3 Tips to Avoid Tenant Nightmares and Warren Buffet’s Confidence in the Canadian Market!

When I was writing this week’s blog post – there were so many things that I wanted to write about (reverse writer’s block). First of all, the news just reported that Warren Buffet’s Berkshire Hathaway has bailed out Canada’s Home Capital Mortgage Company (Home Trust).

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” said Warren Buffett, Berkshire chairman and CEO.

Once again Buffet shows me what a brilliant business man he is.  He is loaning out his money (which costs him near nothing) and getting a 9+% return, all the while backed by the security of the well performing Canadian market.  This reaffirms to me 2 things:

  1. We have a strong real estate market here in Canada
  2. It is important to look past the doom and gloom and see the chance to benefit from the opportunity

While there has been lots of media about the slowing Toronto (GTA) housing market – there is no sign that it will crash or anything close to it.

There was a great article I read the other day – 5 Reasons Why the Toronto Housing Market Won’t Crash.

Rather, just like Buffet did, this is a great time to seize the opportunity of a small pause or breather, you can call it.  A slightly less heated market means a chance to scoop up some fairly reasonable deals without the pressure of heated multiple offers in some cases.

There was a great map that was published showing the house prices in the city using a TTC subway map (BlogTO)

It still costs a pretty penny to live in the city – and supply and demand isn’t changing.  Areas outside the city, like Hamilton, Barrie and Oshawa will continue to be much more affordable by comparison and will inevitably continue to grow.

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People think that real estate investing is about finding the perfect property.  I have worked with many clients who have ‘purchasing block’ – they are looking for the perfect property.  News flash – there is no such thing.

There are lots of great areas to invest in – but no perfect one.  Some properties do come turn-key, but things can always creep up (and most definitely will over time).

But my point in all this is to shift the focus.  This business isn’t about finding the perfect property – it is about finding the perfect tenant.

If we think of real estate investing as a business (which it is) – the house is our product – and the tenant is our customer.  In order to have a thriving business, one would assume you have a good product.  But the hard part is finding a customer to appreciate and buy your product.

And honestly, that is why tenant placement and management is the key to this business.  Finding the right one will make your business thrive and you will sleep soundly (most nights).  Finding the wrong one can result is disastrous and costly consequences resulting in many sleepless nights (I’ve been there!)

We used to manage a triplex early on in our investing days.  We had nightmare tenants – by no exaggeration.  One particular tenant smoked pot all day, owned a vicious dog and a massive snake and consistently fought with us and the other tenants.

It got so bad that we actually felt intimidated even going to check up on our own property.  The icing on the cake was when he beat up the upper tenants (quite seriously) landing them in the hospital.  What happened next was that the other tenants all left (I didn’t blame them!), and eventually we went through a long and costly eviction.

The end result – lots of very stressful days, many lost $$ and time and effort wasted.  But a great learning opportunity.

So I’d like to point out 3 key strategies for renting out your property.

1) Invest in good quality photos, staging and market well.  Remember that the quality of your property will affect the quality of your tenant.

If your property looks beautiful, it is likely that someone who is appreciative of that and wants to upkeep your home will be attracted – even if you charge a slight premium.

Invest in paid marketing online – kijiji and facebook are great tools.  Paying to bump up your ad or posting it as Urgent is well worth it.  Lawn signs and open house signs are also great tools.

2) Make sure you do your due diligence.  Screen, screen and more screening.

When we rent out our homes, we have a lengthy application form that must be filled out by EACH adult who will live at the property. We want to know everything about them.

Once we have this information, we verify.  We have been using a great tool called Naborly which does a thorough screening of your tenant and gives you a rentability ‘score’ – so far it is has been working awesome and we are able to gather and cross check all their information.

And don’t forget good old reference checks.  Be creative and make sure you are comfortable with the references you are given.

3) Have a solid lease, and set the bar high.

How you start your relationship with your tenants will set the bar for the months to come.  Having a solid lease and ensuring that you review it in detail with your tenants is key.

Move in check lists and inspection of the property are also important.  That being said, you should hand the property over in the condition you want it to be returned.

Ensure you iron out the method of future rent payments and all maintenance related issues early on.

We have been managing our own portfolio for some time now – and it has given us some great hands on experience. Even if you aren’t managing the day to day for your properties, I urge you to familiarize yourself with the process as this is an important piece to your real estate investing success.

 

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA

Your Real Estate Investment Advisor, Coach & Realtor
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