How Realtors can help our landlord clients avoid these Top 5 Rookie Mistakes
We as Realtors wear many hats and are leaned on heavily by our clients in their time of need. We help them buy and sell many types of properties from Commercial to Residential, but every property is an investment. Some are investments they live in, and others, like pre-construction condos, are bought with the idea of it becoming an income property.
As soon as your client wants to rent out a property, they now also become a landlord, and are charged with all the responsibilities that entails. We are not lawyers and we do not work for the municipal or provincial government, but what we are, are advisors, and we should know the good, bad, and the ugly of being a landlord. With that in mind, here is a list of the 5 mistakes made by rookie landlords:
1. Not running adequate checks on a potential tenant.
We have our own screening process as Ontario Realtors which may include the following steps:
- Credit Check
- Rental Application
- Employment Letter
- Pay Stubs
- Employment References
- Previous Landlord References
- FINTRAC clearance/Government Issued ID
- In some cases banking info
- In some cases a Police Background Check
But sometimes our clients go and find someone on their own tenants, without running a proper background check which can lead to repair costs, chasing rent, and unit vacancy.
2. Thinking the property will always be rented.
The rental market is on fire in cities like Toronto and Vancouver, maybe not so for other cities across the country. Before the income property is purchased, it is our responsibility to run the monthly numbers with our clients, and advise them that there may be months within their ownership of the property where they will have to carry the full cost which will most likely include: the mortgage, maintenance fees, taxes, and utilities.
3. Underestimating the cost of repairs or ongoing property maintenance.
One of the many responsibilities of a Landlord in Ontario is providing and maintaining the rental unit in a good state of repair and fit for habitation. This means that your client will be responsible for making repairs from time to time to the unit while it’s being occupied and between occupancies. Depending on whether the income property is a house or condo, the maintenance can be extremely involved or as simple as a coat of paint. It is wise to advise your client to try to save some cash every month and put it away for miscellaneous repairs and maintenance. It would be also wise to have contacts/friends who work in the renovations, plumbing, electrical, and general contractor sectors. This way, no matter what repair your clients may have, you will be able to help them remedy the situation in a timely manner.
4. Thinking that being an Income Property Owner is a Hobby.
This is a business and needs to be treated as such. You should advise all of your clients of this and have them consult an accountant to help them create a business plan for each of their income properties. These business plans will include a timeline (from purchase to sale), a budget (annual & monthly), a SWOT analysis for the market where the income property is located (we can help here), and a list of contacts for each inevitable problem (we can also help here).
5. Relying on a handshake
Again, this is only a mistake landlords make when they avoid talking to you the Realtor before they find an occupant for their Income Property. The background check and contract that a professional Realtor will prepare should always cover the responsibilities of both the Landlord and Tenant. The contract will be signed and dated by both the Landlord and Tenant, and can be used in court. A handshake and he said she said will not hold its weight in court if your client is looking to obtain damages from the tenant. Before taking any dispute to court, advise your clients to seek the advice of a lawyer.
If you’re a Toronto Realtor and want to learn more about the Residential Tenancies Act, the Residential Landlord & Tenant Relationship, Issues Relating to the Sale of Tenanted Properties, and Drafting Issues with the Agreement of Purchase & Sale, then join us on Wednesday, December 7th at 10am for our Seminar on Legal Concerns for Residential Rental Properties.
Click Here for more details and call our office at 416-321-2228 to register.