One of the most common areas of confusion in real estate rentals has to do with pets, more specifically dogs.  Whether it is a landlord wondering if they can say no to renting a unit to someone with a dog, or a tenant worried that their beloved furry family member will make getting a good rental impossible, there is a lot of confusion on this topic.

The rules themselves are relatively clear, but it’s the exceptions that muddy the water.

Let’s review how it works in Ontario, what sort of situations are the exceptions and as a bonus, ways to help both landlord and tenant move forward in a way that’s mutually acceptable.

Saying “No pets preferred” in the listing?  That’s fine.

First, let’s clear the air around what is allowed when you’re advertising a place for rent.

Landlords can absolutely and legally say no pets preferred when they are advertising a rental unit.  They can also decide to not rent to a tenant with a pet as that is a preference.

It isn’t considered discrimination because pet ownership, as a whole, isn’t covered under the Human Rights Code.  There are different provisions that apply to service animals, which in turn are different than those that apply to emotional support animals.  We’ll talk about that below, but the most crucial thing to understand is that landlords can have a preference around pets and can decide to move forward with a tenancy agreement or not based on that preference.

That being said, what’s allowed in the actual paperwork for a tenant?  Here’s where it gets confusing.

Saying “No pets permitted” in the tenancy agreement?  Not allowed.

While a landlord can have a preference around not having pets and can decide against a tenant application based on the tenant having pets, it is actually not permitted to declare or enforce such a rule.

Section 14 of The Residential Tenancies Act (“RTA”) explicitly states “A provision in a tenancy agreement prohibiting the presence of animals in or about the residential complex is void.”

This confusing combination (a landlord can prefer a tenant with no pets and decide against renting to someone who applies with pets, but can’t write no pets into the tenancy agreement) results in lots of mistaken beliefs on both sides.

The natural question that follows this explanation is what happens if a tenant either lies about having a pet before they move in or gets a pet after they have moved in?  In either case, the landlord made a decision based on a preference for no pets and the tenant who is now in the unit has a pet.

Given that a legal tenancy agreement cannot have a “No pets permitted” rule within it, does that mean that a landlord can’t do anything about a tenant who moves in and gets a pet?  There are some specific situations where that isn’t true, so let’s review them.

What are the four reasons a tenant with a pet can be evicted?

Despite the fact that a landlord can refuse to rent to a tenant who has a pet, they can’t just evict a tenant who acquires a pet once they move in.

The clearest exception to this is if the rental unit is in a condominium that has a building declaration that says no pets.  In such a circumstance, if the pet in question is not a service animal or emotional support animal, then the condo corporation can absolutely require the landlord to evict  the tenant and the pet.

For tenants in a condo building without a building declaration that says no pets, or tenants who are in a basement apartment, a non-condo building or a rental house of some sort, the landlord cannot evict because of the new pet simply because the tenant now has a pet.

There are, however, a few other exceptions.  Three to be exact.

Under the Residential Tenancies Act (Part V, Security of Tenure and Termination of Tenancies) landlords can in fact put forth an application to evict based on animals.   The landlord can do so by proving one (or more) of three allegations:

1. The landlord is required to prove that the behaviour of the animal “has substantially interfered with the reasonable enjoyment of the residential complex for all usual purposes by the landlord or other tenants”;
2. The landlord is required to prove that the “presence of an animal of that species has caused the landlord or another tenant to suffer a serious allergic reaction”;
3. The landlord is required to prove that the “presence of an animal of that species or breed is inherently dangerous to the safety of the landlord or the other tenants”.

Number 1 covers the nuisance element, where you have a dog that is barking or leaving messes in the building or on the property.  Number 2 covers where other people in the building have animal allergies.  Number 3 is rarely used as it is quite difficult to prove that the pet is inherently dangerous.

While the process for evicting based on any of these three reasons can be challenging, it is possible and landlords who have shared ventilation in a home, where one or more fellow residence has pet allergies has a legitimate case for saying you can’t have that pet in the home.

What about service animals?

When it comes to service animals, the situation becomes much more complex.

Several pieces of legislation in Ontario specifically address rights and restrictions for persons who use service animals. These include Ontario’s Human Rights Code (the “Code”), the Accessibility Standards for Customer Service Regulations under the Accessibility for Ontarians with Disabilities Act (the “AODA”), the Blind Persons’ Rights Act (the “BPRA”), and the Health Promotion and Protection Act (“HPPA”).

Where housing rights and rules intersect with these pieces of legislation it means that a blanket provision against pets may be discriminatory.  When a prospective tenant has a service animal, a landlord should not act in the same way as when it is a non-service animal where the landlord’s preference against pets is allowed.

In a broad sense, any landlord (or condo corporation if within a building or complex with a declaration)  is required to conduct an individualized assessment to understand the disability-related needs and to determine the extent to which accommodation is required.

The tenant need not disclose their diagnosis, but it is important that the person provide further information as necessary for the landlord to understand their needs to support their request for accommodation.

In short, if a prospective tenant says they have a pet but it is a service animal, it doesn’t automatically mean the landlord has to disregard the pet in their decision, but it does mean that they also can’t just say no pets regardless of whether it is a service animal.

But it’s an emotional support animal!

Service animals, such as a guide dog for someone with a vision impairment, tend to be better understood that pets that are emotional support animals.  While similar provisions apply for emotional support animals, it is arguably harder for owners of such animals to make a case for an exception to rules around pets in housing.

Back in March, 2022, a case went through the courts related to an owner of a condo unit who brought a dog into their unit, despite a blanket prohibition of animals within units in the building being written into the condo declaration.  The owner requested an exemption based on the pet being an emotional support dog, and supported that request with letters from medical professionals.  In essence, the unit owner was requesting an exception based on the Human Rights Code.

In Ontario, the Code has primacy over the Condominium Act, 1998, meaning that despite prohibitions in a condominium’s governing documents, should an individual’s disability or medical condition require an animal, condominiums may be required to permit such as an accommodation.  The condo corporation requested further proof and the unit owner refused to provide it, so the case went to the Condominium Authority Tribunal (the CAT).

The CAT agreed with the Condominium in this case and found that the unit owner bore the onus to establish a disability and therefore an exemption to the Declaration’s prohibition on animals. The owner’s medical letters provided did not establish a disability and the corresponding need for an emotional support animal. Therefore, accommodation was not required and the owner was ordered to remove the dog.

*Our thanks to Christopher Mendes and colleagues at SV Law for their write up on this case, which can be found here.   We’d always urge landlords or tenants who encounter such situations to work with lawyers who understand the law so they can resolve the situation.

Any ways to actually come to a win-win arrangement?

In our experience, most landlords who would prefer a tenant with no pets have that preference for three reasons.

1. They’re concerned about damage to the rental unit being done by the pet. Whether it is scratching the floors or walls or the animal going the bathroom in the unit, landlords often say they prefer no pets because they want their unit to remain in good shape.
2. They’ve got other residents in their building (or themselves in some cases) with pet allergies and the unit shared ventilation systems with other units. A fellow resident who is experiencing allergic reactions due to the new pet in another unit can cause a difficult situation.
3. They’re worried about noise issues, with a dog that barks or howls and causes issues between the other resident’s enjoyment of their unit. Many landlords want to avoid friction between tenants so that they don’t have to try to resolve such situations.

By understanding the concerns of landlords with pets in the unit, we can consider ways to alleviate those concerns in part or full.

In the first case, where a landlord may be concerned about the pet damaging the unit, it is permitted for a tenant to offer a refundable damage deposit.  In Ontario there are restrictions against charging any sort of damage deposit, including for pets.  This means that a good landlord who wants to follow the law but is concerned about the pet damaging the rental unit can’t ask for a damage deposit.  Despite this, it is legal for a tenant to volunteer a damage deposit.  In another of the strange quirks of the rules, it is perfectly legal for a landlord to accept an offered damage deposit.  It’s just illegal for the landlord to ask for it themselves.  A tenant who can provide a damage deposit and proof in the form of a reference from a current or past landlord that the pet did not cause damage can alleviate this concern in the mind of the new landlord.

In the second case, where a landlord is worried about allergens being spread to another unit, there are some steps to take that may be helpful in certain situations.  With shared ventilation, a high-end furnace filter designed to filter pet dander may prevent other residents of the building from experiencing discomfort.  Certain animals are also hypo-allergenic and may not trigger the allergy in the other residents.  While allergy concerns can sometimes not be fully mitigated, a conversation about the specific concern and possible ways to avoid it becoming an issue can be helpful.

The third case, where the landlord is worried about noise issues due to the pet, can also be mitigated in different ways.  Not all animals make noise and proof of neighbours who have not had issue with the pet can be helpful in making the landlord feel comfortable with the tenant and their pet.  There are also a number of different types of noise abatement products that stop an animal from barking or howling.  In many cases, the noise issues arise when an animal is left alone for a length of time and the tenant could also offer to make arrangements to prevent that from happening.

In all cases, a conversation between the landlord and tenant about the situation, where both parties are looking for ways to make the other side comfortable, can be an effective way to find a win-win result.

The rules around pets in rental housing in Ontario are confusing enough that they cause no end of trouble between the two parties in a rental agreement.  There are tenants who think that landlords aren’t allowed to say you can’t have pets, there are landlords who think they can evict a tenant the moment they adopt a dog or cat and neither side is happy when they find out the truth.

While a tenant with a pet can, in theory, cause some additional challenges that need to be resolved, we also like to remind our landlord clients that tenants with pets often have difficult finding rental accommodation.  We often see tenants with pets stay longer in their rental units and avoiding vacancies and realtor fees over the years can more than make up for any potential issues.

If you’re a tenant or landlord navigating rentals with pets, we’d be happy to help move things forward.  Get in touch with us to start the ball rolling!

It’s a good time to buy a condo.

There, we said it.

We’d stop here but that would make the article pretty short, so let’s review three reasons why as of July, 2023, it’s a good time to buy a condo apartment in Toronto.

As a bonus, we’ll also give you the three rules to follow to make sure it’s the right condo unit that you buy.

Here we go.

Reason #1 – Prices

The price of a condo in the city of Toronto is actually lower now than it has been in the past. The average price for a condo apartment in the city as of June, 2023 is approximately $770,000. That’s lower than it was last month (when it was about $784,000) and in fact, it’s even slightly lower than it was a year ago (June, 2022), when it was about $773,000. One of the rules in real estate is that you make money when you buy, not when you sell, so buying a condo now bodes well for when you’re eventually ready to sell it.

Reason #2 – Appreciation

With rising variable rates for mortgages, lots of buyers at the lower end of the property ladder are finding the numbers don’t work for them to buy. That may sound counter-intuitive, like we’re saying “It’s more expensive to finance real estate, so now’s the time to buy!” but bear with us. The reason higher financing costs means buying a condo is a good idea has to do with how the increases are pushing our rental rates higher and higher. Earlier this year the average rent in the GTA hit over $3,000 a month and it ain’t going down anytime soon as more potential buyers have to continue renting. Even if you have no interest in being a landlord, any housing type that is in demand both for owners as well as investors tends to appreciate well.

Reason #3 – Choice

Finally, we’ve seen six consecutive months of rising numbers of active condo apartment units on the market in the city. With over 3,330 units for sale as of the end of June, we’re not far from our two-year high of almost 3,600 units for sale that we saw back in June, 2022. More choices mean more good options overall, so you don’t have to settle for a condo that doesn’t quite fit your needs.

There you have it, three reasons why we think now is a good time to buy a condo in the city. If we’ve convinced you on that front, you might be interested in how we help our clients buy the right condo. Here’s our three rules to follow to make sure that happens.

Rule #1 – The building is well situated

You can’t change where your building is located, nor are you likely to see major changes in the neighbourhood over the short term. This means we look for a well situated building, not facing a slaughterhouse, backing onto a major highway or sitting miles from any transit.

New construction coming up that will block views or change the feel of the area also need to be taken into consideration. The neighbourhood should be a mix of residential and commercial ideally.

Rule #2 – The unit itself is well situated

In every condo building there is tremendous difference in sale prices that is due to where the unit is located. There is often one direction that the “best” units face and one direction that the “worst” units face. In addition, close proximity to certain building amenities or structural features (gym, garbage chute, parking garage entrance) can make an otherwise lovely unit difficult to sell.

The ideal unit faces the best view in the building and is located close but not directly beside noisy or disruptive amenities or structural features.

Rule #3 – Common areas and amenities are easy to maintain

Maintenance fees can have a huge impact on the value of units in a condo building. With current mortgage rates, for every $100 worth of maintenance fees, buyers could pay for approximately an additional $16,000 worth of mortgage.

This means that a condo that lists at $770,000 with $900 a month maintenance fees would cost the same monthly as a $800,000 condo with $700 a month maintenance fees. Even with rising interest rates, mortgage payments include a principal repayment portion that helps you build equity, whereas maintenance fees are simply a cost that you never recover.

Ideally, choose buildings that avoid expensive amenities that often require repairs, like hot tubs, pools and lavish party rooms. Common areas that are not well designed for high traffic volumes wear out much sooner, requiring costly renovations to avoid having the building look worn down. While individual condo buyers don’t get to dictate what amenities or common area design is in a building, by looking first at buildings that limit the amenities, we stand a better chance of avoiding skyrocketing maintenance fees.

If you are considering buying a condo, please contact us to discuss your options. We know when to buy and we know how to help you buy the right unit, so let’s talk!

We’ve been seeing a number of headlines recently that state that investors in real estate aren’t doing very well. It’s caused a number of our clients, both investors and end-users, to ask us if it’s true and what it means for the real estate market as a whole.

Our answer to the question as to whether it is a bad time to own income properties is no – now is not a bad time to own income properties.

That might be a bit surprising if you’ve been reading any of the headlines we’ve referencing, as they are all enthusiastically trumpeting the death of investing, particularly in condo buildings.

The impetus for the headlines was a report that was released on May 29th, 2023. The report was from CIBC and real estate research firm Urbanation, and the big news from their research was that 48% of leveraged condo investors who bought pre-construction units to rent out were cash flow positive in 2022.

The report has a very specific description of the circumstances under which investors are not breaking even on their rentals, but it is resulting in pretty vague headlines, such as “More than half of GTA condo investors losing money on properties”. That’s taking a negative view of something that we feel is fundamentally a neutral statistic.

Here’s the three reasons why we don’t agree with the headlines about this report and why we feel investing in real estate (even condo units in the GTA) remains a smart idea.

Leverage affects profitability.

When we read the report from CIBC and real estate research firm Urbanation, our initial reaction was a bit confused. We understand the report, we just don’t understand how it’s news.

The key finding that the authors said marks a “meaningful shift” is that the majority of investors were seeing the rent they receive for newly-completed units be less than their mortgage, maintenance fees and property taxes. Put simply, they paid more in expenses each month than the rent they received.

A key reason that real estate is such a good investment is leverage. The vast majority of people buy real estate by taking out a mortgage on the property. If you put down 20% and receive a mortgage for the remaining 80%, you have leveraged your 20% five fold.

Leverage is wonderful in that you own an asset that can appreciate (or depreciate) but you haven’t invested all of your own capital into it.

If an $800,000 condo unit that you put $200,000 down on goes up by 10% in the time you own it, it is worth $880,000. An $80,000 increase means that the $200,000 in equity you had in the property is now $280,000, which is a 40% increase in the money you actually have invested in the property.

Contrast this against how most people invest in the stock market, where they take their $200,000 and buy $200,000 worth of investments. If those investments go up by 10% in the time they are owned, the $200,000 becomes $220,000. Without leverage, the gains (or losses) are simply what they are, with no multiplier.

The flip side of leverage in real estate investments is that leverage affects profitability.

If you own that $800,000 condo outright, with no mortgage and therefore no leverage, your costs are the maintenance fees and property tax. It is quite easy for a property to cashflow positively (for you to make money every month) if you have bought it outright and have no mortgage. Rent comes in, the maintenance fees and property taxes come out, and each month you make money.

The more highly leveraged you are, however, the more it costs you each month with your mortgage payment. If you have a $100,000 mortgage on your condo, you’d pay roughly $600 per month in principal and interest payments. If you have a $500,000 mortgage, that’s up to about $3,000 per month. The higher your leverage level, the higher your mortgage payment and therefore the harder it becomes to be cash flow positive on the property.

The report states that less than half (48% to be exact) of leveraged condo investors who bought pre-construction units to rent out were cash flow positive in 2022. Put another way, 52% of condo investors who bought pre-construction units and have a mortgage, are cash flow positive each month.

We feel like the headline could have been “Mortgages cost money each month” and made about the same amount of sense.

Income is going up and expenses are (probably) going down.

The second aspect of the report that made us shake our heads when we look at the headlines, is that the report actually says that they expect the situation to get worse, but also that the situation may not get worse and could in fact get better.

On the pessimistic side, the report says that increasingly expensive new condos that were presold to investors will be completing in coming years and that the costs of those mortgages will be too high compared to the rental rates that can be charged.

This again falls into the category of “Yes…and?” because that’s simply how math works. If an investor pays a lot for a property and they are highly leveraged (i.e. a big mortgage) and can’t charge enough rent to cover the resulting mortgage payments each month, they will lose money each month.

Will rent rates go up? Almost certainly. Will interest rates go up? Possibly. Will interest rates go down? Possibly.

The report almost immediately contradicts their prediction that things will get worse by noting that a reduction in interest rates and further growth in rents would lighten the impact. If we recap the overall story then, it could be bad for investors if their new condo units come up with big mortgages that cost a lot to pay each month, unless rent goes up and interest rates go down, in which case it wouldn’t be that bad.

In other news, if it rains you will get wet, unless you have an umbrella in which case you will remain dry. Only one of four people bring umbrellas with them when the forecast is for rain, so the headline will be “Vast majority of pedestrians to suffer soaked clothes”.

In essence, most headlines take a conditional statement (if this happens in these circumstances, then this may result) and remove the conditions. It seems clear, but the reality is far different.

Principal repayment is a good thing.

The final aspect of the headlines about this report that is frustrating is that no stories discuss the difference between monthly cashflow and principal growth.

If you have a $500,000 mortgage that costs you about $3,000 per month in mortgage, it could indeed be challenging to have enough rental income to offset those mortgage costs, particularly when combined with maintenance fees on the condo and property taxes charged by the municipality.

While the property may have negative cashflow, that doesn’t take into account the fact that a significant chunk of your monthly mortgage payment is in fact principal repayment. The higher your interest rate, the more of your payment goes towards that interest, but there is still a good amount of your monthly payment that is not going to the lender, but it building your equity in the property.

If we take a $500,000 mortgage, amortize it over 25 years at a 5 year fixed rate of 5.54%, your monthly payment will be $3,063.61. $854.38 of that monthly payment is principal repayment and when you sell or refinance at a later date, you get that money back. It is, in essence, a forced savings plan.

If an investor owned a condo that costs $800,000 that they are paying $4,000 per month in mortgage payment, maintenance fees and property tax, and they’re getting $3,500 per month in rent, then they are absolutely losing money each month from a cashflow perspective. They’d have to deposit $500 each month into the account to prevent the charges from bouncing at some point.

Are they “losing money” though? With the principal portion growing, their effective monthly cashflow is positive to the tune of about $354. That’s not a lot, but if there is market appreciation over time, they have an asset that is worth more than when they bought it, that has also built up some principal appreciation over time with the mortgage payments that were made.

As with most headlines, the recent focus on how “the majority” of investors are “losing money” on their condo investment properties is not fully reflective of the reality of the situation. It makes for an interesting headline to cherry pick certain aspects of the recent report, but we feel that when you look at the full report and the assumptions and conditions under which the headline is true, real estate investing remains a very safe and smart choice.

If you’d like to invest in real estate (condo or otherwise!) then we would love to share how we work with our investor clients and help move you forward.  If that sounds appealing, get in touch!

In real estate it is sometimes surprising what attributes of a property impact its sale price as well as price appreciation over time.  When it comes to condominium units with maintenance fees, many of our clients don’t realize that these aren’t just monthly costs but in fact can dramatically impact your price appreciation over time.

Let’s go through a quick review of how maintenance fees work and then talk about how if you’re (in a) high maintenance (building), it can spell bad news for the future.

I pay how much each month?  For what?

Maintenance fees are money collected from each unit owner in a condominium to maintain the building and common areas.  They are collected monthly, adjusted (normally up) once a year after the budget is reviewed and include both funds that need to be spent in the next year, as well as funds that need to be set aside in reserve for future expenses.

Maintenance fees are calculated by taking the total required funds and dividing them up by the units in the building.  The size of each unit is considered, as are other owned or exclusive use areas such as parking spaces and lockers.  In some cases, the height of the unit is also taken into account, which seem arbitrary to us, as a higher unit doesn’t cost more to maintain than a lower unit.

The bigger your square footage, the more parking spaces, or lockers, the more you contribute to the ongoing maintenance of the building and to the pool of funds for future expenses.

OK, so it’s just a fee each month.  I can handle it.

While the monthly amount for maintenance fees are generally understood to be a fact of life when owning a condo unit, we find that most people fail to take into account how the maintenance fees impact sale prices.

This is simply because buyers, on aggregate, factor the maintenance fees into their overall interest in a given unit.  If they’re considering two units in different buildings where the maintenance fees are both similar, it’s not a factor.  However, if the buildings have far different price per sf amounts for the maintenance fees being charged, all other things being equal, the buyer will go for the unit with lower maintenance fees.

As a result of this, we see that, in general, the lower the maintenance fees in a building, the higher the appreciation in sale prices.  In simple terms, buyers will pay more for a unit where they have to pay less on a monthly basis for maintenance fees when compared to other buildings.

Some buildings, either through inherent factors or mismanagement, end up falling into a vicious cycle where prices don’t go up in line with the market, because maintenance fees are high in the building.  If the already high maintenance fees go up further over time (as maintenance fees tend to do), prices continue to lag and so forth and so forth.

Gather round children, it’s story time.

An example we often share with clients comes to us from way back in the spring of 2017.

On March 24, 2017 there were 15 condo apartments for sale in Toronto in the $100K to $200K price point.  We know that was a while ago now, but still, quite a bargain.  Might as well buy two or three!

Hold your horses until we look at the other costs.  The maintenance fees on these 15 units range from $428 per month to $1,123 per month.

If we look at the maintenance fees as a function of the mortgage cost, we see an interesting result.

At the time, every $100,000 of mortgage resulted in a mortgage payment (principal and interest) of about $450 per month at the then current interest rates.  Let’s say an investor managed to buy one at 0% down and just have the tenant pay off the mortgage.

In these 15 condo apartments that were for sale between $100K to $200K, the maintenance fees were equal, on average, to 98% of the mortgage.  That means that every month you would pay about the same for your mortgage as your maintenance fees.  In the worst case, your maintenance fee is 34% more than your mortgage payment.   In the best case, your maintenance fee is about half of your mortgage.

This is interesting because maintenance fees rarely if ever go down.  If you are lucky they only go up by a modest amount as costs increase.  This means as time passes and owners pay off their mortgage, the ratio of maintenance fees to mortgage payments gets worse.

Buildings in bad areas, or who have had mismanagement or fraud, often end up in this situation.  Getting out of it becomes quite difficult because as maintenance fees go up, the cost to buy, and therefore mortgage payments, goes down and the ratio gets worse.

We bring this up with our clients because it raises a very important question – if the monthly cost to own such a unit is lower than other places and I can live there or rent it out at more than what I’m paying, why does it matter?

It matters because cost of ownership is only one factor in real estate.  The other is appreciation.

We appreciate you listening to us, so here’s another story.

While the cost of ownership on an ongoing basis is important, it is equally important to consider the likely appreciation in the property.  When looking at condo apartments, maintenance fees as a factor of your mortgage costs are a good proxy for seeing what the future holds for appreciation.

We’ll continue with our time-travel trip to 2017 and talk about a building at Yonge and Bloor.

It was built in 2010, there are just under 300 units, with sizes ranging from 400 sf to over 2200 sf.

It’s in a great location, it’s got a fancy entrance, concierge and all the typical amenities.

It’s also had maintenance fees of over $1 per sf back in 2017, which made it a very bad place to own a unit.

Lets go over why.

1. It takes longer to sell.

When you have a property you want to sell, the goal is to sell it quickly.  The longer a property sits on the market, the more likely it is to appear stale and for buyers to question what is wrong with the property.

• In 2017, the average length of time it took for condos in the area to sell was 17 days.
• In this building, it took, on average, 41 days for a unit to sell.

Longer sale times mean lower sale prices.  No buyer looks at a property that has had trouble selling and says they have to pay a premium before someone else scoops it up.  They negotiate the price down – because they can, because no one else wants it.

2. It sells for less money.

With any property, owners hope to benefit from market appreciation.

If you own a property that for some reason doesn’t appreciate as much as the market, then you are in effect losing money.  If you had owned another property, you would have made more without doing anything different.  Let’s look at how this building was doing in this regard and pick a specific example of a unit in the building that has sold a few times.

• In February, 2012, a one bedroom, one washroom unit in the building sold for $380,000. Back then, the average sale price in the area was $419,503.
• In November, 2016, the exact same unit re-sold for $430,000. In that same month, the average sale price for condos in the area was $536,749.

Let’s put that in a chart.

We can see that back in 2012, the unit sold for 10% less than the average in the area.

In 2016, in sold for 25% lower than the average sale.

While units on average went up 28% over that time period, this unit went up by 14%.  That’s half of the market appreciation.

In real dollar terms, the average price increase was about $117,000.  This unit’s price increase was $52,000.  That’s $65K less than what the average unit owner in the area received.

If we are super fair and only use the percentage increase (28% on average), the $378,000 they invested back in 2012 should have been worth about $484K.  Instead, it was worth $430K.  Which is $54,000 in lost market appreciation because they bought a unit where maintenance fees went higher and higher.

Make no mistake, buyers look at maintenance fees.  The higher they go, the more pressure it puts on resale prices to not go up as much as the rest of the market.  Buyers have to pay those fees plus their mortgage each month and when that combination gets too high, it’s resale prices that suffer.

3. It makes breaking even on rentals very difficult.

Finally, let’s talk about why units with high maintenance fees make for very bad rental properties as well.

Investors look for both market appreciation as well as for tenants to pay down their mortgage.  We’ve already touched on how resale prices in this building showed half of the appreciation of what the market did in one example.  That makes it a poor investment when it comes time to sell.

The other aspect is how profitable the rental is during the time the investor owns it.

If we look at the last sale in this building 2017, we see that it was an 853 sf unit with two bedrooms and two washrooms.  It had maintenance fees of $940.58 per month (that’s about $1.10 per sf) and sold for $775,000.

Let’s do the math.

With 20% down, the buyer has a mortgage of $620,000.  At the then current rate of 3.34% for a five year term, amortized over 25 years, that’s $3,043 per month in mortgage payments.

Add in maintenance fees of $940 and monthly property tax of $353 and the new owner is looking at monthly payments of just over $4,300.  At the time, a two bedroom, two washroom unit leased in the building for $3,000.  That’s a gap of $1,300 per month before an investor would break even on that unit.  That means the mortgage would need to be around $1,750 in order for maintenance fees and property tax plus that mortgage payment to be under $3,000 per month.

That works out to more than $250K more in downpayment to make this unit break even as an investment property.  Which means more than 50% of the purchase price would have provided, which officially makes this a bad investment property in our opinion.

The higher the maintenance fees, the harder it is for rental rates to cover all of your costs.  When investors don’t look at buildings because of the maintenance fees, fewer buyers compete for the units, which pushes down prices.

When you combine a longer time to sell, lower return and unattractive rental investments, we see that buildings with high maintenance fees are definitely not where you want to buy.

We hope you enjoyed our trip back in time to 2017 to see exactly how much of an impact maintenance fees have on sale prices as well as ongoing appreciation of units in a building.  We do this exact sort of analysis for our condo clients all the time, and if you’re thinking about buying a condo this year, we’d love to sit down and help make sure it’s a great home and a great investment for you.  Get in touch with us so we can talk further!

There are some milestones that anyone would be happy to reach.  Whether it is a wedding anniversary, reaching your net worth goal ahead of schedule or achieving a fantastic sale to list price ratio on the sale of your home, some results are worth celebrating.

In some cases, though, you see people hit milestones that are definitely not desirable.

We work with clients on both the buy and sale sides and we regularly see properties that are priced poorly.  Sometimes it’s because the market has shifted and the seller and their agent haven’t come to terms with it, sometimes it’s because the agent doesn’t understand how to value real estate and sometimes we have no idea why they priced it that way.

When a listing agent prices a property poorly, they often see poor results when it comes to days on market and eventual sale price.  We saw one particular condo unit that has been on the market a staggering 258 days as of March 3, 2023.  It listed in June, 2022 and it’s still for sale.  We checked to see if it was just a building where it takes a long time for units to sell, but it turned out the average length of time a condo in that building took to sell in the past year was 26 days.  This unit is approaching taking 10 times longer than the average unit in the building takes to sell.  That’s a milestone not many sellers would appreciate hitting.

We won’t share the specific address of the unit for privacy reasons, but it’s a typical condo apartment unit in the downtown core.  It’s about 10 years old with decent features and finishes and it’s entirely sellable.  The reason why its still for sale has less to do with the unit itself and more to do with the approach taken by the seller and their agent.

We thought we’d use the history and story of this particular unit to share our three rules on what not to do when listing a property for sale.  Let’s get started!

Rule #1 – Don’t list a tenanted property for sale.

When this condo unit went for sale back on Sunday, June 19, 2022 it was tenanted.  According to the MLS system, this unit has been an income property since the building was built back in 2014, with a  number of lease listings in place.

When an owner-occupied property goes on the market, you generally have the full co-operation and engagement of the occupant.  They want to sell the home for as much as possible and as quickly as possible, so they accept the inconveniences of having showings of the property.

• No notice? Sure, I’ll leave.
• Late agents who show up after I came back? Come in, I’ll go for a walk.
• Still there talking about furniture when I open the door to the unit? Take your time, I’ll wait in the hall.

While tenants can be understanding about the landlord’s decision to sell the property, it is, in almost all cases, an entirely negative event.  They have to go through the hassle of finding a new place to live and they have to accommodate prospective buyers interrupting their enjoyment of the unit.

In many cases, listing a property that is tenanted for rent results in it showing poorly and being harder to book showings.  Combine those two things and you have fewer people seeing a unit that doesn’t look as good as it could.  If that sounds like a recipe for a long time on the market and a lower sale price, you’d be correct.

We often advise our investor clients who are considering selling a condo unit to wait until the end of the current tenancy if that is possible.  It allows us to spruce up the place so it shows its best and to provide easy access to perspective buyers.  That may not always be possible, so we’ll tweak this rule slightly to make it “Don’t list a tenanted property for sale, unless you have no other choice.”

In the case of the unit we’re focusing upon, it remained on the market with a tenant in place until September 1^st.  At that point, the listing was changed from “tenanted” to “vacant”.  The showing availability went from “24 hours notice required” to “showing anytime” and it suddenly became much easier to show the property.  Mind you, at this point, the listing showed as being on the market for 103 days, so it already seemed like a stale listing that might have something wrong with it.

Rule #2 – Make sure you describe it accurately.

When this condo was listed in June, 2022, the listing agent put the property type as “Comm Element Condo”.  This type of condominium corporation has no units and only has common elements such as a road. Owners use the common elements and jointly fund their maintenance and repair through the payment of the common expenses.

We do see such properties in the city, but they are most common with a small collection of townhouses.  In the case of this listing, it is a large condo tower with hundreds of condo units.  If the type of property the agent chose for the property sounds like it isn’t a condo apartment, where you have ownership of your specific unit, that’s because you’re right – he put the wrong description.

It took more than two months for the listing agent to realize his mistake and correct it.  In October, he changed the property type to “Condo Apt” and that would have made a huge difference in the number of people seeing the listing.  The reason for this is because in the MLS system, a field that must be chosen by agents setting up searches for clients is not just whether it is a condominium property (as opposed to a freehold property like a house), but also whether it is a condo apartment or something else.  When the agent put the wrong property type, he inadvertently made it so that the listing was effectively invisible to agents who chose condo apartment.

The seller would have had to sign off on an MLS Data Information Sheet that specified the type of property, but they would been unlikely to realize the difference between a “Comm Element Condo” and a “Condo Apt” and relied upon their agent getting it right.  While the agent would have had to have an amendment prepared and signed by the client to make that change, our suspicion is that didn’t take place and the seller had no idea the disservice that was done to them during this initial listing period.

Rule #3 – Listen to the market.

It took 95 days on the market for the listing agent to have their seller agree to a price reduction.  The listing started at $1,069,900 and after three months, the price was dropped to $999,900.  That’s both a significant dollar decrease as well a significant psychological barrier being crossed when it listed at under $1M.  It took too long to get there, but it’s the right approach.  We often see properties decreased by too small an amount to make a different in the perception of the market, so kudos to the agent for getting this right.

It was a week after this price drop that the agent realized he had the wrong property type listed and corrected it.  He let the listing go for another week at $999,900 before he convinced his seller to drop the price again, this time by $40K, down to $959,900.  Again, that’s a reasonable price drop given the list price and is an indication the agent did his job by letting the seller know a smaller price drop wouldn’t make a difference.

On October 31, 2022, the listing agent got the seller to agree to an extension to the listing contract, as the original listing contract from back on June 19, 2022 was expiring.  This was a sign of faith from the seller that despite the length of time on the market and the two price drops that had already taken place, this agent could get the unit sold.

Unfortunately, that change to marking the listing from a status of “PC” (for Price Change) to “Ext” (for Extended) was the last visible action taken by the listing agent.  In the 123 days since that change was made, there have been no changes to this MLS listing.  The price remains the same, the wording remains the same, and the property remains on the market.

The final rule is arguably the most important and it’s simply that you have to listen to the market.  There is no debate over whether the property is worth the list price – the market has told them that it isn’t worth $959,900.  If it was worth that price, someone would have bought it by now.  It has been on the market for 258 days, almost 10x the length of time that a unit sells for in the building on average.  It’s been vacant and easy to show for 183 days, or six months.  If anyone wanted to see the unit, they did.  If anyone wanted to pay that price, they could have done so.  The seller and their agent need to listen to the market and relist at a lower price if they plan on selling the property.

The above story is particular to this one condo unit, but we’ve seen it play out in different iterations many times in our work with clients.  If you are selling a property, you need to work with an agent who knows when you should list it, how to list it properly and why you listen to the market.  If that sounds like a better approach to you, then we’d love to talk further.