Tag: real-estate

How to Set up Property Management Systems for your Real Estate Portfolio

This post is going to be more of a guide on how to set up a Property Management System. This can work even if you just have 1 property to manage although the payoff is a bit better where you are dealing with more than 1 property. I’m going to assume a few things in the post, that we are mainly talking about property management for residential rentals, this could be any number of rentals, single family, multi-family. I’ll even have a section on short-term rentals like AirBnB or self managed BnBs. I do plan on discussing commercial real estate property management in a later post, but that will be focusing more on people who own retail, industrial, or office spaces.

Property Managers:

So you own a few residential properties and it’s starting to become a bit much to self-manage, or maybe would just rather have someone else handle tenant issues when they come up. The first and most important thing you will need is a property manager. They usually charge between 8-12% of rent in order to look after the property for you. You will still have to pay the expenses to hire the professionals if/when something breaks. But the property manager basically steps into your role and handles the coordination for you. There are different forms of property management. You can hire it out to a larger company who manages multiple properties for multiple landlords. You could try to find someone who operates more independently, small business style where it might just be one person that you sub-contract out the property management to. Finally, you could outright hire your own property manager on a salary, if you have the properties to warrant it.

Regardless which option you choose, it’s important to interview whoever you’re thinking of going with and do some background research on them. Make sure they already have pre-existing systems and a good track record of success in place. I’d also recommend interviewing some other people they manage property for to make sure they are good at what they do. Lastly, I would recommend whoever you work with putting some rules in place for the way that you want problems handled, you are paying them after all. Ask them if they already have standard operating procedures, if they don’t you can always work with them to build a manual of operations dealing with problems that come up at your properties specifically, spend limits on small issues, etc. Building a manual for dealing with problems is a good practice anyway especially if you’re planning to expand and hire your own in house property manager at some point. If you have a smaller number of properties it may be worth asking your Realtor. If you’ve bought an investment property with them in the past there can be some benefits to working with your Realtor. They have access to the MLS for finding tenants, they have worked with many investors and may even have investments of their own, and they may already have a property management wing to their business. From a Realtors perspective its good business to continue working with their past clients in any capacity so down the line you buy or sell your investments or primary residence with them, this can sometimes include property management. Either way they are likely to have some recommendations for you if you are looking for property management and they themselves don’t provide that service.

Tenant Screening:

With the value of properties across Canada continuing to climb, it is important to find great tenants. There are many different ways to screen Tenants, you can add this to your property managers manual. Nowadays the “standard” rental documents are last 3 paystubs or income tax return, Photo ID, landlord reference letter, employer letter, credit report and score, and occasionally bank statements to verify income. That’s a lot of stuff to sort through and depending on the market and the amount of demand in the market, you may not want to be the one doing the background checks and calls to employers. That is where your Realtor or Property Manager comes in. They can do a round of preliminary screening for you, and once they have found a candidate and screened them they can leave the final decision up to you, or you may decide to allow the property manager to handle the entire process. Nowadays it is also prudent to see what you can find from Googling or checking social media platforms to verify what you can about the tenants you are considering. Again, all of the steps of doing this should be added to an manual of operations if you want a property manager to handle everything.

There are many software’s out there nowadays that can do a secondary check, and I would recommend using one of these, the one that I have been using recently to screen tenants is called SingleKey. It costs about $25 per tenant to screen, but it goes in depth and checks criminal records, credit scores, and more. It gives that extra layer of security that makes sure the tenants are who they say they are by doing a deeper dive into databases that the public general doesn’t have access to.

Trusted Tradespeople:

When you are first starting out you many not have a list of tradespeople that you can trust to do a good job if something comes up at your property. Again, if you are unsure where to find someone I would recommend asking your Realtor if they have someone they can recommend. Otherwise if it is your first time using a particular tradesperson I would do a bit of a background check online about their business and see if they are established and legitimate, see if you can talk to past clients about their work. Over time you will build up a list of tradespeople that you know can get the job done right, on time, and at a good price and this would again be something you add to your manual of operations and who to call if something or other breaks, goes wrong, or needs to be repainted after tenants move out. A list of tradespeople that you might want to consider gathering are as follows: painter, plumber, electrician, cleaner, movers or junk removal (to swap appliances etc.), lawyer or paralegal (in case you need to evict a tenant), and Realtor to help find tenants.

Student Rental Property Management:

If you are planning to run a student rental near a University or College campus, the property management of this can get a bit more complicated since you are likely to get calls that maybe working professionals wouldn’t make, like changing lightbulbs, or fixing a hole in the wall. When working with student rentals it’s very very important to factor in the extra expenses that you will come across. This means painting every year if needed, possibly hiring cleaners every quarter to make sure the property stays in a liveable condition, having the correct (more expensive) property insurance, and ensuring the property is above and beyond fire code standards with regards to alarm systems. Student rentals can be a very profitable enterprise, but the management of them also requires more work. The manual of operations for the property manager will likely be different from a traditional rental  and take a bit more time to develop. You’ll have to consider getting co-signers on the leases, which is twice the paperwork and twice the screening. You’ll have to make sure that you either come to an agreement with the tenants about garbage, lawn maintenance, and snow removal, or you hire that out as well. You’ll have to consider to a greater extent how you want to manage utility expenses, baking it into your rent, or requiring each tenant to pay a portion (again adding overhead and time to the process). There are many considerations when dealing with student rentals, and you may get charged a bit more by the property management to manage these types of properties, but the one great thing with student rentals is that their rent default rates are extremely low. Parents are supporting them, the government and banks are happy to hand out loans. So it’s more unlikely you’ll be in a situation where someone isn’t paying their rent, but they may forget once in a while so you’ll have to stay on top of things. I will likely make a longer post detailing student rental considerations in the future and how to retrofit and property for it, finding good deals etc.

Medium or Short-Term Rentals (AirBnB):

If you are considering a short term rental business, you will again have different considerations from the other types of rentals I mentioned above. The biggest change is that you will have to have a cleaner basically on call all the time after each persons stay. Many companies exist that specialize in short term rental cleanings, and they will even send pictures after each cleaning, which I would recommend you request no matter the cleaner you work with. This can be even more profitable than the Student Rental business, but it also comes with more risk. If you are considering doing this and hiring a property manager, the fees will likely be closer to 20%. You also have to look into the area you plan to host your AirBnB and see what the rules are for doing so. For example Toronto has tried to crack down on AirBnB’s requiring a license, and only allowing people to rent out their primary residences. There are also many condo corporations in many cities that ban AirBnB or short-term rentals in their bylaws, so if you are looking to purchase a property in a condo specifically for short term renting, you have to confirm whether they allow this.

There are also many many intricacies to getting your AirBnB at the top of the rankings; such as uniqueness of the property, photos of the property, reviews etc. There are websites that can assist in your market research if this is something that you are considering doing. One website that is well known for researching the AirBnB market is called AirDNA. There are also software’s and websites that are built specifically to assist people who are looking to manage or operate their AirBnB’s which can help with managing bookings, cleanings, etc. You also want to make sure that your guests have someone responsive they can contact at all times to deal with their issues in a timely manner since your reputation is everything.

There has been a lot of talk about AirBnB fees becoming a bit excessive in recent years, and while it is a great search engine for posting your short-term rental, once you have more experience and more properties you may want to consider creating your own website, with your own booking system to avoid these fees. This works very well for many kinds of short-term rental operators. For example, there are many “mom and pop” more traditional bed and breakfasts that have minimal websites, a phone number to call, and an email to send an E-transfer to. This can work surprisingly well, and seems to be somewhat more common in rural areas that have been hosting people this way since before AirBnB’s were a thing. Niagara Falls or Niagara on the Lake are great examples of areas where this is more common. But this can also work in more populated areas like Toronto for example. There are some pros and cons to doing things this way, AirBnB has a system of dealing with guest issues that somewhat circumvents you as the host, but if someone is booking directly you don’t have that extra layer of security. But on the flip side, you get a direct line to people, and have more control over their experience and what happens during their stay and depending on the vibe you are going for some people may prefer the feel of a small local booking, compared to booking through AirBnB. Did I mention that this saves on the AirBnB fees? This does come with it’s own host of challenges, where instead of competing on the AirBnB rankings, you are competing on the Google rankings, which could arguably be more difficult. You are also going to have to work harder and operating your business this way will likely require a lot of word of mouth, whereas getting started with AirBnB is very low barrier to entry. Many people choose to do both, or start with AirBnB and then find a way to transition once they have become more established.

Conclusion:

There are many approaches to property management and many different types of rentals out there which is great as an investor because that means you can have a number of strategies for a property that you are considering purchasing, if one doesn’t work out, maybe the other will. Look out for slightly more in depth posts about each of these types of investments in the future. As well as posts about investing in retail or other commercial properties and how to go about evaluating those properties as investments. Hopefully you found this short Property Management overview useful and at the very least it got you thinking about the various ways to property manage and building out your own systems for your portfolio. If you have any comments or questions I’m available by email: oliver.foote@royallepage.ca.

Thank you for reading and have a great day!

Oliver Foote

Canada’s Supply Crisis Will Get Worse Before it Gets Better

It doesn’t take an evil genius to realize that the main thing driving housing costs so high in Canada around major economic centres is a lack of supply compared to the crazy demand we have. Last year we welcomed over 1,000,000 people to the country from immigration, international students, and most recently war refugees. Similar numbers are expected for 2023. The housing crunch will only continue to get worse because our pace of construction is not currently and likely cannot keep up with the demand anytime soon. There are a lot of things that caused these problems and continue to make it challenging to solve them, today I’ll discuss a few of them.

A study back in 2020 between Urbanation and the Federation of Rental Housing in Ontario was anticipating a rental unit shortfall of 200,000 units in the coming decade a new report published just 3 years later quotes the shortage at 300,000 units. The pandemic economy is one big factor that likely made these problems worse. The  momentum of building new housing slowed temporarily and construction costs exploded as inflation took hold. Followed shortly thereafter by the rapid increase in interest rates. This meant that simultaneously while costs were still high, the cost of money was also high. Causing many rental and condo projects to be outright cancelled or delayed. This means that around 3-5 years from now when construction was supposed to be completed on all these new pre-construction projects that didn’t sell this year, as well as rental housing projects that were stopped due to cost overruns. We will experience even tighter supply on the market due to the high interest rate environment we are currently experiencing.

Secondly, we stopped building rental housing through the 80’s and 90’s for a variety of reasons. Similar to today the 80’s were a period of very high inflation, construction costs exploded, and government policies were put into place which tried to transfer the construction of purpose built rental housing onto the private market. In 1968 the first condominium project was sold in Toronto. They were seen as a way for people to own the apartment they lived in rather than rent it. This aligned with the Canadian dream of “own your home” and made it easier for governments to justify slowing their investment in housing. As we’ve learned from decades of underinvestment and very exclusionary zoning bylaws. In a rapidly growing economy like ours turns out that solely relying on the private market to supply all the housing was not a great idea.

According to this report by the FRPO, Urbanation, BILD, and Finnegan Marshall published February 9, 2023. They state that purpose built rentals made up 9% of new rental housing supply in the GTA over the last 10 years and 90% of purpose built rentals were constructed between 1960-1979 (approx. 223,954 units). There is an interesting line in this report that bears quoting, “looking forward, more challenging investment economics should lead to a reduced share of condo investors who buy-and-hold and a lower level of new condo launches, placing more emphasis on the development of purpose-built rentals.” As is stands today around 59% of all condos in the GTA are purchased by investors. However, the report is essentially saying that as construction costs continue to climb, buying condos as investments will become a more and more challenging proposition as the number of units that cash flow positively on closing continues to decline. Construction costs quite sticky and often outpace inflation so it’s unlikely that there will be any relief to make condominiums affordable again.

One shocking and problematic statistic is that we are only on track to add 135,000 new rental units between condos and purpose built rentals, but we will still be short by 177,000 units. One of the biggest barriers to getting projects completed is the development timeline taking on average 100 months, which is about as long as it will take my to pay off my student loans. It will take a focused effort to shorten this timeline as a majority of the delays stem from paperwork, not actual construction. If a lot of red tape does get removed, I think there will be some very good opportunities for developers and people who understand how to re-develop properties into multi-units. They will be contributing to the rental housing supply, and it will likely become easier from a zoning standpoint to push these projects through.

Another interesting dynamic at play here is immigration. Canada was built on immigration, and we have an amazing culture and country that welcomes people from every part of the world to try and build a better life. Canada is a place where everyone should feel safe no matter where you’re from and everyone is connected by the fact that we are all Canadians despite our diverse and different cultures. From an economic standpoint without immigration we would have a declining population, which would mean fewer workers, and with baby boomers retiring the Canada Pension Plan would be somewhat screwed without new workers to replace the ones who are retiring and living longer than ever. So from a purely economic standpoint we need immigration. But one thing is clear, we’ve done a terrible job planning for it.

To be fair, some of it was unplanned, like the war in Ukraine. But even within the immigration which we control, we don’t seem to be managing it very well. There seems to be a consensus brewing that if we plan to welcome so many people, we have to have housing for them to live in. I’ve personally come across some crazy situations in my real estate work, one such situation being students who are living 7 people to a 1 bedroom apartment in Mississauga to keep their costs down while studying in Canada. I can hardly fault them for wanting to save money, but this is not what I would consider healthy living conditions and it is concerning that we are allowing people to live in those kinds of conditions.

There is no easy solution to this problem, but it is heartening to see all this data that is now coming out identifying real numbers on what needs to be done in order to correct course. It is also good to see many new government policies that are addressing difficult zoning restrictions and allowing up to 3 units on almost any pre-existing single family zoned lot, as well as easier application processes for “laneway suites”. We are also starting to see an emphasis on getting people to work in the trades, because even if we approve all these new construction projects, we need people to build them and surprise surprise, we don’t have enough. I could go on for hours about our trades problem as well as zoning bylaws. But for now I’ll leave the discussion here and you want to learn more about how these topics fit into this housing puzzle subscribe to my newsletter because that’s what I’ll be discussing in two weeks! Subscribe to newsletter here.

(Link to next post coming Dec 24, 2023…).

Thank you for reading and we’ll chat soon,

Oliver Foote