Will Doug Ford Save Us from Rent Control?

Andrew la Fleur: Will Doug Ford save us from rent control? Find out on today’s episode.

Speaker 2: Welcome to the True Condos podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Welcome back to the show once again. Thank you for listening. Thank you for your support for this show. Thank you for all the great comments that I received. Today, I was just talking to a real estate agent who’s new into the business, a young guy. He was telling me a funny story about how him and his friend used to drive into the city from Mississauga and they would listen to the True Condos podcast on their way in, so that’s great to hear. Now he’s becoming a very successful real estate agent downtown Toronto, so very cool to hear stories like that out there. Thank you again for the support. Thank you for your reviews as well. If you want to just thank me for the show or show your appreciation in any way, a great way to do that is by simply leaving a review on iTunes. It helps me know if I’m doing a good job or not and it also helps other people find out about this show, because iTunes will boost up the shows that have a lot of reviews. So, if you can leave me a review on iTunes, it just takes 30 seconds, that would be much appreciated.

Andrew la Fleur: So, want to talk on today’s episode on rent control and specifically Doug Ford and the PCs in the election coming up. So, just today I saw this headline came out, and to answer the question of will Doug Ford save us investors from the horrors of rent control, the answer is no. It really shouldn’t come as too much of a surprise to anyone. If you’re thinking otherwise, there may have been some chatter back and forth. Maybe he was saying some things earlier in the campaign about not being in favor of rent control, but we all knew and we all know anybody who’s got half a brain will probably realize that taking away something like rent control, which affects so many millions of people in the province, is never going to be something a politician will say that they’re going to do in a campaign.

Andrew la Fleur: So, they officially came out it looks like a couple of days ago now, and on their website they officially have put it down that they are not going to be taking away rent control. “I’ve crisscrossed the province and from one corner to the other, and people of Ontario had told me they’re struggling. I’ve listened to the people and I won’t take rent control away from anyone. When it comes to rent control,” Ford says, “we’re going to maintain the status quo.” So, very interesting there. They’ve officially come out and said that. Again, I’m not surprised. I secretly hoped that somehow he would get elected and that somehow he would remove rent control, but I also knew that likely this was very unlikely to actually take place because again, removing something like rent control, it’s basically political suicide. You go out there and you say, “I’m going to take it away,” no way.

Andrew la Fleur: I mean, the same reason why the liberals put rent control in a year ago is the same reason why no one will ever take it out, because it’s a great way to win favor with massive numbers of people, i.e. renters in the province. Let’s face it: us landlords, us real estate investors, we are a very, very small percentage of the population. We’re hardly a blip on the radar. They’re not going out there and making policies for us, they’re making policies for the masses and we are definitely not the masses. We are the aliens. We are the freaks. We are the outsiders. We’re the people who see things differently, who interpret things differently, who invest our money differently and have a different perspective on real estate and real estate investing. That’s why we’re out there taking action and actually doing things. While other people are sitting around talking about it, we’re out there making money and taking action.

Andrew la Fleur: So, with that in mind, now that rent control is a reality and that’s been a year now, we’ve had lots of time for that to sink in as real estate investors and specifically as condominium investors. Of course, non-condominium investors have been living with rent control forever and they’re used to it, but as condominium investors, we didn’t used to have rent control. We used to be able to raise rents by whatever we wanted. Vast, vast majority of people of landlords didn’t know that and didn’t actually raise rents accordingly as market rates were going up, but that was the reality. That was a very powerful tool that we had at our disposal. Now, the reality was that for most of the last 10 years, rents have been creeping up very slowly and naturally, just slightly above the rate of inflation. Sort of three, 4% kind of range on average, but it’s only been in the last 18-24 months that rents have really shot up dramatically and going up into double digit per year territory. They’re still trending at double digit per year territory.

Andrew la Fleur: I’ll just make a quick sidebar as we’re getting into this podcast that, and I’ve been telling a lot of people this now, be ready. You are going to be shocked and surprised and a lot of people are going to be just blown away by what is about to happen in the rental market this summer, summer of 2018, in Toronto. It is going to be crazy, I’m predicting. Again, the reason for that is because rental rates are increasing rapidly as more and more tenants are realizing, you know, the power of rent control when you’re already renting a place. More and more tenants are saying, “Ah, I was going to move this year but rent control, I’m not moving.” So, more and more people are making the decision to not move. Supply is definitely trending downward in an environment where, again, for the past 10 years the naysayers have been saying, “We’re building too many condos. No one’s going to live in all these condos. Look at all these condos going up. They’re all going to be empty.” Exact opposite is happening. We’re not building nearly enough condos. Bidding wars on everything.

Andrew la Fleur: Just today I heard another story. An agent in my office, a brand new agent, just put up their first rental listing on MLS for lease, representing the landlord. Just put it up for lease and they received I believe it was four or five offers within a couple of hours of posting this online, offers in writing. Only one of the offers actually even saw the property, the rest of them just putting in offers sight unseen. What do you think is going to happen with the price on that? You think it’s going to for at the asking price, under the asking price, or over the asking price? Obviously, it’s going to go a lot over the asking price and you’re going to have several people out there still looking for a place to live. So, more and more of those stories coming out all across the GTA but in particular, downtown core.

Andrew la Fleur: Again, if you’re a seasoned real estate and condo investor, you know that the peak rental season and the time that you ideally always want to rent out your units if you can choose is the summer. The summer is when all the students are looking for places to live and just in general where families and people want to move in the summer. They don’t want to move in the winter. They want to move when the weather is the best and that is in the summer. But that in conjunction with the start of the school year and massive numbers of students flooding into the rental market, looking for places to live, that means that the peak time and the time when bidding wars are at their highest, when new price thresholds are being set, when the most number of multiple offers are happening, when things are craziest and they reach their peak, it’s always in the summer months. July and August are when the rental market peaks.

Andrew la Fleur: So, here we are in the middle of May and things are still very crazy in the rental market. But what I’m telling people to get ready for is it’s going to get nuts this summer. Again, a big reason for that is rent control and the fact that people are not moving and we’re not getting nearly enough supply on the market that we need in order to accommodate the demand. Of course, we also have the stress test and the government is basically restricting who can buy real estate, and more and more people who are right on the edge of being able to buy something are not able to buy anything so they have to keep renting, so you have a lot more renters. So again, as we’ve been talking about in this podcast for the past year, year and a half, condominium investors, we have benefited the most from all these changes in rules and regulations in the marketplace. We have benefited more than anyone, and any condominium investor has made a lot of money and done very, very well in the last 12-18 months because of all this government intervention.

Andrew la Fleur: So, that being said, so rent control is here, it’s here to stay. It’s not going to go anywhere. The best we can hope over time perhaps they will adjust it, they will amend it. We can hope that common sense will prevail and they will say, “At least you should be able to increase your rent by the amount your expenses increase as opposed to just some arbitrary inflation number set by the government,” which is always ridiculously low compared to what actual expenses are increasing at. We can hope that maybe it’ll be something like this inflation plus something. Inflation plus 1%, inflation plus two, 3%. Whatever it is, we hope it’s some kind of a more realistic number that more accurately reflects the actual cost of being a landlord and running a business that is real estate investing.

Andrew la Fleur: But rent control itself is not going anywhere. They’re not going to go back in time. The genie’s out of the bottle. You can’t undo that sort of a thing. It’s political suicide, so it’s here to stay. It’s going to continue to wreak havoc on housing in this province. It’s going to continue to keep, you know … It’s like glue on the chairs of every single tenant in this province. They’re just sticking their butts down in their properties and they’re not moving. It’s just making things very sticky and adding a lot of artificial resistance into the market whereas otherwise people would move about freely and move from place to place because they can get another place for the same price as they’re paying. Now they’re saying, “Well, why would I move if I’m going to pay hundreds of dollar more a month? I’m not making hundreds of dollars more per month. I don’t see added value. I’m getting the same place over there, it costs me $300 more. Why would I do that? It makes no sense. I’m going to stay where I am for as long as I can.”

Andrew la Fleur: So, more and more people are making that decision and new rental rates are going to continue to be driven higher and higher. I do believe that we are going to continue to see above typical, that means typical being three, 4% yearly increases … We’re going to continue to see well above typical rental rate increases in certainly the next year, but I believe it’s going to continue for well beyond the next year, you know, as the gap between what people are paying and what the market value of their unit grows, it’s only going to exacerbate the situation. The further below market rate you are, the more likely you are to not move, right? It’s just going to get worse and worse and worse. So, the supply situation is going to continue to be hurting because of that.

Andrew la Fleur: So, what? As real estate investors, what do we do with that? Well, three things, four things I guess that I want to leave with you here today, the reality of rent control. Number one is you got to start your rents high, so be conservative, take your time, establish a high rental amount, as high as you can right from the beginning. Don’t settle for a low number just to get it rented out because you’re stuck with that number. You can only raise from that base. One of the tricks that you might want to consider doing is offering a free month’s rent, which is a tactic that might work for some situations. So, you can say, “If you pay your rent on time and in full at the first of every month for the first 11 months, then the 12th month is free,” and that’s one way for you to actually establish a higher rental rate without …

Andrew la Fleur: Well, for the tenant’s side, they’re thinking, “Wow, it’s going to cost me … I’m going to get this free month, so my average monthly rent over the year is less,” but from your perspective you’re saying, “Well, the rental amount on the paper is actually still that high amount and yeah, you’re getting the one month free but after that it’s back to regular if they stay.” If they leave then great, they leave. You can increase the rents and likely rents are going to be a lot higher in a year. So, either way you win and from the tenant perspective, it’s a win as well. So, that’s a tactic that I have used and that’s something you might want to consider using as well. Obviously, consult a professional to make sure that you’re covering your butt legally in how you’re writing that up, but that’s something to consider. But start high.

Andrew la Fleur: Number two is make sure you raise your rent every single year. So, no matter what happens, raise your rent every single year. Make sure you keep that base going up every 12 months. Again, you can only do it once a year, every 12 months. Assuming you’re starting with the 12-month lease, you can raise the rents by what the government tells you. In this case, it’s about 1.8%. In the past, a lot of landlords would say, “Well, what’s the point? You know, my tenant’s good. I don’t need the extra 20, 30, 40, you know, $40 a month.” But now I’m definitely advising all landlords always raise the rent every year no matter what. Even if it’s just $20 a month, get it up there, get that base higher. Even if your cost didn’t go up this year, they might go up next year and you’ll be stuck. You can only do it once a year. Make sure you do do it once a year and for every one of your properties, regardless of who your tenant is and how great they are or not. Make sure you’re always doing that every single year.

Andrew la Fleur: Number three, keep buying. Keep adding condos to your portfolio. Again, how do you take advantage of these new rents, which are escalating like crazy? Is you keep buying new properties, and that’s the beauty of being a pre-construction condo investor is you’re constantly buying brand new properties that are by definition vacant properties. They’re empty do you can fill them with tenants and the tenants can pay you the current market rate which again, we’re predicting it’s going to continue to rise significantly year after year after year. So, keep buying. Keep adding to your portfolio. Keep building your portfolio and take an approach of building a balanced portfolio and looking at …

Andrew la Fleur: You know, if you have four, five, six properties, you’re not worried about the one property that’s below market value a little bit because across all of your properties, it’s going to average out. Same way with mortgages. If you have four mortgages, five mortgages, if one or two of them is not so great of a rate, the other ones are an amazing rate, it all evens out. So, you take a balanced approach and you look at averages across your whole portfolio, and you’re not stressing out over one property here and there. You’re looking at the full picture of your portfolio and that’s something you should keep working towards.

Andrew la Fleur: The other thing is, you know, if you are in a situation like a lot of landlords now, and I certainly have properties in this category where you know your tenant is under market value, you know they’re likely probably never going to move, as long as your costs are covered or close to being covered, in a lot of situations you’re going to be cash flow positive even if you’re below market value. Not having to find a new tenant, not having to worry, and getting paid on time in full every single month and not ever having to find a new tenant and go through that process and go through that expense of doing that, it’s not the end of the world, right? It’s not the worst thing in the world to just have a property like that that’s on autopilot.

Andrew la Fleur: Somebody’s paying you on time and in full every single month because they know, again, this is another sort of side effect of rent control in a way that’s good for us as landlords, they know that if they are not paying on time, if they’re not paying in full on the first of every month, then they risk getting kicked out of that unit. They risk losing that amazing benefit of paying under market value and getting a steal of a deal. So, they’re highly incentivized to keep paying you on time and it’s a good idea to remind them of that as well, or to not remind them if you want to use that as potentially a way to get your tenants out by saying, “Look, you haven’t paid on time and you haven’t paid in full,” and start the eviction process if you are able to.

Andrew la Fleur: Number four, the last thing I want to leave you with is continue to stay focused on the long term. Continue to stay focused on the long term. Don’t fret about the month to month, the year, this year or next year. Continue to stay focused and be a long term thinking investor, thinking about where this market is going, where rental rates are going over the next 10 years and beyond. When you are thinking like that and that’s your mindset is, you are winning. If you’re worried about this year, if you’re worried about this month, if you’re worried about $100 cash flow here and there, you’ve already lost. You’re missing the big picture. You are not going to be successful in generating wealth and building a portfolio of properties over the long term if you’re caught up constantly in thinking about the short term things that are happening in this market. Continue to buy, continue to hold. Do not sell your properties. Buy great properties that rent out in great locations and hold them for as long as possible and you’re always going to do very, very well if that is your thinking, if that is your approach.

Andrew la Fleur: Okay, there you have it. That is my thoughts on rent control and Doug Ford. I hope you enjoyed this episode. Once again, the link to the article I talked about in this episode and the Doug Ford comments will be at the show notes for this episode. You can get the show notes for every episode of this podcast by going to truecondos.com/podcast. All right, until next time. I hope you have a great week and happy investing.

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