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How to Increase the Rent on Your Condo by 27% in 1 Year Without Doing Any Renovations

This episode is a case study of how one Toronto landlord managed to increase the rent they were getting on their condo by 27% in just a year and without doing any renovations or changing anything in the unit itself. Andrew la Fleur talks about this and the lessons to be learned for all Toronto condo investors.


3:08 This is a common phenomenon that we do see time and time again.
3:45 The main reason is really supply and demand.
4:52 Interesting thing about when you’re buying in a building.
7:03 It underscores the point of how hot the market is.
8:55 There is no rent control on condos.
11:32 Now today, less supply, rental rates increase significantly across the city.
11:57 When it comes to new condos, “Desperation can quickly turn to elation.”
15:53 One unit out of 490 units available for lease today.

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Click Here for Interview Transcript

Andrew la Fleur: On today’s episode I’m going to show you a case study of how one Toronto landlord increased the rent on their condo by 27% in just one year without doing any renovation, stay tuned.
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: Hi and welcome back to the show. Thank you for listening and for your support. Once again your reviews for the show are much appreciated, so if you want to leave a review for this show just go on over to iTunes and click to leave a review. They’re much appreciated, thank you.
Once again on today’s episode we’re going to look at a case study of how one Toronto landlord increased the rent on their condo by 27% in one year and they didn’t do any renovations or make any changes to the unit. We’re going to talk about how that happened, how they did that and what you as a landlord in the condo market can learn from this.
Our case study here is at West Lake, West Lake Condos in [Etobicoke 00:01:14]. The address is 2220, so 22 20, Lakeshore Boulevard. The unit was rented out, this is a one bedroom and den unit on a mid-floor in the building. It’s a 40, 50 story building, pretty tall building. It was completed last year. This is a 2015 completed building. The unit was rented out last year around May of last year. It was rented out for 1,375 per month and just a few weeks back in October of this year, 2016, so just a little over a year later, it rented out, the exact same unit with no changes made to the unit, rented out for 1,750 a month. A difference of $375 per month from the previous rental a little bit more than a year before, which represents about a 27% increase in the rent that that landlord is now going to be generating moving forward.
Pretty amazing, right? Off the top obviously we’ve talked a lot in the podcast [inaudible 00:02:33] about how hot the rental market is. The rental market is very hot right now and a lot of landlords, including this one, guys like this are taking advantage of the market and are getting fantastic rents in today’s market, all time highs being set in buildings all over the place. I want to talk about what is going on here exactly and a few points to take from this and how did this come about?
The number one point that I want to get across in this podcast is that this is a common phenomenon that we do see time and time again in new, brand new, condo buildings. Especially for new condo investors, new landlords who are buying into a condo building, especially with larger condo buildings, buildings with more than say 400 units, building where a lot of investors are buying, this is a common thing that we see where the first year that a building finishes the rents are significantly lower than the second year. Again the reason for this as you can imagine is just … The main reason is really supply and demand. When a new building finishes there’s a lot of investors who bought pre-construction in the building as there always are in any new building, especially larger towers. Those investors are all looking to rent their units at the same time and so obviously a lot of supply in the market tends to put downward pressure on rental prices.
Again this isn’t always the case, it depends on the building, it depends on the location of the building, the demand in that particular area and other factors, but this is a pattern that we do see time and time again. It’s something to be aware of as a condo investor, especially if you’re new to the game, that if you bought something pre-construction in a big building, you’re waiting for that unit to come up and you’re anticipating on renting it out, just be prepared that most likely there will be a lot of competition in that first year as you’re looking to rent out your building.
Side note here, actually an interesting thing to think about when you’re buying in a building. In some ways it’s for this reason in some ways it’s good to be either on a  low floor in the building or on a very high floor in the building, because when you’re on a low floor in the building you’re one of the first people to get occupancy, therefor you’re one of the first people to rent out you’re unit, therefor you don’t have a lot of competition because there’s not a lot of units on the market yet. If you’re on a high floor by the time you get occupancy on a very high floor in a building then most of the building below you has all been rented out already and so again you have less competition.
The issue is when you’re sometimes in one of the middle floors, that’s when you are facing the most amount of competition when you’re going to rent out your unit because you’ve got occupancy after a large number of people have but there are still a large number of people getting occupancy right after you, and so there sometimes can be a lot of units on the market at the time. Again, just something to think about, something to consider. Not necessarily going to be a major factor in making a decision on which unit to buy in a building or which floor to buy on but something to be aware of and to plan for if you’re on a very high or very low floor, can sometimes be in your favor from a rental perspective when the building first finishes, the building first occupies.
Yeah that’s the first point, is just, understand this is a common thing we do see in new buildings, where the rents will jump significantly after that first year, after the supply has all been absorbed in the building and the units are all rented out. The next year when people are renting out their units there’s far less competition in the building and the rental prices tend to increase quite significantly in the second year.
This particular increase of 27% is not necessarily going to happen every time. This was a particularly big jump on this one that I noticed and I wanted to make a little podcast episode about it because I think it’s very interesting. Again, it underscores the point of how hot the market is right. This particular unit by the way is 573 square feet and so at 750 a month today’s rent, that’s over $3 per square foot. It does include parking and locker, which is very common in this sub-market, in the Etobicoke waterfront area. Pretty much all the units there you would expect to have a parking spot and locker. Pretty much everybody’s having cars, has a car in that particular area of the condo market.
If you’re talking downtown of course it’s a different story, but still over $3 a square foot for this location is pretty incredible. It was really not something that we could have seen happening this quickly just a couple years ago, thinking $3 a square foot in this pocket, in the Etobicoke sub-market. Sure downtown we started to see it a few years ago and now it’s absolutely the bare minimum or an average downtown, $3 a square foot, but now we’re starting to see $3 a square foot in these periphery areas outside the downtown, traditionally in areas where the rents are much, much lower. Very interesting, and again it goes to the fact that it’s a great time to be a landlord in the city. All signs are pointing to much higher rents still yet to come in the years ahead. If you’re investing today then you do have a very good future cash flow opportunity ahead of you as well, so keep buying and keep holding that real estate and continue to increase your rents as much as you can every year.
First point, second point to remind everyone again, some people already know this, maybe you don’t but there is no rent control on condos. There’s no rent control on condos. In Ontario of course we are a rent control jurisdiction, in general with most properties you cannot increase the rent when you have a tenant and a property you can increase the rent once a year if the tenant is continuing on in a property. The most you can increase the rent by is prescribed by the provincial government every year. That amount is something along the lines of whatever the inflation rate is, 1%, 2%, 2.5% kind of thing, but when it comes to condominiums, condominiums that have been built any time this century essentially, are not subject to rent control.
What that means is as a landlord it gives you tremendous power and flexibility. It’s a great tool to have as a landlord that you can raise the rents at any time. In this particular case with this case study it was a new tenant who came in so the first listing from last year, that tenant obviously moved out and the landlord relisted it and rented it again to someone else. When you’re renting a condo or the property to a new person then obviously there’s never rent control and you can charge whatever rent you want when it’s someone new, but in this case if you are listening or if you know somebody who is for example a landlord in the Westlake Condo buildings or any condo building really that finished last year and now that tenant is still in the property, you might look at this and say, “Wow.”
If you rented out a unit for example last year at 1,375 or something like that, and now you see that the same type of unit today is going for 1,750, you have the ability and it’s within your legal rights as a landlord to go to your tenant and to obviously do the proper work, but you can increase the rent to whatever amount you wish and give notice to your tenant that that is happening. The tenant obviously has a choice of either paying that rent or they must move out. Again no rent controls on condos and that can be a very powerful tool for you if you were in this situation, or maybe you rented out a condo a year ago or some time in the past year in a new building, the rents were pushed down because of a lot of supply a year ago. Now today, less supply, rental rates increase significantly across the city. Now’s a good time to look at increasing your rents to bring it up to market value and make sure that you are getting maximum but fair obviously market value for the property. That’s the second point.
The third point to talk about on this case study is that again when it comes to new condos and when the building is first finished, [inaudible 00:12:05] desperation, whatever. Written in my notes here is, “Desperation can quickly turn to elation.” What I mean by that is, a year ago this particular landlord was probably in a pretty desperate situation where they just needed to get their unit rented out at pretty much any cost. It was sitting there empty and they were in a bit of a desperate situation so they rented it it out for 1,375 a month, which at the time probably seemed a little bit low but that’s what the units were going for. But now, just a year, only a year later, what a difference a year makes, right? That desperation now is completely turned on its head.
That landlord is enjoying unbelievable, amazing cash flow and return on investment sort of a situation now, and it’s only been one year. Again, one mistake that so many new investors make is panicking, selling too early, making a rash decision based on one point in time, not taking a long term perspective on their investments and missing out. Missing out on tremendous profits that come if you’re patient and you wait, sometimes as little as a year. It’s really not that much time and now they’re, this particular landlord’s in a great position. Don’t sell too early, don’t panic.
Again in this building, this I looked it up, in this particular, this exact unit type, in 2015 there were 28 units rented out on the [MLA 00:13:45] system. 28 units of the same exact floor plan. More than half of the actual units in the building of that particular floor plan were obviously bought by investors and rented out in 2015, the year that the building was new. 28 listing last year. This year, we’re almost at the end of 2016 here, this year there have only been eight. Eight listings versus 28 listing. Eight listings in 2015 of that one particular floor plan, this one plus den unit that goes all the way up the tower. 28 listings versus only eight listings this year. Only about a quarter or a third of the amount of supply available this year versus last year.
Very dramatic drop off in supply and now correspondingly we’re seeing the rents go up significantly as well. What a difference a year makes, it always comes down to supply and demand. When you’re patient, good things happen. Anybody who, anyone of those landlords who looked, who thought, “Wow, this is terrible. I’m renting it out for 1,300, 1,400 bucks a month, I thought I was going to get more,” or whatever the situation might have been, and they sold those units. Now they’re missing out on again amazing cash flow and amazing return on their investment every single month.
Again to give you and idea of the building today, again there were 28 listing just for that one unit, hundreds of listings overall for all units across the whole building. 490 units in this building, so it’s a pretty big building. 490 units in this one building and how many units are there available for lease today? Out of 490 units there’s exactly one unit available now today. One unit out of 490 units available for lease today, November 2016, just a little over a year since the building is completed. Again, hundreds of listings to one listing available. Dramatic turnaround, dramatic change of events.
It’s not always that extreme, again part of it is the fact that the rental market is so hot right now and so under-supplied. It’s not always going to be the case like that but you can see certainly hopefully after listening to this podcast and understanding what I’m talking about that dramatic changes can occur within a given building within a very short period of time. If you are in this situation, maybe you’re in it right now if you’re in a new building somewhere in the city, just registering and there’s a lot of units available and you’re thinking, “What’s Andrew talking about? It’s not a hot rental market at all, I can’t get my unit rented.” Again, give it time, the supply will get absorbed
It always does, and once that happens the prices will start to go up and you can take advantage of that as a landlord either by when your tenant moves out in the case like this case study, the tenant moved out and they raised the rent, or even the tenant doesn’t move out, again because you’re in a condo you can increase the rents to whatever amount you want whenever you want, again once a year maximum of course.
Okay, there you have it. That’s today’s episode. I hope you enjoyed it. I hope you got something out of it. You can go ahead and share this episode with any of your friends and family, that’d be great. If you found it useful you can share it on Facebook or Twitter or wherever you are online. I appreciate it as always. Until next time I hope you have a great week and we’ll talk to you soon.
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