As of today, Good Friday, March 25th, 2016, there are 4,848 places for sale in Toronto. That includes both freehold homes as well as condominiums.
The latest population figures for Toronto proper (not the GTA, just Toronto) places it about 2.8 million residents. That means there is one place for sale for about every 575 people in the city. For those of you who have tried to buy a home recently, that number probably feels about right. Some of you may be saying, “Jeff, I think there were closer to 600 people trying to buy the house I wanted.”
No question about it, there are low numbers of homes currently for sale. So low in fact, that many people decide to rent instead of buying. Hoping that in a year or two, the market will have cooled and they will be able to find a home in their budget.
While no one can say for sure what will happen in the housing market, the big problem with deciding to rent isn’t missing out on continued appreciation in property values.
The big problem is actually finding a rental property.
If we change our search on the Toronto MLS system for rental properties, we see that there are in fact fewer rentals on the market than there are homes for sale. To be precise, we see 3,216 freehold homes and condominiums for rent as of today. That works out to about one for every 675 people in the city.
Before you give up and start searching for comfortable underpasses to live in for a year or two, I should point out that for rental properties, the Toronto MLS system is not the same dominant portal that is for home sales. While the vast majority of homes for sale go up on MLS (and therefore on realtor.ca), a considerable number of rental properties never make it on to the MLS.
This happens for three reasons:
- It’s (relatively) expensive.
While real estate commissions are not standard, each market tends to find a standard that most home owners pay. If we are looking at someone who is selling a home, my experience is that 5% commission is the standard in Toronto and surrounding areas. (Take a look at my article here if you want a fuller discussion on real estate commissions.) This 5% is paid by sellers because they see the value in having the exposure to as wide a market as possible of potential buyers, because they understand that a good Realtor can help them decide on a listing price, prepare them for the sale, market the property well and then negotiate the best price possible.
When we look at renting out a property, the numbers change dramatically. While the hope is to find a long-term tenant, almost all leases start at a 1 year lease and many tenants don’t stay longer than that period. Some in fact break the lease (legally or otherwise) and leave early, and a select few do stay longer.
The standard fee charged by Realtors for leasing a residential rental property (house or condo) is one month’s rent. If another agent is involved, such as an agent who brings a potential tenant, then that one month is split between the listing agent and this co-operating agent. If we agree that in most cases, we are looking at a 12 month lease, one month is 8.33% of the income from that year. In essence, a commission of 8.33% on the year’s income and the home owner may have considerable expenses (mortgage payments, property taxes, utilities, maintenance fees or repairs) that mean the actual cash flow from the property is substantially lower.
- It’s a formal process.
Hiring a Realtor to rent out your home is a formal process. The documents that a home owner fills out to rent their home are pretty much the same as the document you fill out to sell a home. Realtors have the same obligations of honesty, fairness and transparency when dealing with rentals as they do with selling homes.
Sadly, there are a lot of homeowners who don’t love the idea of following the rule of law when it comes to renting out their home. Some have rental units that don’t following municipal bylaws, some would rather not respect the rights of tenants as laid out in the Residential Tenancies Act and sad to say, some landlords are just not good people.
The requirement to fill out the proper documents and to follow the by-laws and laws in place is something that some landlords just aren’t interested in doing.
- There are alternatives.
Unlike when a home owner is selling a home, there are alternatives in place that can legitimately claim to be good sources of potential tenants. Perhaps not the best quality tenants, but nonetheless, good sources for tenants. Free sites like Craigslist and Kijiji offer landlords a way to reach potential tenants at no cost, or very low cost if they choose to pay to promote their listing. In addition, there are flat fee sites for listing a rental that offer a bit more in the way of bells and whistles. Sites like viewit.ca, gottarent.com and a number of others have sprung up to fill this gap.
Prospective tenants have to search these sites individually, so the fee landlords pay to have their listing on the site is what allows these sites to do their best to optimize their sites so it shows up on Google searches and even advertise in print media and billboards to make renters aware of their existence.
I often work with clients who are looking to rent a home for a bit before they buy. They hire me as their Realtor because the three reasons can combine to make the hunt for a rental a very frustrating process. They end up meeting with landlords who don’t respect the rules in place to protect tenants, they waste time on contacting the posters of listings to never hear back and they show up for appointments to be told it was just rented.
While there are quality homes and honest landlords who choose to not use a Realtor, I see a tremendous difference in the type of homes and landlords who do hire a Realtor to list their property on MLS and to find them a tenant.
These landlords recognize that hiring a Realtor to rent out their property is worth it to them. We see three corresponding reasons for this:
- They’re paying someone to get it done properly and quickly.
Landlords who hire Realtors to list and rent out their property are motivated to get quality tenants in the unit in a timely fashion. They don’t want to deal with dozens or hundreds of calls from unqualified tenants, scheduling showings that may or may not actually show up, requesting and reviewing applications, references and credit reports.
In general, landlords who hire Realtors are experienced landlords. They invest in real estate so they can generate passive income, not because they enjoy the process of finding tenants. The cost of finding a tenant is one they pay as part of the cost of doing business.
- They don’t want any trouble.
The formality of the rental process when using a Realtor is comforting to the landlords who hire Realtors. They don’t want to get in trouble with the municipality, their condo corporation or the Landlord and Tenant Board. They want a quality tenant, at a fair rent, who pays on time, respects the property and helps them pay off their mortgage over time.
My clients who hire me to rent out properties appreciate that at the end of the process, they have a file with all the information they need to substantiate the agreement, who is involved, the state of the rental unit when the tenant moved in and so forth. They follow the rules and act in good faith as good landlords, because this is who they are – and that’s why I work with them.
- They appreciate a buffer between them and the process.
Landlords who hire Realtors are often aware of the free and pay sites you can use to rent out properties. In some cases, they have used them with limited success, in other cases they no longer have the time and energy to do it again.
It takes time to list your properties on these sites and it takes a lot of time to respond to enquiries, assess who is a good option and who isn’t and then to do the work to decide on the right tenant. With no Realtor involved on either side, mistakes can be made that violate by-laws or laws and those mistakes can end up being very costly.
On the tenant side, I find that when I am approached by individuals who want to hire me as their Realtor to find a rental property, it is because they have grown tired of attempting to do it on their own. They have either tried to rent from landlords who won’t deal with tenants with Realtors (because of the cost or the requirement to follow the law), or they have tried to find something on MLS but been frustrated by listing agents not being very responsive.
If you or someone you like is looking to rent out or find a rental unit, please get in touch with me. If you are looking for a tenant, I’m experienced at finding quality tenants who will take good care of your property and pay on time. If you are looking to rent a place, I can make finding, scheduling and showing you a number of places in a timely fashion possible. I’ll also help make sure you have everything you need to present you in the best light and get you the place you want. If that sounds appealing, I’d love to be responsible for what comes next.
Regards,
Jeff
WAIST-HIGH SHELF
In every house and every workplace there is a daily “traffic” of the objects which are handled most. Unless such things are immediately at hand, the flow of life is awkward, full of mistakes; things are forgotten, misplaced.
Continuing the storage theme from last week, long shelves with relatively shallow (9 to 15 inches deep) depth are incredibly useful to keep things organized. Without them, all our “stuff” ends up on whatever surface is nearby and we are constantly missing things or cleaning up.