If you’re a real estate investor or just have a child heading off to university, buying a property in a “university town”, where prices are often lower than major cities like Toronto or Vancouver, can be enticing. While the average price of a home in Toronto is roughly $920,000, an average home in London, Ontario (home to Western University) is almost 1/3rd of that at $344,815.

In this blog post, we explain the benefits and downfalls of investing in student housing. This post clarifies some myths of the opportunity, and explains what to keep in mind when investing in a property targeted at student tenants.

The benefits of student housing investments

Student tenants. You’re effectively renting to someone with no credit history, plenty of debt, and no full-time income. Or are you? Although this profile is common for students, it’s also common that the student’s parents pay most or all of their rent and expenses. And with a parental guarantee that rent will be paid, this tenant turns into a secure source of income, even less risky than someone who may have a full-time job. This is why a risk-averse investor such as the Canadian Pension Plan is willing to invest in it.

A property close to a university may also mean guaranteed tenants. One article found that only 3% of Canadian students lived in university-provided housing, with the remaining 97% commonly living with parents or at nearby rental units.

There’s no shortage of university students. In recent years, international students have enrolled in Canadian universities at an increasing rate. Other countries that were once popular for international students such as the U.S. and the U.K. have had unfavourable attitudes towards immigrants in recent years, which has resulted in more interest in Canada. This is why among new Canadian non-permanent residents, international students were the largest contributor.  The best part is that each of these students needs a place to live. Thus the growing number of international students has made student housing more popular with real estate investors.

As mentioned prior, student housing often has a lower barrier to entry than a condo investment in downtown Toronto. Although cities such as Waterloo, Ontario, or London, Ontario, are seeing real estate values appreciate, they’re still much more reasonable than what you would find in Toronto.

The pitfalls of investing in student housing

Student housing isn’t all rainbows and sunshine. Although it’s a secure investment for the most part, some aspects of it can make it particularly tough. Students may not care about the property as much as a tenant who is older and more mature. University house parties run rampant as part of the school culture, dirty dishes are usually left in the sink for weeks, and there’s often plenty of alcohol and drunk students around. This could result in damage to the house or other issues like mould or vermin.

And if you’ve purchased a property that’s in a different city that’s an hour or more away, common tenant issues are even more difficult. Toilets and drains get clogged, heating systems might break, or a window can crack. These all require your immediate attention. To prevent a 2-hour drive in the evening to fix a clogged toilet, it’s a good idea to keep some local plumbers or repair people in mind. Better yet, you could simply pay a property management company to take care of everything for you (but you remember that this would eat into your cash flow).

What to keep in mind when you purchase a property targeted at student tenants

Students are a different but similar ball game to regular tenants. You often hear investors mention the number of “beds” they own, which refers to how many tenants they can accommodate. To maximize your returns on a student housing investment, you want to maximize the number of students living there (within reason). This doesn’t mean covering every square inch with a bunk bed. However, a 3-bedroom house could be made into a 5-bedroom by adding two rooms to the basement.

Students may be cheap, but they still desire good living accommodations. In fact, student rentals are more often going towards the luxury-end now. Well-off international students who can afford to study abroad want high-end living accommodations, and as more of these international students choose Canada as their next educational venture, this demand increases.  It’s all about finding a balance between maximizing tenants while having a luxurious living space.

If you plan to renovate a property before listing it for tenants, there are a few items to keep in mind so that the space is suitable for students. This includes using quality, but not particularly high-end, installations like sinks or toilets. Most of the cost for renovations comes from the cost of labour, so why cheap out on a few hundred dollars on a sink that lasts longer? Materials such as laminate or vinyl tiled flooring are also solid and cost effective.

Do your renovations during the summertime when students aren’t around. You can even stagger them year to year. If you have a renovation that requires clearing the whole house, you could list your property for an 8-month lease instead of 12. Although you’re losing out on 4 months of rent, you can charge more during those 8 months, since 8-month leases are typically more desired by students.

Students are great tenants to have. Although they lack credit scores or full-time incomes, it’s usually their parents paying the monthly rent. The increasing number of international students also means that there’s no shortage of students looking for housing accommodations. Although partying and managing a property in a different city may be difficult, it can be worth the stability. Make sure to find a balance between creating a great living space for students while also maximizing how many tenants you can have in a house.

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In this article, we explain both why and how to invest in Canada’s flourishing real estate markets. We look at the appreciating values and rising rental incomes of Canadian properties and also what to look out for when making your investment. 

Why Canadian real estate? 

There are pros and cons of investing in Canada, of course, and then there are also pros and cons of investing in particular provinces and cities. But generally, Canadian real estate has continually appreciated in property value and rental earnings over the past years. According to the MLS® Home Price Index (HPI), home prices across Canada appreciated 38.34% over the past five years. Additionally, hotter cities grew even more in average price, with Toronto rising 56.60% and Vancouver rising 54.18% over the past five years.  Markets such as Montreal and Halifax have also been popular more recently.

While appreciation is great, rental income is also an important part of your real estate investment. According to rentals.ca, the national average rent has gone up over the past year, despite having various ups and downs. The average Canadian rent in October 2018 was $1,839 while the average rent in August 2019 was $1,914. What’s more, rent prices are expected to rise throughout 2019 and likely into the following year due to higher interest rates, more immigration, more renters as opposed to homeowners, among other reasons. 

However, there are a few downsides in investing in Canada. In many provinces, landlord-tenant laws favour the tenant. In Ontario, for example, there is a standard lease agreement that all landlords and tenants must use. Among other conditions, the lease agreement prevents landlords from evicting tenants unless they use the unit themselves.  Of course, having some provisions are necessary to balance the playing field for both landlords and tenants. 

How to make money investing in Canadian real estate 

With residential real estate, the increase in property value and rental income are the two main ways to produce a profit. As mentioned before, Canadian real estate excels in both categories. But there are also other costs to worry about aside from the price of the property. Interest payments, transaction fees, taxes, and more can eat into how much you make. 

Property value

Canadian properties have gone up a lot over the past few years and will most likely continue to appreciate in the long term. But it’s a mistake to assume that property values will consistently go up. The real estate market experiences highs and lows, and investors who can’t stomach volatility or who may need to sell quickly in a down market may end up losing money. Looking at the HPI® index, prices in the Metro Vancouver Area peaked in May 2017 and haven’t returned to such a level since. Thus, speak with a real estate profession to see whether it’s a good time to buy or if you should wait for the market to go down. Although a realtor isn’t some sort of oracle, they can provide some insight about whether prices may go higher or lower in your area. If you get into an investment when the market is low, it’ll be easier to make money. 

Rental income 

In many Canadian real estate markets, you can expect at least $1,000 of rental income a month for just an apartment. When you look into Toronto and Vancouver, this easily reaches over $2,000 a month. Although vacancy rates are low in many cities, there are a few things to keep in mind to make sure that your rental is the top choice among tenants. Aside from a low price, tenants value a property with a good location and a reputable builder. 

As the saying goes, location, location, location. A property at the centre of the Toronto financial district will ultimately fetch more rental applications and a higher rental price than a spot in the suburbs—of course, it’ll be more expensive to purchase too. But also keep in mind locations that may be noisier, such as those close to a railroad, or areas that have higher crime rates. This can turn off tenants and make your property less desirable.

The builder of your property is especially important if you’re renting out a condominium. Finding a condo from a reputable builder is important. As real estate development has become so profitable in many Canadian cities, new real estate developers with little experience have continually built massive condo complexes. Because new developers lack a reputation in the market, it could be a risk to purchase a unit from them. The building could end up poorly constructed or have poor management, which will deter tenants. A realtor can guide you on how a builder’s past projects have gone.

Keep down fees

There are a lot of fees associated with real estate investing that you can’t forget about. If you do, they’ll eat into your profits. A major one is the closing costs associated with purchasing the property (and later selling the property). This includes realtor commissions, lawyer fees, cost for inspections, and more. These closing fees can total a few thousand dollars.

Then there are taxes. You’re taxed on both the appreciation of your property and any rental income you earn. When you decide to sell your property, you’ll be charged a capital gains tax on the difference between your purchase and the selling price. You’ll also be charged property tax which varies city to city. Expenses, such as interest payments on your mortgage or other monies borrowed, can reduce these taxes. 

Canada has many great real estate markets to invest in—from the Metro Vancouver area across to Halifax. The appreciation of property value combined with rental income can make you a healthy profit. But make sure to watch out for all the fees. 

The post How and Why You Should Invest in the Canadian Real Estate Market first appeared on RankMyAgent - Trusted resource about Buying, Selling and Renting.

In a blog post by the Ontario Landlords Association, however, the group claimed that this standard tenancy agreement “…put[s] small Ontario landlords at risk for big problems and huge financial losses”.

So, as a landlord in Ontario, what should you know about this standard lease? This article covers how to use the new Ontario standard lease agreement and what happens if you don’t. This post also goes over some, but not all, the provisions of the standard lease, including Section 15, which lets you add in additional terms; how to evict your tenant; how much rent you can charge; as well as some information on guests and pets.

Overview of the new Ontario residential lease agreement

As of April 30th, 2018, Ontario now has a standard residential lease agreement that most tenants and landlords must use. This standard lease agreement was developed by the Ontario government to outline the rights and responsibilities of both the landlord and the tenant in a rental relationship. And this Ontario rental agreement is mandatory for the following types of properties:

• Single and semi-detached homes;
• Apartments;
• Condominiums, and;
• Secondary units, such as basement apartments.

The government mandated this standard lease to help offset some of the confusion that many tenants and landlords have in the property rental process.

“Renters told us that their leases were often confusing and contained illegal terms. Landlords, especially smaller ones, say a standard template makes it easier for them to do business. The new form we developed helps balance the interests and responsibilities of both parties.” said Peter Milczyn, Minister of Housing and the Minister Responsible for the Poverty Reduction Strategy, in a news release from earlier this year.

How to use the new Ontario standard lease and what happens if you don’t

To simplify the process, the standard lease only collects the most essential information from both the tenant and the landlord. Only information such as names, the address, total rent and its due date, and the rules and terms of the rental unit or building is collected.

If you don’t provide the standard lease for your tenants, he or she can require you to provide one within 21 days. Else, the tenant is allowed to withhold one month’s rent. Additionally, if you still haven’t produced a copy of the standard lease after 30 days from when the tenant started withholding rent, they don’t have to pay that rent at all. The tenant can also end their tenancy in advance if the standard lease isn’t provided. After the 21 days, the tenant can provide you with a 60-day notice to terminate the tenancy.

However, any lease signed before April 30th, 2018 is grandfathered, and tenants cannot request the standard lease unless there’s a new negotiation.

Section 15 — Additional Provisions

While a lot of the provisions seem to favour the tenant, Section 15 allows the landlord and tenant to negotiate additional terms for the contract. Anything goes as long as it contradicts neither the standard lease agreement nor the Residential Tenancies Act. Any terms that do conflict with these two documents are void and cannot be enforced. Therefore, terms such as late rent penalties or mandatory move-out dates cannot be used.

Evictions

An eviction can only happen under situations set out by the Residential Tenancy Act, and this includes cases where the tenant does not pay full rent when due, causes damage to the rental unit, or interferes with the enjoyment of other tenants or landlords. And in these cases, you will need to fill out the proper forms from the Landlord and Tenant Board website.

If you provide an end of tenancy notice, the standard lease also states that the tenant doesn’t have to move out until the landlord applies to the Landlord and Tenant Board to hold a hearing. Only when the Board decides that the tenancy should end, can a Court Enforcement Officer enforce the eviction.

If you, as a landlord, don’t follow all these procedures, then you can face fines of $25,000 if you’re an individual or $100,000 if you’re a corporation.

However, landlords can still evict tenants if they need the property for personal or family use. But due to an additional protection added in September of 2017, the landlord is required to give the outgoing tenant equivalent to one month’s rent. If in this scenario, you end up renting the unit to someone outside of the family or you demolish or convert the unit within one year, it may result in a $25,000 fine.

Rent Increase

The standard lease adheres closely to the rent increase guidelines set out by the province of Ontario. The guideline states that you, as a landlord, can only increase rent 12 months after a tenant first moves in or 12 months after the last rent increase. You’ll also have to provide a written notice to the tenant 90 days before it comes into effect.

How much you can increase rent by depends on Ontario’s yearly guideline. For 2019, the rent increase guideline is 1.8%, which means if you’re currently charging $1000 rent in 2018, you can increase it to $1018 in 2019.

An exception to the guideline is made for special circumstances that are approved by the Land and Tenant Board. Some examples of special circumstances are recent major repairs or renovations and increased costs of security or municipal taxes.

The standard lease also states certain circumstances where you will have to reduce your rent. Circumstances arise if municipal property tax decreases by more than 2.49%, if recent renovations or repairs have been fully paid for, if services have been removed without a reduction in rent, or if a promise upon contract formation was not kept.

Guests and Pets

In essence, the guest section of the standard residential lease agreement states that you cannot stop the tenant from having guests over or force your tenant to provide notice for having guests. You also cannot charge them an additional fee for guests.

The pet section is similar in the sense that you cannot stop your tenant from having a pet. If you want to evict a tenant who does have a pet, you need to go to the Landlord and Tenant Board and prove that the pet makes too much noise, damages the unit, causes allergic reactions to other tenants, is a dangerous breed, or that the condo simply doesn’t allow pets.

This standard lease by the Ontario government, although great for tenants, creates some issues for landlords. Make sure you understand your rights and use Section 15 to advocate for your needs.

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