Ontario’s rent freeze concludes January 1, but in Toronto where rental income hardly carries condo mortgages, some investors might not be able to achieve market rents for the foreseeable future.
“Because I have to give 90 days notice to increase rent, which means it had to be done before the end of September, my property management company is in the process of issuing over 100 N2s,” Ryan Coyle, co-founder of Connect.ca Realty and Marco Property Management, said. “We have so many of our clients’ properties below market rent because of the pandemic. I had a lot of tenants at market rent who stayed during the pandemic, and those I will increase slightly or some will remain unchanged, but I had tenants leave because they found cheaper places and I had to refill them at cheaper rents. My portfolio took a hit and my cash flow decreased by about $30,000-50,000.”
The rental increase, which is based on the Ontario Consumer Price Index, will be 1.2%, but Coyle advises that, despite the relatively meagre increase, the tenant isn’t obliged to pay, in which case the landlord should consider what the cost of replacing them would be. Nevertheless, in a strong rental market like Toronto’s, a replacement tenant shouldn’t be difficult to find.
“Using a realtor or property management company usually costs about a month’s rent as the fee,” he said. “Most of my clients are mom and pop investors who were extremely stressed when it took three months instead of three days to rent units, and at $500 below market. It’s important to use a property management company because they do all the communication between the tenant and landlord.”
Landlords who capitulated to tenants’ demands to lower their rents lest they move out likely won’t recapture the lost monthly income with a 1.2% increase but Davelle Morrison, a broker with Bosley Real Estate Ltd., says a landlord whose rental income doesn’t carry mortgage payments can at least write it off as a loss.
“They don’t really have any recourse other than asking tenants if they can bring the rent back up, and chances are the tenants will say ‘No,’” Morrison said. “They will have to wait until their tenants give notice to vacate because there is no legal way to bring rents up to market; the landlord just has to wait it out.
“But sometimes people like to have a loss because they make income elsewhere, so they don’t have to pay as much in taxes. There is a bit of benefit to doing that because they write off rental income, maintenance fees and property taxes as their loss, and it helps reduce the taxes they pay. For people who already make a lot of money, there’s a benefit to taking the loss.”