Rent Increase NOT allowed!?

[ycheun2]

Hello all,



I am a newbie in this real estate investing here and am trying to learn the ropes from all you guys! I just read an article that the Ontario Tenancy Acts says we cannot increase the rent MORE than what is set up each year by the government, I think it is 2.5% or something.



Therefore, to increase rent substantially, say 10 to 20 percent, can we just sign the rent agreement with the tenant for 12 months and after the 12 months, we remove the tenant and get the new tenant and hopefully, we can increase rent susbtantially for the new tenant.



I am not sure if this is allowed by the law. But in theory, if the rent agreement ends, we have the right to remove the tenant and re-set the rental fee with the new tenant, right?



Shirley

 

[RussellWestcott]

Hi Shirley,



Great question. Unfortunately in Ontario it is not that simple. At the end of the lease the tenant has plenty of rights namely...



"Landlords may only terminate a tenancy for specified reasons as set out in the legislation and cannot terminate simply because a fixed term has expired."



In Ontario you can not end a tenancy just because the term ended, it doesn't seem right but those are the rules in Ontario. Knowing the rules of engagement is critical to success in Real Estate. Education, support and and surrounding yourself with people taking action are paramount for Real Estate investing...so you're on your way!



Make sure you have a look at the Ontario Landlord Tenant Act and keep asking questions here as there are plenty of Ontario members with a lot of knowledge around management.

 

[JoeRagona]

HI Shirley,



Russell is correct - you cannot just 'remove' the tenant for no reason here. The rent control has it's good and not so good points in my opinion.



One is that is forces you to look for great cash flowing properties based on other factors rather than just trying to increase your rent by 10 or 20%. (Wow that would be great)



It doesn't mean rent increase is less important, I would just focus on finding great deals which make you money 'when you buy'.



Also, I'm not so sure I would want to be searching for new tenants on purpose every twelve months. I like simple, long term, slow growth with as little work as possible. Finding great tenants that satisfy part of that equation is very important to me as it allows me to look for other 'buying' opportunities.

 

[Thomas Beyer]

Welcome to Ontario .. the land of socialism and RENT CONTROL .. a practice common in Europe, BC and a number of US states !



Perhaps by the next provincial election people will make the "right" choice !



In Ontario you can raise rents in 2011 less than 1% on existing tenants .. namely 0.7% .. and that in a year when a lot of expenses go UP due to the new HST that is now added to many existing expenses like utilities AND in a year of rising utility costs. It is also referred to as "vote buying".



The only way to substantially increase rents in Ontario is if tenant moves out ..

a) voluntarily, or

b) perhaps induced by you with some $s, or

c) because you plan to substantially renovate the unit. Even if tenant moves out because you plan to substantially renovate, he has the right to move back in after the renovations at a pre-described increase .. NOT the market rent !



Govern your purchase price/offer strategy and management strategy accordingly.

 

[orei]

Thomas, could you explain to me why this would be vote-buying?



It seems to me that the group most aware of this 'rule' are landlords, who view it negatively. The bulk of the population doesn't know anything about it. Is this not quite the opposite of vote buying?

 

[JohnS]

First off, I believe you're mistaken in thinking that landlords are the ones most aware of this. Most tenants here know that their landlords can only raise the rent so much, and even if they don't, their friends will. Some tenants might not know the specifics behind it, but the amount is mentioned in the media semi-often, so the information is readily available. (It's mentioned every year when they determine the amount, and then often again at the start of the new year, when the new amount comes into effect.)



So, it's vote-buying because there are so many more tenants than investors, and it's easy for politicians of all stripes to claim that they're on the side of the masses and against the rich slumlords. It's one of those short soundbites that seem to make sense when you first hear it, but that quickly falls apart under investigation. However, the masses aren't particularly known for their desire to investigate.



Have a good one!



JohnS

 

[terri]

the increase guideline for 2011 is 0.7%

 

[housingrental]

To answer your question:



Property owners that own rental properties are only a few percent of the population, and are often spread out geographically.



Renters make up approximately 30% of the population - approximately 10 times more renters than landlords - and often in pockets of density.



On average a good chunk of landlord vote right.



On average renters votes are more split between parties.



Creating policies that (give the perception, if not long term reality) of benefiting renters is good politics. Not good policy, but good politics.



So we end up getting a maximum rent increase allowed of 0.7% - instead of 4%....

 

[Hamiltonriver]

Terri,

Where is the rent increase guidelines posted for this year?

 

[orei]

You can find the guidelines with a quick google search. One of the top results will be:



http://www.ltb.gov.on.ca/en/Key_Information/STDPROD_067677.html

 

[RussellWestcott]

[quote user=terri]the increase guideline for 2011 is 0.7%


Yikes! This is tough to swallow especially since we are not able to pass along the HST! We as property owners need to be better operators, keep tabs on our expenses and pay close to our mortgage portfolio. This will be a good year to find some deals from 'accidental landlords', and property investors who do not treat their properties like a business. Lets hope next year is a bigger increase.



[quote user=housingrental]To answer your question:



Property owners that own rental properties are only a few percent of the population, and are often spread out geographically.



Renters make up approximately 30% of the population - approximately 10 times more renters than landlords - and often in pockets of density.



On average a good chunk of landlord vote right.



On average renters votes are more split between parties.



Creating policies that (give the perception, if not long term reality) of benefiting renters is good politics. Not good policy, but good politics.



So we end up getting a maximum rent increase allowed of 0.7% - instead of 4%....


Adam this is a good summary of the situation and summary of the market right now... there is good news with 30%+ of the market place as renters, and I see this number growing, we do have a large pool of potential customers... now to find the good ones

 

[housingrental]

Hi Russell



You have a point. Perspective matters.



There is also a positive in everything

 

[Thomas Beyer]

[quote user=orei]Thomas, could you explain to me why this would be vote-buying?



It seems to me that the group most aware of this 'rule' are landlords, who view it negatively. The bulk of the population doesn't know anything about it. Is this not quite the opposite of vote buying?




Someone has to vote for the party in power. For example people who love to live in rent controlled buildings well below market rents care of the subsidy of governments. There are far more renters out there than landlords .. so why not take from the landlords and give to the renters. It is called socialism. Take from one group and give to another for an overall LOSS in societal value, due to lower economic activity and dis-incentive to spend money !



Rent control in the 4-5%/year range seems far more reasonable, like in BC, but still it may take you 8 -9 years to get rents to market in an asset that you bought with rents 30% below market. It negatively impacts the supply of rental properties and it impacts how much money landlords spend on upgrades .. usually zilch. It is not good for the local economy. Less plumbers, painters, drywallers, carpet layers, HomeDepot people etc. get employed !!



Some once told me:



If you're 20, and you're not a socialist, you have no heart.

If you're 40, and still a socialist, you have no brain !