Rent Control

[Hutchym]

Hello All,



I tried to look up rent control questions on the search bar but got about 10 pages of posts so I figured I'd just start a new one!



How does rent control work over a couple years of owning a property? Lets say I started out renting for $800 a month and the Gov of Ontario decided rent could be raised lets say 0.5% 2% and 1.5%. Do I HAVE to reaise the rent every year If I want to take advantage of the rate change? Or is it possible to hold the rent at $800 for 2-3 years and than raise it the combined 0.5 and 2% all at once? Lets be honest its a waste of the tennants time and patience raising their rent $4 in a year. Of course these arn't real numbers but you get the idea!!



You know the other thing about this rent control is what if I had a tennant paying so much and then I received a property assessment and the municipality jacks the taxes on me? Is there a way to fight this? Should I also be including such things in my dillegence calculations?



All input is appreciated as always.



Mike

 

[Thomas Beyer]

You canNOT raise rents for more than a year. So if you skip a year or 2 you canNOT in year 3 give an increase for the 3 years combined.



Thus, if your rent is well below market ALWAYS raise it the maximum.



You can always try to get a mutual agreement for an increase, say you upgrade the kitchen or paint the walls and then tenant agrees to pay $125 more.



You can also propose to tenant to leave and pay him a voluntary fee, say $2000.



On tax assessment: if you think the assessment is above market value: appeal. We've done it many times and usually they agree to lower assessment if you have proof, say a recent purchase or a recent appraisal. Do not appeal if you know that the market value is higher than assessment. You just eat the increase as a "cost of doing business".



That's why we prefer to invest in non-rent-controlled provinces like AB or SK, as opposed to BC or ON !



Adjust your price for property accordingly !

 

[RandyDalton]

Hi Mike,



Every year the Ontario LTB sets allowable rental increase rates based on their expectation of inflation. 2011 the allowable increase is .7%. 2010 the allowable increase was 1.8%.



If you have a tenant move in during 2009, after one year (2010) you could have increased their rent by 1.8% as long as you give them 90 days notice and use the LTB rent increase form. After one more year, in 2011 you can increase the rent by .7%, again as long as you give them 90 days notice and use the proper form.



If you do not increase their rent in 2010, then you can still only increase the rent by .7% in 2011.



In regards to your question on assessments I am not sure I understand. Please feel free to clarify.



Regards...Randy D.

R&B Properties

 

[Hutchym]

Hello Randy!



I was pondering what could be done to help offset the cost of a major property assessment review where they significantly raise the value of the rental therefore increasing taxes on the property.



I understand that due dillegence should cover for these problems ahead of time. I also know that yes you can gain some of these expenses back in income taxes. However, in a unforseen birage of cost increases this could cut into the bottom line big time.



I was mostly wanting to understand the implications of rent control on the investor as "uncontrollable" expenses seem to be running rampant in Ontario right now. I just compare to my own household. I just had an assessment and they upped my property values by 20%, therefore increasing taxes. They township is also looking at slightly raising property taxes. Plus if you were to have a mulitple unit property where utilities are included and the investor had to pay the utilities, It seems odd that you wouldn't have the right to raise rent to cover this change. My personal electrical bill has went up significantly in the past year and as home owner I conserved significantly. The tennants would not care as much I'm sure.



Thank you for the help Thomas and Randy!



Mike

 

[Thomas Beyer]

[quote user=Hutchym] ... unforseen birage of cost increases this could cut into the bottom line big time ...


Why would the socialist government, or a tenant, care about your bottom line ?



In Ontario you have the choices I outlined earlier !

 

[Hutchym]

Hello Thomas,



Thanks for the ideas. I dont really like the idea of paying a tennant off all a years profits to leave. Its interesting the idea of completing some upgrades which essentially increase home value for the exchange of more rent. I suppose this would only work in middle class areas as those in lower class areas as many could not afford any increases.

Thank you for your help.



Mike

 

[Thomas Beyer]

[quote user=Hutchym]I dont really like the idea of paying a tennant off all a years profits to leave.


why not ? Pay him $2000 .. and raise rents maybe $250 .. depending on market, of course. An 8 months break even proposition .. a great investment !!

 

[bizaro86]

[quote user=Hutchym]It seems odd that you wouldn't have the right to raise rent to cover this change


While I agree that isn't rationale, or even beneficial to tenants, that is the law in some provinces It's therefore important to make investments in consideration of the law, and make sure your purchases will still work for you if your expenses go up faster than your rent. The only alternative I can think of is to invest in property that doesn't attract rent control (I believe some newer properties in ON) or invest in an area without rent control. (Other provinces, the US, etc)



Regards,



Michael

 

[Thomas Beyer]

[quote user=bizaro86]t's therefore important to make investments in consideration of the law, and make sure your purchases will still work for you if your expenses go up faster than your rent.


or LOWER the purchase price to reflect lower rents or its inability to raise it with market conditions.



In fact, rent control shifts money from landlords to the public, it is a wealth transfer tax, in that it lowers property values !!

 

[bizaro86]

[quote user=ThomasBeyer]

[quote user=bizaro86]t's therefore important to make investments in consideration of the law, and make sure your purchases will still work for you if your expenses go up faster than your rent.


or LOWER the purchase price to reflect lower rents or its inability to raise it with market conditions.




Exactly. A lower price is really the only way a seller can compensate the buyer for reduced future income expectations. (Maybe favourable seller financing would work also)



Regards,



Michael