Thinking of investing? Ottawa is a GREAT place to be a landlord right now.

With low inventory across the city (we are down 27% in residential listings and 41% in condo listings), prices are shooting up. And because of new mortgage rules making it harder to borrow,  lot of prospective buyers, particularly first time buyers, are sitting things out. As a result, the vacancy rate in Ottawa has dropped from around 6-7% a few years ago to around 1.6%. And rents, correspondingly, are going up.

Which makes it a great time to buy an investment property!

Since I’m self-employed, I consider the rental income a kind of pension. I’ve blogged before about how to vet tenants and how to get great tenants — now I want to give you some tips on buying  a solid investment.

The first thing to consider is cash flow. Some investors don’t care what the underlying property is like as long as the cash flow (known as ROI, for return on investment) is high enough. I don’t buy that philosophy. You want to buy a property where the underlying value goes up while also giving you a good return on your investment. I personally like to invest in well-run condos with good management and low condo fees so that I don’t have to worry about snow removal, or replacing roofs or windows. I also invest in renovating them so they shine. In the past three years, two of my condo properties rented on the same day I put them on the market; the third rented within a week.

To calculate your ROI, you need to know what your likely rent will be as you will divide the costs of your investment by your return on investment. In this market, on average, a one bedroom unit with parking will rent for at least $ 1700 plus utilities, much more than in the past. A two bedroom will go for an average of $2100 plus utilities depending on location.

Let’s work with the two bedroom, since those are usually the easiest properties to rent. I can find you a very nice two bedroom condo unit in Ottawa for less than $250,000, but you need to add on land transfer taxes and legal fees, so let’s just use $250,000 as our working figure. Let’s  assume $300 a month in condo fees. I’ll also assume you are paying cash since the variables on a mortgage get a little too complicated for the purpose of these simple calculations.

Purchase price:  250,000 (Investment)

Rent: 2100 x 12 =  25200 (Gross Income)

Annual expenses

Condo fees 300 x 12 = 3600.00

Property taxes = 2700

Landlord insurance = 300.00

Total annual expenses: 6,600

Net Operating Income = Gross Income – Total annual expenses

25,200 – 6,600 = 18,600

To get your Return on Investment, i.e. how much you are actually earning on your investment, divide the Net Operating Income by your investment.  18,600/250,000 = 0.074, or 7.4%. That’s a pretty good return on your money with a lot of economists predicting a recession around the corner!

You will need to adjust these figures if you do renovations, the way I do — your investment costs will go up. Your expenses may be higher if your unit stays vacant longer than you expected, or if you are carrying a mortgage, but remember: the ROI is just your annual return on investment. Over time,  the underlying value of your unit will go up too. And in a hot market, you can do very well on that front!

If you, like me, don’t have a pension, you might want to think about investing in real estate. Ottawa is a stable market and even though prices are going up fast, there are still some lovely little buildings around that are worth investing in. I have my favourites for sure!

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#BeeSmart #BeeFriendly #SaveOurBees – why you should sign the petition!

There were photographs that circulated on Twitter recently of  verges in the UK that had been planted with wildflowers instead of grass. Here are some courtesy of the British Beekeepers Association:

 

Not only do these alternative plantings look stunning, but they provide habitat for pollinators. And saved the municipal councils money in mowing costs, roughly $ 25K a year!

That got me thinking!   Jeff Leiper, our city councillor and I got together for a quick coffee  and he gave me some ideas about how we might be able to get the city interested in a pilot project. Now, with all the Ford government’s budget cuts, getting the city onside for anything that might cost a little upfront money can be difficult. But to be honest, as we discussed the options further, the obstacles in having volunteers go out and do this on their own were far more difficult, in my view, and I really think it has to be a city-wide initiative. And that means creating new policy, which is always a challenge. But here’s why I think it has to go that route.

First of all, a lot of these areas are in  high traffic zones, like the triangular median at the intersection of Merivale and Clyde. Or the strip down the centre of King Edward that is such an eyesore.

You can’t ask volunteers to go out and seed those areas or maintain them; the liability is too high. They’d have to be insured, and there’s no easy way to do that. Asking volunteers to maintain areas that might easily be plowed or mowed by the city makes no sense: the city has got to be involved. These are areas the city has to maintain anyway, so there’s no reason at all why they can’t be replanted with alternative (and possibly) native plants — over time, as they establish, the upfront costs will be gone and the ongoing costs will be lower.

Plus, Ottawa is a bee-friendly city. It didn’t formally add itself to the list of bee-friendly cities, apparently due to the paperwork it would create in terms of reporting conditions but it has taken steps. It’s created a pollinator garden at City Hall and CBC reported this April that: “Staff will also spend the next year studying other ideas, such as having crews maintain better pollinator habitats at roadsides and parks, and creating grants for community groups to do projects to benefit native pollinators.” Well, this is a project for roadsides and parks, so we’re all in the same wheelhouse!

Through social media, I quickly discovered some like-minded folks. Mary Jaekl (Mary@parenthood) was one of them and immediately offered to lend a hand. A project like this definitely needs worker bees. We met for lunch and she offered to reach out to her city councillor, among other things: she also offered to do an on-line petition. That petition, Hey Ottawa –  Save our Bees! is now up and running. Jeff suggested that if we could get 1,000 signatures, we could probably get the city to agree to do a pilot project, and that’s a good start. So here is a link to the petition – please sign it and share widely!

Calgary has already done this  with amazing success. In fact, recently, they had a couple of unexpected visitors: a pair of endangered Gypsy bees! That had the whole city buzzing! I mean look at them! Aren’t they bee-yootiful?

Seriously, can you imagine how excited the biologists were to see them? Calgary has a partnership between the city, the university and volunteers, that I’m hoping to get more information about, but if Calgary can do it, so can Ottawa! And we should, because as the national capital, we should be setting an example for the rest of the country. Maybe we can have a light-hearted competition with Calgary to see whose streets are most transformed: I can see the losing mayor having to dress up like a bee!

Jeff also suggested I reach out to the Fletcher Wildlife Garden, which I did. A number of volunteers from there, starting with Sandy Garland, have offered to help; in fact, the Fletcher Wildlife Garden has offered to donate seeds!

With their help, I know we can figure out what plants to plant — we want to make sure that these are non-invasive species that look good, are hardy, and won’t block drivers’ sight-lines. We need to scout out some locations to recommend to the city too: I plan on taking pictures as I drive around the city of some of the dreary, overgrown spots that are screaming out for this kind of transformation. (If you take some in your travels, I’ll be happy to post them up!)

So as a first step,  let’s get that petition signed and start the buzz so we can show the city how much interest there in this project. I know Keith Egli is interested; he has already asked city staff to look into what’s involved in alternative plantings. Carol Anne Meehan has expressed support on Twitter too.

I know we can do this, and when it helps save bees and other pollinators, will beautify our streets,  and save us all money, how can we not do it? If you want to help, email me!

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The Federal Government’s New Loan Plan for First Time Buyers: Good Idea or Not?

The federal government announced a new plan to to help first-time buyers on Monday:  here are some details and also some questions that are yet to be answered.

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Should I sell first or should I buy? Strategies in a hot market!

The Ottawa real estate market is hot, hot, hot. We are wayyy down on inventory. Sellers are afraid to list in case they can’t find a home they love. They’re also worried that they can’t afford to carry two homes if they buy before they sell. This is completely reasonable. It’s harder to find a home you love than it is to sell in a seller’s market. The low inventory that means your home will sell quickly also makes it hard to find something. And if you can’t afford to buy until  you sell, you could be trapped. When a market is this hot, you can’t  ask a seller to agree to a clause that allows you to sell your home before you finalize your purchase (a right of first refusal) as they won’t do it. It would tie up their property in a market where they can get a quick sale.

What’s the solution?

Luckily, there are a few!  You can put an offer in on your dream home with a long closing date, and as long as your property is listed soon and is priced right, you shouldn’t have any problems selling. Is there a risk? Yes. It’s possible that your home won’t sell; this hot Ottawa market may cool down quickly if there’s a trade war or an election call, and both appear to be looming. If you’re risk-averse, like I am, you may not want to take that chance.

Here’s the strategy I used instead. I put a HELOC on my home. That’s a Home Equity secured Line of Credit, with interest only payments. You can borrow up to 65% of the value of your home, provided you meet the banks’ criteria for borrowing and have enough equity in your home to make it worthwhile.

The HELOC gives me access to enough cash to be able to buy something I like before I have to sell: I like to renovate, so I can go ahead and  buy, and do whatever work needs to be done before moving in, with interest only payments. Once I’m ready to move in, I can do that, and then stage my current home for sale. I won’t be living in it anymore so it will be easy to stage and my dog and cat will be in the new home, so I won’t have to stress out about them either.

The costs of a HELOC were only $505 in legal fees, including taxes, as my mortgage broker, Robyn Oliverio, paid for the appraisal. That money is accessible as long as I own this home, and I pay nothing else unless or until I draw on it.

What if the HELOC isn’t big enough for the home you want to buy? Well, even with a HELOC, you can still take out a conventional mortgage on the new house. You  might be stuck with a mortgage for a year, or you  might be able to take out a mortgage that is fully open at a higher interest rate. For myself, I’ll cross that bridge when I come to it.

If you don’t want to pay interest, or can’t afford it, that’s fair too. In those circumstances, you really don’t have an option but to sell first and either get bridge financing to cover the new property, or sell, get your money from closing, and find a place to stay  until you find your dream home.

The good news is that once you have a firm deal on your home, you qualify for bridge financing to carry your new property without any of the mortgage stress test rules applying, so that part is a lot easier.

The only risk in buying a home based on the sale of your current one is if the sale of your house doesn’t close because the buyer fails to advance funds on the day of closing. We are seeing more of that, because buyers are putting in offers without financing clauses and then finding out they don’t qualify. There are things we can do, like requiring buyers to be pre-approved, to minimize that kind of problem.

Although these days, to be honest, I almost prefer to have my sellers accept an offer that has a financing condition in it than a clean one without a financing condition, because then we’ll know quickly if they have financing approvals or not, instead of finding out on the day of closing that things have gone south.

The good news, though, is that there are plenty of qualified buyers out there anxiously looking for their dream homes, and if your home is properly presented and priced, and has to go back on the market because of a collapsed deal,  it shouldn’t have any problem selling. I’ve had that situation twice in the last two years; luckily, I was able to re-list and re-sell both properties quickly.

So, there are strategies for dealing with a hot seller’s market AND finding your dream home: talk to your realtor.

 

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Finding a great tenant!

I am a landlord myself and I sometimes am asked by clients to help them find a tenant. I am constantly meeting people who are not happy with the calibre of tenants they’ve had, and who have had to do a lot of work when the tenants finally moved out. I have never had that issue: all my tenants looked after my property as if it was their own, paid their rent on time, and were a pleasure to deal with.

Here are my tips to finding a great tenant:

First of all, make the unit as nice as possible. Being able to present a fresh, clean unit that shows well is huge. As you can tell from my blog, I renovate whatever I have to. I  redo cracked tile flooring, make sure the paint is pristine, buy new appliances if needed, and install new backsplashes and lighting. I will update the electrical and plumbing, replace old baseboard heaters with new ones, and replace old hot water tanks. Not only does this let me charge top dollar, but I don’t have to worry about the unit I’m renting being unsafe. This is a huge selling point too!

Once you’ve fixed it up, set a rent that reflects its condition. I recently rented my unit in Hunt Club for hundreds more than the comparables, and I had a line up of prospective tenants. I want high calibre tenants, and a higher rent attracts more of them.

Meet your prospective tenants in person. A lot of landlords farm this out to their realtors or property managers to do. I think that’s a mistake. You can tell a lot about a person by meeting them face-to-face. Did they show up on time? Are they enthusiastic about your unit? A tenant who loves your place is eager to move in and it shows. Your ideal tenant will show up on time or early and get you all the paperwork you want ASAP. They want your rental, and they’re anxious to hear from you; they don’t let things sit. Someone who can’t be bothered to show up on time, answer emails promptly, or provide documents when you ask for them, is probably going to be equally indifferent about paying your rent on time.

Get a credit report. This is the single most important document in a tenancy. A score above 600 is good, above 700 is great. One in the 800s is extraordinary!  I recently met a prospective tenant with a credit score of 848 — that’s the highest I’ve ever seen!

A high credit score tells you that the prospective tenant pays their bills on time and always has. A credit report that shows a history of late payments, collections, or even bankruptcies means you have a person who has had problems managing their budget.

It’s not fatal: I would consider renting to someone trying to build or rebuild their credit, but it is a giant red flag. It means you and the prospective tenant need to talk about whether they can afford the unit or not, and what will happen if they over-extend themselves. It’s not good for them to be evicted for non-payment of rent, and certainly not good for you. On the other hand, someone who has sacrificed other bills during tough times so they can  pay their rent can be a very good tenant.  I want context, and I want them to tell me about it before I find out in the credit check.

Call the tenant’s references, and especially their previous landlord.Don’t rely on reference letters alone. I ran into a prospective tenant who had a pretty good reference letter. When I actually called the landlord, it turned out there had been a fire in the unit, caused by the tenant. Ask if the tenant paid on time, what condition they left the unit in, if there were any issues during the tenancy and what rent they were paying. This is a big one: if the previous rent was much lower than what you’re asking you want to make sure they can afford it.

Some people insist on seeing employment information and proof of income, and insist the tenants be professionals.  I don’t. I’ve heard plenty of horror stories about professionals who were horrible tenants.  I know of one mortgage broker who rented to a lawyer who stopped paying rent because he knew it would take months to evict him. I’ve heard of others who complained about everything. Don’t get hung up on what someone does for a living; it’s irrelevant. What’s important is what kind of tenant they are.

As for employment information, I usually do call employers for references, but the credit report pretty much tells me everything I need to know about how someone manages their money. The last employer reference I got for a tenant of mine was unequivocal: “they’re good people,” the employer said. “Simple people, but hardworking.” That was all I needed to hear.

The bottom line is that there are only three things you really need to know about any tenant:

1) that they will pay your rent on time (which is why you get the credit report to see how reliable they are when it comes to paying bills, and make sure to call their previous landlords);

2) that they won’t damage the unit (which is why you ask their previous landlords what condition they left the unit in) and

3) that they won’t disturb other tenants (which is why you ask if there were any issues).

When you start super-imposing criteria like they have to be single, or have no pets, that’s going to restrict your tenant pool unnecessarily, and may land you with a human rights complaint as well. I don’t care if my tenants have pets, as long as they are well-behaved, and I’ve never had a problem.

So, to summarize, I look for someone who is enthusiastic about my property, cooperative, reliable and has a great credit rating or a good explanation if they don’t, and a plan for moving forward.  So far every tenant I’ve ever had has been terrific, and so have the ones I’ve picked for my clients.

One more thing: I make sure I’m a great landlord too. I give my tenants  gifts when they move in, like a bottle of wine and chocolates, or most recently, for tenants who loved the kitchen, a cookbook holder. I usually pop around at Christmas with something for the tree. Many of my tenants have become good friends.

I make sure we establish the rules ahead of time for what they can and cannot do (for example, my units are professionally painted, so I don’t want them painting the walls, but I’m fine with them hanging pictures.)

I make sure to respond immediately to any problems. And I let them contact my other tenants for references  if they want to, so that they can ask them what I’m like as a landlord too. I get tenants who treat my property well because I vet them carefully, and treat them well, and that makes all the difference.

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Renovating an investment condo: my budget! (and great news – it’s RENTED!!!)

So, finally had a chance to sit down and figure out my costs of this renovation. I had a $10K budget. I’m still waiting for a final invoice from Alex that will include drywall repairs to the powder room, but I’ve included his quotes on powder room floor, backsplash and tile flooring in these numbers:

Electrical (all new baseboard heaters, pot lights, repairs) 1870.00

Plumbing (new shut off valves, shower head/fittings, install HWT) 900.00

HWT/pan 388.69

New shower head/fixture 305.37

Tiles/tiling (kitchen backsplash/laundry room floor) 1470.99

Kitchen/BR cabinets reface, new panels, soft-close hinges:  3167.14

Cabinet knobs and pulls 254.18

Curtains, rods  and blinds 295.66

Lighting 620.78

Paint 75.48

Powder room tile and grout 391.38

Alarm system 150.00

Mirrored doors 1011.74

Misc. 77.31

TOTAL 10,978.72 plus HST

So, I came in about 10% over budget but my original budget didn’t include doing that powder room floor or fixes to the alarm system, so I’m pretty happy. And this is some of what I got for my money, in terms of before and after: a very nice transformation!

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The impact of Staging: Before and After shots of my new listing

I have a new listing in Laurentianview that needed a little updating to get it ready for sale. We had a very small budget. I decided the money was best invested in a little paint and dry wall repairs (just a wall here and there) and in staging.

I rent furniture and stage properties myself so that my clients aren’t hit with the thousands of dollars it can cost to stage a house. Here, the furniture rental was under $700 and you will see the impact in a moment.  It took me about 10 hours yesterday to get it all done, but I don’t charge my clients for my time: I figure I’m going to get the commission and I enjoy doing it.

The living room had an outdated valance and sheers, but the windows were very high because of the great room/vaulted ceiling. I asked Cedric Poon, my contractor on this one, to remove the valance – we were able to match that wall paint perfectly when the old valance was removed. I bought two new curtain rods from HomeSense ($60 plus HST) for the patio doors and this big window and Cedric used his laser to make sure the height of both matches.

I was super impressed with Wayfair: I ordered 108″ long white sheers with grommets on the weekend and they arrived on Monday.  Cost, including taxes and delivery? Under $ 72. Here’s the before:

sherbourne valance

sherbourne LR before

And here’s the after (that white “buffet” comes from the bedroom set; we took off the mirror):

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The dining room had an interesting but dated light fixture. Once again, there was a valance over the windows and also over the patio doors. The dining room also had one very bright blue wall: we painted that out with the same wall colour as on the other walls. I don’t know how I did it because we didn’t know the exact paint colour but it turned out I’d matched it perfectly, so Cedric didn’t have to paint the entire walls. Here are the before shots:

sherbourne light

sherbourne blue wall

sherbourne dining room valance

Here’s the “during” shot, where Dom and Ben from SmartChoice brought in the dinette set for assembly. I wanted the dinette set up so that we knew how low to hang the new light fixture): note the new curtains over the patio doors:

sherbourne DR beforeAnd here’s the after:

sherbourne DR after

The room was totally transformed by that new light. I got it at Rona for around $ 150. The rug is mine — I kept renting it from SmartChoice and finally asked Sylvie how much to buy it; I think it was around $ 150 and I use it all the time. The table and chairs were rented from SmartChoice as part of that overall $ 700 cost I mentioned. The “buffet” is the chest of drawers from one of the rented bedroom sets. The art is mine.

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Finally, there were a couple of bedrooms that I wanted to stage as well. One was yellow and one was periwinkle. I think they turned out great!

In the yellow room, I removed old sheers, leaving only the blinds, otherwise, the room is unchanged. All the  soft staging items and lamps are from my store of stuff for staging (I have a storage locker at Dymon), but the beds and end tables in both rooms were rented from SmartChoice:

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And in the periwinkle room, I used some great art to tie things together and replaced the old rod pocket sheer curtains with white grommet curtains from my stash of decor items for staging.

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So that’s the value of staging! This lovely property will have three Open Houses this weekend (with agents from my office hosting). It’s located at 574 Sherbourne, and is listed for $ 659,900. Drop by and see it in person!

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