Strategy for raising rents

[surfermoe]

Hi folks -

I currently have an offer on a 5-plex and the property will only be profitable if I`m able to do a minor renovation to each unit (doing that renovation will effectively turn each 1-bedroom apartment into a 2-bedroom apartment).

To do the renovation I obviously need each tenant to vacate their apartment. My understanding of the Residential Tenancies Act is that I`m able to terminate tenants` leases (with four months` notice) if I give them first right of refusal to come back to the apartment.

Does anyone have experience doing this in Ontario? I`d greatly appreciate knowing how this process works, and if it`s as hard as it seems.

Cheers,

Moe

 

[Kimberly]

Moe:

Best to call the Ontario Landlord and Tenant Board...the information can be found on their website.....http://www.ltb.gov.on.ca/en/index.html.

Love to know what they tell you... when I questioned something similar, they told me about the first right of refusal but they`d also be at the same rent as well... so I thought what`s the purpose of spending money for the same rent...didn`t make sense to me, so naturally I didn`t go ahead with the reno. Let me know if find out something different.

I also think that Carol Garrbett from Hamilton has a lot of experience with the Board, and knowing what to do, so you might want to contact her.

 

[terri]

QUOTE To do the renovation I obviously need each tenant to vacate their apartment. My understanding of the Residential Tenancies Act is that I`m able to terminate tenants` leases (with four months` notice) if I give them first right of refusal to come back to the apartment.

Hi Moe,

yes you do need to give them first right of refusal to come back at same rent (or very small increase within guideline). they can also appeal the the board to not move out. If the board deems that the renovations are not required they choose to side with the tenant and prevent you from making them move out. It`s often best to work with the tenants:

You can discuss the possibility of doing the renovation and increasing rent above the guideline. I`ve done this before, renovated to suit and raised rent $200/mo. I also moved them to another apt during the renovation and gave them 2 months free rent for their inconvenience. This was a win/win for everyone, I showed them all the materials and sample tiles and let them pick paint colours, they were very excited about it. By giving them 2 months free rent, it ended up costing them the same over a 1 yr period as it would have if they stayed at the same rent. I would not have been able to rent either apt out during that time because the whole building was under renovation so I was not any more that I would have been if they moved out.

You can pay them to move out permanently if they are agreeable. This would only work if they were thinking about moving anyway or the fiancial incentive is quite high. Keep in mind that between the lost rent during renovation and monies that you are paying them it may take a while to recoup the lost income

You can leave things as is until they move on their own and renovate for the next tenants.

find out how long the tenants have been there, if they are long term tenants then chances are no one will be moving any time soon.

 

[surfermoe]

That`s great information, Terri - thanks very much. A friend who invests in Toronto suggested I try something similar (i.e. pay tenants to leave, or temporarily move them), but it`s good to hear how it turned out for someone who has actually done it! The building I`m looking at has five units, and the tenants have been there for 2-7 years. Doesn`t seem like it would be easy to get them to move. And I`m not sure I want to get into that kind of situation for my first property!

Thanks to you also, Kimberley, for the suggestion to call the Board.

Moe

 

[invst4profit]

If your negotiations are still ongoing on the property you could add a clause that the building be vacant at time of purchase. The present owner would then be in a position to have to notify the tenants that due to the sale of the building they must leave. In this way if there is any problems in evicting the tenants you can pass on the deal.
This is not strictly legal however many landlords I have known of in Ontario do put this in there purchase proposal.

 

[surfermoe]

QUOTE (invst4profit @ Feb 10 2009, 07:56 AM) If your negotiations are still ongoing on the property you could add a clause that the building be vacant at time of purchase. The present owner would then be in a position to have to notify the tenants that due to the sale of the building they must leave. In this way if there is any problems in evicting the tenants you can pass on the deal.
This is not strictly legal however many landlords I have known of in Ontario do put this in there purchase proposal.

Good idea, Greg. My understanding is that tactic can only be used if the buyer says he/she is going to move into the property. That would be hard to justify in the case of a 5-plex.

Do you know landlords who have done this with multifamily properties?

Moe

 

[Thomas Beyer]

QUOTE (surfermoe @ Feb 9 2009, 11:41 AM) ... the property will only be profitable if I`m able to do a minor renovation to each unit ...
my understanding is that in (the Socialist Republic of) Ontario you cannot raise the rents on existing tenants even after the reno .. of course not all will come back .. and that you need "permission" to do a reno on an existing tenant !


I would recommend you`d do that only after a tenant moves out .. then do a reno and charge markets rents ..

 

[invst4profit]

I personally know of it successfully being done in both a duplex and a triplex in the past years(friends).
The key is in having the present owner doing the eviction. Given enough notice many tenants will be willing to move.
The greater the number of units the higher the risk of a tenant refusing.
This is the reason for your conditional offer. Worst case is you walk on the deal.
In Ontario if I were still buying small rental properties it would be a condition on any purchase offer where rents were below market or tenants were of a questionable quality.
No, on second thought, it would be a condition on every offer.

 

[Kimberly]

As part of a deal you can ask for vacant possession, but it`s my understanding that the seller then has to get the current tenants to move.. .ie offer a buyout.. ie $$$$. That`ll all depend on the deal - how many offers are received, how long it`s been on the market, how badly the owner wants to sell; what is being offered to buy the property;what the seller is prepared to pay to get the tenants out and then ultimately if the tenants want to move. Of course, if you or a family member will be moving in, that`s different.

In one of my deals, the vendor had a soft spot for his long term tenants, and my real estate offer was choosen over 4 others offering about the same, since I didn`t ask for vacant possession.