paid cash equity to develop, you are not beading sweat. I'm not beading sweat. But if you bought five houses at 5% down and releveraged in 2014 and now have $1800 mortgage payments, you are in for an ugly ride.

The key right now is flexibility and customer service. If you nurtured relationships with your tenants and picked tenants based on lifestyle fit to the property and not because they paid the highest rent you will be fine. My renters are not dummies. Recession or not, it costs $500 (pretty much minimum) to move and is hugely inconvenient. Plus the properties are maintained. And I make sure they are taken care of.

Don't underestimate the value of customer service! It is worth a premium for a whole family and some relatives to be living in a home (if you have a suited home). Kids often have schools and bus schedules and no one really wants to move. No need to become gutless because people tell you we are in a recession.

Don't forget who is not in a recession: teachers, public service employees, nurses, medical staff, ect. We are growing, growing, growing with these numbers in Edmonton and their wages and jobs are secure for the next several years.
 
Likes: Rickson9

ThomasBeyer

Senior Forum Member
REIN Member
#16
I have never been this pessimistic about Alberta since I arrived here 30 years ago. The Alberta advantage is gone gone gone. Holding onto to well located sensibly levered assets is critical. Having cash reserves is critical. Having customer service at appropriate, likely lowered rent levels is critical indeed.

It will get uglier before it gets better, at a lower wage scale ( except of course for public servants) at lower rents with lower house prices.
 
Likes: Rickson9

RedlineBrett

Senior Forum Member
REIN Member
Oct 24, 2007
2,290
46
48
Calgary
#18
I have never been this pessimistic about Alberta since I arrived here 30 years ago. The Alberta advantage is gone gone gone.
Hard words to read and take in from someone as experienced as yourself. But we are decidedly on the mat after a one-two punch losing two conservative governments in 2015 and enduring an oil price war. Are we going to stand up or get counted out?

These market conditions will create opportunity for some. My business took off coming out of the last recession. We are doing so again, taking market share from the old guard that are seemingly content to take their lumps, blame someone/something else rather than innovate and embrace change. It will be harder to make money in real estate and many will exit the business, divest their portfolios, "retire" etc. For the committed professionals looking beyond a couple years, this will be a window of opportunity not to be missed. REIN members have the distinct advantage of being able to network with one another to stay ahead of layperson.

My advice on getting through this? Not that anyone asked for it but I'll give three pointers:

1. Stop reading the news. It's the same story over and over again. It's all bad, and it's depressing. The media piles it on. Avoid those that have nothing positive to say or else they will pull you into their pit of despair.
2. Optimize what you have. In a growth market we all too often get caught up in the 'next deal', and don't pay enough attention to operations. There is likely money slipping through your fingers with your current enterprise, regardless of size.
3. Become a forward thinking beacon of hope in the eyes of those around you. It will attract people and deals to your business... others will rally around you because you are going somewhere. Negotiating becomes easier.

The deck is being shuffled.... our market is re-calibrating or adjusting or whatever. Spend your effort focusing on what you can control.. to best take advantage of it.
 

ThomasBeyer

Senior Forum Member
REIN Member
#19
Wise words Brett & I wholeheartedly agree.

Tough though to make money in real estate in a falling market unless

A) you are a manager that takes a fee or

B) a lender. Loan to own will be a profitable business for a few years, or

C) you build government funded projects

We do A and B. Being a real estate owner in AB will be tough. The best you can hope for is not to lose money as cash flow plus mortgage pay down might not equal value loss. We have paired back many planned upgrades and vastly increased cash reserves.

Yes the deck is being reshuffled big time.

I know the destructive force of socialism from first hand experience in Europe. We will see it in AB now. Most Albertans have no idea about that especially young ones. They will see how tough it is to get a decent job.

Optimism always helps but realism is better.

1/3 of our equity is in the US. Too little in hindsight. Over half is in AB, far too much in hindsight. If not losing money is the best one can do in AB then one needs different strategies. Play not to lose as opposed to play to win. Playing in the rain is not nearly as much fun as playing in the sunshine.

Reporting from the crowsnest, looking for icebergs. The cap
 
Last edited:
Likes: Rickson9

Rickson9

Senior Forum Member
Registered
Oct 27, 2009
1,124
26
48
#20
It will soon become easier to make money in AB real estate. It's early days. Lots of time to wait, watch, and learn.

Always read the news every day. For investors who love AB and want to invest in AB, the news is encouraging. Study, prepare and plan.

Don't be pessimistic or optimistic or realistic. Be opportunistic.

The time to look for icebergs was when it was clear skies, everybody said it was smooth sailing. Once the iceberg has been hit, there's not much point in finding it. It has already found you.

Negotiation is easiest when everybody needs to sell. The deck is being shuffled so be prepared for everyone to rush to give you a seat. Let the market clear your path. It's your time to shine.
 
Last edited:
Likes: valeeo