Whenever we work with tenant clients, we start off by having a heart to heart about how it works.

We’ve previously written about how landlords think and what they look for in a prospective tenant and the three questions they ask themselves.

This is a useful starting point for a tenant to understand the perspective of most landlords and if you haven’t read it, please do!  Today, we thought we’d get into how tenants can inadvertently make it very difficult to find a new rental property where the landlord wants them as tenants.

Below are the three biggest mistakes tenants make when looking for a new rental.  If you avoid these mistakes, you’re well on your way to making it easy to find a new place!

Mistake # 1 – You can’t afford that place.

One of the hardest parts of being an adult is balancing what you want against what you can afford.  This is particularly true when it comes to housing, both buying a place and renting a place.

On the buying side of things, we often have buyer clients who are approved for a mortgage (and monthly payment) that is more than what they’re comfortable spending.  This is a good situation, as it means they can buy a place under their approved mortgage limit and be comfortable with what it costs them each month.

The renting side of things is unfortunately often the other way.  Many tenants have a budget in mind that is feasible for their financial circumstances, but higher than the standard guidelines for rent to income ratios.

While it is not allowed to refuse a tenant on the grounds of a specific income to rent ratio, in practice many landlords follow the generally accepted rule of thumb where a tenant should not spend more than 30% to 40% of gross (before tax) income on housing costs.

The below chart has the “required” income based on monthly rent ranging from $1,500 to $5,000.

The green text columns are the annual, bi-weekly and monthly income needed at the 40% level, which is pretty much the lowest income a landlord would consider for the monthly rent in question.

The black text columns beside the green ones are the 30% level for the monthly rent.  Put the two together and you have the range that would likely be acceptable to a landlord for your income.

As of March, 2025, the average rent in the GTA is just over $2,700 per month.  We’ve highlighted that row in yellow in the chart above.  We can see that if a tenant can “afford” $2,700 a month for their rent, they need to make between $81,000 to $108,000 a year.  That’s $3,100 to $4,200 for the gross bi-weekly pay cheque, or between $6,200 to $8,200 a month.

If that seems like a very high income for that level of rent, you’re not alone in thinking so.  It is often a big surprise to tenants that a landlord thinks they can’t afford a place.  This is because tenants typically think that anything that is less than their monthly income is “affordable” to some extent.  This makes some level of sense as you can pay that rent each month based on your income.  There are of course, other significant expenses that people must pay for out of their income – food, transportation, personal needs and so forth.

With landlords looking to see someone spending 30% to 40% of their gross income on rent, and tenants willing to spend considerably more, you have the makings of a disconnect that causes problems.

If you’re a tenant setting your budget, set the number you’d be comfortable paying, that you’re confident won’t be an issue.  At the same time, find your income in the chart above to see what level of rent you’d be able to afford based on that 30% to 40% ratio.  If the number is similar, you’re in good shape to be able to show a landlord you can afford the place.  If the number you “qualify” for in the chart is much lower than what you need to spend in order to get the type of place you want, then be prepared to show the landlord how you will be able to pay the rent.

Mistake # 2 – You can’t live comfortably in that place.

The second biggest mistake that we see tenants make is applying for a home where the attributes of the home don’t match the needs of the tenant.

The most common example of this is where a number of people apply for a smaller rental where there doesn’t seem to be enough space.  This is a practical solution to the problem of affordability, where the rent being charged is too much for a single income, but possible for tenants who have multiple incomes amongst them.

Despite the property now being affordable based on the 30 to 40% ratio of rent to income, there is a disconnect between the size of the space and the number of people living there.  While a couple can live in a 500 sf space with a similar level of comfort as a single individual, if there are three adults, or additional children who are going to be living in the space, landlords are concerned about how this will be addressed.  Part of that concern has to do with wear and tear on the space from the additional tenants, but in some cases, it means changes to how the space was intended to be used.  A one bedroom unit with three adults applying to live in the space will likely see the living areas subdivided into sleeping areas.  Whenever a place is used in ways that are different to the intended use, accommodations are made to make it possible and they can cause damage to the unit.  If a bed is placed in a hallway, damage to walls will likely occur.  If a living room is converted to a bedroom and a bed located beside the kitchen, safety hazards can result.

It is illegal to charge a damage deposit in Ontario, so if you’re part of a tenant group that is trying to make a place affordable by having more people stay there, you need to be clear on how you’d respect the property.  Given tenants cannot offer a damage deposit, offering a higher rent than asked may be a way to provide the landlord peace of mind that any additional wear and tear won’t result in out of pocket expenses.

Mistake #3 – You don’t have a good (or any) track record.

The third big mistake that tenants make is underestimating the impact of not having a good – or any – track record for landlords to review.

The first aspect related to this is credit history.  Whether you’re a newcomer to the country, or just starting off into adulthood, a lack of credit history can be a challenge.  Landlords are always trying to assess whether a prospective tenant will be a responsible occupant of the property on a mid to long-term basis.  When there is a credit history showing responsible financial activity, with an accompanying good credit score, it makes landlords feel comfortable with the tenant.

While a limited credit history with no credit score is a challenge, it can be overcome by guarantors on the application who do have a lengthy credit history and a great credit score.  A much more substantial problem is for tenants who have made some poor financial decisions and have low credit scores as a result.  In such a case, we recommend tenants address the issue head on with their application, explaining how they got in that situation, and crucially, how it will improve.

Many tenants understand that a good financial track record is important, but they fail to realize that employment and rental history is also considered by a prospective landlord.

If you’re in a new role or industry, whether freshly graduated or simply in a new career, you need to be aware that landlords are uncertain as to whether you will continue to be employed in your current role.  This is somewhat unfair, as an individual employed for ten years at the same company can be fired the day after they start a new tenancy, but it is still an issue if you’re applying for a place after starting a new job.  In such cases, going above and beyond the typical job letter is important.  If you can provide a personal reference letter from your employer talking about your prospects in the career, that can go a long way to making a landlord feel comfortable.

Finally, a red flag for many landlords is a history of multiple rentals in a short term.  If you’ve stayed at your last three rental properties for a year at each, the question that arises is why you only stay that long.  If there were issues with the properties or the landlord that caused you to decide to leave, be cautious with sharing those complaints, as it can make you appear to be a demanding or unreasonable tenant.  If it was happening for reasons outside of your control, such as the landlords selling the property each time you were just getting settled in, share that story as part of your application.

When you are trying to find a new rental home, the above mistakes can make it very difficult to find a landlord willing to take you on as their new tenant.  While you cannot change aspects such as your current income, your family or your track record for credit, employment and tenancy, you can make efforts to address them directly with explanations.

If you need an agent to help you find your next home to rent, or you’re a landlord who wants a good tenant, then we’re here to help.  Get in touch with us to talk about the next steps!

The Toronto Regional Real Estate Board (TRREB) commissioned a report in November 2024 called “Breaking the Backlog – Restoring Fairness and Justice to Ontario’s Landlord and Tenant Board” and boy, is it a doozy.

We’re glad that TRREB is taking an active interest in this as the LTB is essential for maintaining balance and fairness in Ontario’s rental housing market, ensuring that both landlords and tenants can enforce their rights and obligations under the law.  You have likely seen headlines and articles about horror stories on both the landlord and tenant side of the equation and we’ve worked with clients on both sides who have been treated unfairly.  It all comes down to a system that isn’t working as intended, allowing bad faith players on both side to take advantage.

Let’s get into the situation and how to fix it.

First off, what exactly is this LTB you keep talking about?

The Landlord and Tenant Board (LTB) is a tribunal in Ontario, that resolves disputes between residential landlords and tenants. It operates under the Residential Tenancies Act, 2006 (RTA) and plays a critical role in administering rental housing laws in the province. The LTB’s primary functions include:

• Dispute Resolution: Handling applications from landlords and tenants regarding issues such as rent arrears, eviction, property maintenance, and lease disagreements.
• Mediation and Hearings: Offering mediation services to help parties resolve disputes and conducting formal hearings when necessary.
• Orders and Decisions: Issuing binding rulings and orders based on the evidence and arguments presented during hearings.

The LTB is part of the Social Justice Tribunals Ontario (SJTO), which oversees several tribunals focused on social justice matters. It employs adjudicators, who are independent decision-makers, and support staff to process and resolve cases.

What’s the problem?

The LTB has faced significant challenges in recent years, including extensive backlogs due to lengthy delays.  If you’re wondering how bad it actually could be, get ready.

As of February, 2024, the LTB had more than 53,000 unresolved cases.  While the specific of the cases vary, remember that the whole focus of the LTB is issues like rent arrears, eviction, property maintenance and lease disagreements.

Think about that – over 53,000 cases where there is a tenant who stopped paying rent, or a landlord who evicted a tenant illegally, or mould in the bathroom or broken locks, or even simply some other type of disagreement between landlord and tenant.

If you ever read a case of a bad tenant or landlord and wondered how that could happen and then said there must be laws against that sort of thing, you’d be right. There are laws and rules and right now there are over 53,000 people waiting for their case to be heard.

Speaking of waiting, with 53,000 unresolved cases, it is taking a while to get a hearing.  There is a pecking order of sorts when it comes to which cases get resolved the quickest, but “quick” is a relative term.

For example, the LTB says that urgent matters such as illegal lockouts and other high-priority requests get the fastest level of service, with about 5-6 weeks on average to have it scheduled.  Even better news is that most decisions (which are called Order) are issued with 30 days or less.  So, if you’re a tenant who has been illegally locked out of your rental unit, just sit tight for two to three months and you should be sorted.

Up until quite recently, the wait time for non-payment of rent issues was five months, plus of course the month or so before the Order would be issued.  The website for the LTB now says that takes approximately three months, and if that’s true, it still means four months of a landlord not being paid rent before they receive an Order.  Keep in mind that many landlords don’t go to the LTB to evict for non-payment of rent until the issue has become quite extreme.  It is not uncommon for landlords to be owed at least two months rent before they start the process, so in many cases, it actually means that a landlord is owed 8 months of rent by the time the tenant is evicted.

Less urgent matters than illegal lockouts or non-payment of rent are now being scheduled with 5-7 months, plus of course the month to receive the Order from the LTB.  No hot water in your unit?  File an application to the LTB and two seasons later, it may be addressed.  Lots of extra people living in the rental unit you own?  File an application to the LTB, and within six months, you should get an answer.  I’m sure the extra people won’t cause much wear and tear or complaints from the neighbours.

While it is landlord and tenant relationships at odds in these cases going before the LTB, 84% of applications to the LTB are from landlords, so the backlog and delays are dramatically impacting existing landlords as well as strongly discouraging investors from purchasing rental units in Ontario.

What’s causing this mess?

The TRREB “Breaking the Backlog” report identifies several key factors causing the backlog and delays at the LTB, so let’s review.

Understaffing:  The LTB has just 70 full-time adjudicators, far below what is needed to handle the volume of cases effectively.  Many of those adjudicators are new in their roles since 2023, so these aren’t seasoned experts who quickly and efficiently deal with complex cases.  Put bluntly, inadequate staffing levels directly limit the number of cases that can be processed daily, causing, you guessed it, a backlog.

Increased Case Volume:  A 23% increase in case filings over the past five years has overwhelmed the LTB’s capacity to keep up.  Things weren’t great a number of years ago, but the combination of more cases and staffing that isn’t keeping pace has meant it got much worse, quickly.

Outdated Technology and Systems:  The reliance on outdated, inefficient administrative processes and technologies creates bottlenecks in case management and resolution.  For example, applications can be done via an online portal but also can be submitted via email, or mail or in person.  Applications done via the online portal were entered into the system immediately, but emails, mailed in or in person submissions could take three months until they even enter the system!  While online hearings may seem like a great way to address delays and increase efficiencies, it has amplified accessibility issues amongst vulnerable groups.  Anyone living in poverty and lacking sufficient Wi-Fi or a private place have great challenges with online hearings.

To sum up, the current process for scheduling hearings, issuing decisions, and communicating with landlords and tenants is slow and lacks the flexibility to adapt to demand surges.  These issues collectively exacerbate delays, creating extended wait times for hearings and decisions.  The end result?  The mess we’re in right now.

How on earth do we fix the LTB?

While the problems are significant, there are steps that can and should be done to fix the LTB.  Some have already started but with the significant backlog and delays, we need it to be better, sooner.

The full report from TRREB goes into detail on recommendations, but here are the key steps.

Increase Staffing Levels: The LTB needs more adjudicators and support staff to process applications efficiently. Current understaffing significantly contributes to the backlog and delays in resolving disputes.

Modernize Systems and Processes: Upgrading outdated systems, implementing online services, and streamlining administrative procedures can reduce inefficiencies and enhance user experience.

Set Clear Timelines: Introducing mandatory timelines for hearing cases and issuing decisions would help reduce the unpredictability of wait times for landlords and tenants.

Provide Adequate Funding: Increased funding is necessary to support staffing, technological improvements, and other enhancements to ensure the LTB can meet demand.

Improve Accountability and Transparency: Ensuring that the LTB operates with greater oversight and regular public reporting on performance metrics can build trust and ensure ongoing improvements.

Doing the above things would be a great way to address the significant backlog of cases at the LTB while improving fairness and efficiency in Ontario’s rental housing sector​.

While an article about the Landlord and Tenant Board may seem like a strange focus for a team of real estate agents, we care deeply about housing in Ontario.  Within our team we represent both landlords and tenants and we’ve seen first-hand the challenges that the LTB is causing to both sides.  We believe the majority of landlords and tenants are looking for a fair agreement on rental housing and it’s time that the LTB became the solution to problems in the rental market.

If you’re a landlord looking to rent out a property, or a tenant trying to find a home of your own, don’t hesitate to get in touch with us.

A couple of years ago we wrote an article about the way landlords decide on a prospective tenant for their rental property.  We’ve had great feedback from our landlord clients about how useful that review was and it has served as a primer for our clients who are new to being a landlord!

While the majority of our work on the rental side is with our investor/landlord clients, we do sometimes help tenants find a place to rent, often as a precursor to buying in the future.  With that in mind, we thought we’d flip the script and talk about how tenants think about rentals the three questions they answer before deciding on whether they’re interested in a given property.

Let’s get into it!

Question #1 – Does it have what we need?

The most fundamental question all tenants ask is whether a potential rental property has the necessary attributes they need.  While these can vary tremendously from tenant to tenant, let’s review the big considerations that go into answering this question.

First and foremost, does it have enough space?  While this is often determined in the form of number of bedrooms, we’ve seen lots of tenants who make do with different layouts or fewer bedrooms than they’d like if there is enough square footage.  A family with two kids might want separate bedrooms for the kids, but they might consider a rental with a large enough bedroom that could accommodate two separate areas for each child.  If there just isn’t enough square footage, where the tenant can’t figure out how they could actually live in a happy fashion in the space, they just don’t proceed.

Secondly, can everyone in our family actually live there?  This may sound like we’re talking about the amount of space, but we’re actually talking about any restrictions due to layout or policies.  If you have someone with limited mobility, too many stairs or too small a bathroom can make an otherwise perfect rental a no-go.  Similarly, if you have a beloved pet and the rental doesn’t permit pets, the search continues.  While we see fewer smokers these days, a tenant who smokes may refuse to consider a property that doesn’t permit smoking or at least have a balcony or easy access to an outside area where they can smoke.

The final big consideration for this question is whether any must-haves are missing at the potential rental property.  The list of what is a “must” varies from tenant to tenant, but dedicated parking is often a key requirement, as is in-home laundry.  It is all a function of lifestyle and what the tenant considers crucial in a home.  In some cases, they can manage with some version of it, but in other cases, it’s either there or not.

Question #2 – Can we make it work?

As we alluded to in the above section, tenants will often be willing to come to a compromise about a desired attribute in a rental.  This can mean on-street parking if the rental has no dedicated parking, or shared laundry rather than exclusive laundry.  We often see tenants who think creatively when it comes to finding the space they need.  If two roommates both need a home office, some layouts with the same square footage as another may allow that to happen, whereas it just doesn’t work with the other option.

In a more general sense, tenants have to look at what tweaks and upgrades they can do to a unit to make it acceptable to them.  Unlike when you buy a home, tenants often don’t have the ability to make substantial improvements to a home.  Someone buying a condo unit may be fine with the outdated flooring and kitchen because they can replace and update both.  The same unit that is for rent faces a far greater challenge, as tenants have to live with the home “as is” to a great extent.  We often see tenants who want to paint to refresh or brighten up a space, change light fixtures or do other relatively quick and cheap updates to make it more to their liking.  A rental unit that works in a broad sense but isn’t too appealing often has lots of applications where the prospective tenant is wanting permission to do such updates.

There is of course a financial element to this question as well.  While landlords are focused on whether a tenant can afford the rental rate and how much of their income is going towards housing, tenants are often focused on if they can afford it at all.  While we see many tenants that are comfortable (or willing to pay) rent that is a significant percentage of their income, it is quite rare to see a tenant consider a property they just can’t afford on a monthly basis.  If we had to put it simply, landlords look to see whether tenants can afford the home if their finances took a turn for the worse, while tenants look to see if their current income (or even hoped for future increased income) is enough.

Question #3 – Does it feel right?

The final question that tenants must answer before they decide if they want to proceed with a rental application is whether the property feels like their next home?  This question is mostly removed from the specific attributes of a home and more about the property, building, location, and neighbourhood.

There are often places that seem great on paper and fit the bill for a prospective rental unit, but that the tenant finds unappealing when they visit.  This is particularly common when there is a disconnect between the rental unit and other aspects.  For example, a renovated condo unit that looks great in photos and has all the required attributes may attract lots of showings and interest.  If, however, the building, the grounds, the lobby area and the common areas are older and not in great shape, prospective tenants may decide against it.

If a tenant has previously had a negative experience with a landlord, or been evicted due to a renovation or sale of their rental, they are often very focused on the landlord’s behaviour during the application process and the future plans for the rental property.  Much like many landlords look for long-term tenants who will pay the rent, keep the property in good shape and not cause problems, many tenants are looking for landlords who will uphold their side of the responsibilities and who will let them enjoy the rental and live there for a length of time.

When we work with rental properties on either the landlord or tenant side, we see the above questions (and the corresponding answers) dramatically impact the likelihood of whether a rental will quickly find a new tenant or sit on the market for a length of time.  If a rental unit lacks the fundamental attributes that most tenants are looking for, if the tenants can’t find a way to make it work despite any shortfalls, and if it just doesn’t feel like a place the prospective tenant would be comfortable living in, expect it to take a while to rent it out!

We hope this was a useful review of the way tenants think about potential rentals.  If you’re looking for a rental right now, remember that the landlord view is focused on whether you can afford the home, if you have a good track record and whether they feel comfortable with your overall application.  It is only when a place works for a tenant and the tenant profile works for a landlord that leases are signed and tenancy take place.

If you’re looking for help on either side of the rental transaction, get in touch with us to see if we can help!

We regularly work with landlords and tenants and believe that a good landlord and tenant relationship is possible and beneficial to both sides.  There are, however, a number of common misunderstandings when it comes to certain aspects of rental in Ontario.  We often see this take place at the end of an otherwise fruitful and productive tenancy.

We will preface all of the below information with the statement that we are not lawyers, paralegals or representatives of the Landlord and Tenant Board.  This is intended to be a general resource that highlights the most common misunderstandings around ending a lease.  You can and should always seek professional assistance to confirm your approach is legal and correct.

That being said, let’s talk about what people get wrong when it comes to ending a tenancy.

Mistake #1 – You’ll notice I don’t understand how to give notice.

There are periodically changes to the rules around landlords or tenants giving notice to end a current tenancy.  The best source for the current rules will always be the governing tribunal that provides dispute resolution of landlord and tenant matters.  In Ontario, that’s the Landlord and Tenant Board (or the LTB), who operate under Tribunals Ontario.

As of February, 2024, this is the link to the section on their website that specifies how to end a tenancy, whether it is initiated by the landlord or the tenant.

While the rules for the notice a landlord must give (as well as compensation they must provide to their tenant) vary depending on the reason for ending the lease, it is the tenant side of things that we commonly see misunderstood.

If you’re a tenant and want to end your tenancy, you can inform your landlord in writing and as long as you give enough notice and they acknowledge receiving your communication, you should be good.  Tenants will often use a form created by the LTB called the “Tenant’s Notice to End the Tenancy (Form N9)” and you can search online to find the latest version.

Here’s the wording on that form that many tenants (and some landlords) misunderstand.

For most types of tenancies (including monthly tenancies) the termination date must be at least 60 days after the tenant gives the landlord this notice. Also, the termination date must be the last day of the rental period. For example, if the tenant pays on the first day of each month, the termination date must be the last day of the month. If the tenancy is for a fixed term (for example, a lease for one year), the termination date cannot be earlier than the last date of the fixed term.

The common (mis)understanding that is out there amongst tenants is that you can end a tenancy if you give two months notice.  We say misunderstanding, because while this is broadly true, tenants often don’t grasp two key aspects.

First, you can’t break a lease before the end of the lease term, regardless of if you give two months notice.  In the absence of conditions that are in violation of the Residential Tenancies Act, if you sign a lease for a year, you are committed and bound to the terms of that lease until the end of your lease term.  You can’t say you’ll rent a place until November and then give notice in March that you’re leaving in two months.  Well, you can, but it isn’t going to change the fact that you have a lease you need to pay until November.  The two months notice that most people think apply is when you’re at the end of your lease (i.e. it ends in two months and you’re giving notice before the last two months start) or when you’re on a month to month lease.

Secondly, it’s not two months notice exactly.  You have to give at least 60 days and the termination date must be the last day of the rental period.  As we write this article, it is February 2, 2024.  If a tenant is on a month to month lease, where they pay rent on the 1^st of each month, and decides to give their notice, that doesn’t mean that they can tell their landlord I’m leaving on April 2, 2024.  While that is 60 days from today, the termination date has to be the last date of the rental period.  They pay rent on the 1^st of the month, so that means it is the last day of the month at least 60 days after they give notice.

Here’s a few examples.

The tenant pays rent on the 1^st of the month, and it’s February 2^nd.  If they give 60 days notice on February 2^nd, that means April 2^nd, but the last day of the rental period is the end of each month, so that means April 30^th.

Say the same tenant got organized a few days earlier.  The tenant pays rent on the 1^st of the month, and on January 31^st they give notice.  The 60 days notice they gave lands on March 31^st, and the last day of the rental period is the end of each month, so March 31^st is the date their lease ends.

If a tenant pays rent on the 15^th of the month, or the 4^th or the 23^rd or whatever date the landlord and tenant agreed to with the initial lease, then they need to give at least 60 days notice and their lease ends at the end of the last day of the rental period.  So, if they pay rent on the 15^th, and give notice before the 15^th of the month, 60 days takes them to the 15^th of the month two months ahead.

In summary, a tenant must give notice at least 60 days before the last day of their rental period.  Not two months and regardless of the notice given, it has to end on the last day of their rental period unless otherwise agreed.

Mistake #2 – Hold on, when’s the last month then?

In the vast majority of lease situations, the tenant pays for the first and last months’ rent at the start of their lease.  The first month’s rent is pretty clear.  A tenant agrees to rent a unit, their lease starts on March 1^st so the landlord applies half of their rental deposit of first and last months’ rent to the month of March.  The first regular monthly payment the tenant makes for their new rental is April 1^st.

It is the last month’s rent that gets confusing for landlords on tenants on a regular basis.

In the above example, the tenant started a one year tenancy on March 1^st and provided their landlord with 10 post dated rent cheques.  The first month (March, 2024) was paid for with the first and last month’s rental deposit.  The second month (April, 2024) was paid for with the first of the ten rental cheques they provided.  Here’s how the year looked.

• April 1^st – Rent Cheque #1 Deposited
• May 1^st – Rent Cheque #2 Deposited
• June 1^st – Rent Cheque #3 Deposited
• July 1^st – Rent Cheque #4 Deposited
• August 1^st – Rent Cheque #5 Deposited
• September 1^st – Rent Cheque #6 Deposited
• October 1^st – Rent Cheque #7 Deposited
• November 1^st – Rent Cheque #8 Deposited
• December 1^st – Rent Cheque #9 Deposited
• January 1^st – Rent Cheque #10 Deposited

Sometime in January, the landlord realizes they don’t have any more rent cheques.  They talk to the tenant who says they want to stay at the unit on a month to month basis and both agree to continue at the same rent as it’s been a good tenancy for all parties.

Here is where the mistake often happens.  Rent is due February 1^st and it is not unusual for either the tenant or the landlord to think that the last month’s rent should be used for that.  No rent cheque is provided and the tenant provides new post-dated cheques starting March 1^st.

The thinking here is that the first and last month’s rent was for the term of the lease, which was one year or twelve months.  The first month is applied to month one and the last month is applied to month twelve.

The mistake here is that the last month’s rent is intended to be used for, literally, the last month of the rental period for that tenant.  So if a tenant decides to leave at the end of their one year lease as above, then applying that rent to the February 1^st rent is correct.

If a tenant continues to stay beyond the initial rental period (whether on a month to month basis, which is what happens if no new fixed term lease is signed, or signs on for another year or some fixed term lease), then the landlord keeps that last month’s rent until…you guessed it, their actual last month.

In summary, the last month’s rent should never be applied to any rental period other than the literal last month of the tenant’s time in the unit.  If a lease is extended, the landlord sets that last month aside until their actual last month and the tenant is responsible for making sure the regular rental payments continue without delay.

Mistake #3 – How interesting!

The final common mistake we see landlords and tenants make has to do with that last month’s rent.

By law, the landlord must pay their tenant interest on their last month’s rent deposit every year.  The amount of interest is determined on a yearly basis in accordance with the Consumer Price Index for Ontario, which is the same amount as the yearly rent increase (the “Guideline”) that is permitted in the province.  In Ontario, that is currently 2.5%, but make sure you check to see the current amount before you make any calculations.

In our experience, the majority of landlords and tenants do not follow this law.  It is not commonly known and the dollar amounts tend to be relatively small.  Regardless, it is the law and the best practice that we suggest our landlord clients follow is to make a note of the annual anniversary of the start of the lease term and do the calculation at that point.  We recommend a separate payment be made rather than adjusting the rent received from the tenant as it typically causes confusion.

Say that a landlord is applying the permitted increase each year (which they can do once every 12 months) and in lieu of the first month of the increase rental rate starting immediately, they start it a month later and that amount can be used by the landlord to top up the last month’s rent amount.  Here’s an example.

A tenant rents for $3,000 per month, starting on March 1^st, 2023.  They agree to remain and the landlord gives the required notice that they will be increasing the rent by the permitted 2.5% as of the start of the 13^th month.  The new rental rate is $3,075.  On March 1^st, 2024, the landlord asks for a rent cheque in the amount of $3,000 and tells the tenant that month’s rent includes them giving $75 back for the interest for the year on their last month’s rent.

A tenant can do the same thing of their own volition, acknowledging the new rent of $3,075 and paying the first month of the new rental amount period at $3,000 and notifying the landlord they withheld $75 of the rent for the interest on the first month’s rent.

As you can imagine, this can cause confusion.  Did the tenant pay the new rental rate on time or no?  Did the landlord ever pay the interest on the first month’s rent?  As a result of the possible confusion we suggest that the landlord make a separate payment to the tenant for the interest on the first month’s rent, the tenant make a separate payment to the landlord for the top up to bring the last month’s rent to the new agreed upon rent, and the new rental rate starts on the date that is allowed based on the notice given.

The rules around renting in Ontario can be complex and we regularly work with our landlord and tenant clients to make sure that the end of a lease is done fairly, legally and with no misunderstandings.  If you think that sounds like the right approach and you need some real estate help on either finding a place to rent or a tenant for your rental property, please get in touch with us to discuss next steps!

It is quite surprising how many tenants as well as how many agents representing tenants don’t understand how a landlord assesses a rental application and decides whether they want to proceed or keep looking for a better fit for their rental unit.

Given that in Toronto, the average rents for one-bedroom and two-bedroom apartments are now both at record levels, it is very important information for any tenant looking for a new place to call home.  It’s equally crucial for landlords who may not have been following the best approach when choosing tenants and have since had less than stellar experiences.

Let’s review the current (July, 2022) rental market situation and then reveal the three top things that smart landlords look for in a tenant.

That is one tight rental market!

As of July 28, 2022, the condominium apartment rental market conditions have tightened dramatically when compared to a year ago.

Average rents for one-bedroom and two-bedroom apartments are now both at record levels, surpassing the previous peak in Q3 2019.   There were 13,203 condo apartment rental transactions reported through the Toronto Regional Real Estate Board (TRREB) MLS® System in Q2 2022 – down 11.4 per cent compared to Q2 2021.

The dip in rentals was not the result of waning demand, but instead a much more pronounced dip in the number of rental listings, dropping by almost 30 per cent year-over-year. With less choice, it was much more difficult for renters to get deals done.

This is not likely to be a temporary, short-term situation either, as higher borrowing costs keep some buyers out of the market (and remaining in the tenant market) and the GTA population continues to grow alongside a booming regional economy.  When you have consistent or even growing rental demand, with dropping rental supply, rental prices go up.

According to the latest TRREB data, average condo rents were up by double digits annually for all bedroom types in the second quarter. The average one-bedroom rent increased by 20.2 per cent year-over-year to $2,269. Over the same period, the average two-bedroom rent was up by 15.3 per cent to $2,979.

Whether you’re a tenant struggling to find a good place to rent or a landlord trying to decide among lots of interested applicants, it’s important to understand the most important factors in what makes a desirable tenant application.  Smart landlords look to find a tenant where the answer to the three most important questions is always the same – a definitive yes.

Question #1 – Can they afford the place?

While this seems like the obvious starting point for whether a tenant will be favourably considered by a landlord, it is in fact the number one reason why a tenant is told no to their application.

A generally accepted rule of thumb is that you should spend no more than 30% of your gross (before tax) income on your housing costs.  Some experts push that a bit to say up to 35% or even 40% but we have not encountered any credible sources that think spending more than that level of your income on shelter is sustainable.  All people need funds for other costs like food and clothing, as well as some discretionary funds.

We often tell landlords to use the 1/3 rule as an easy way of assessing a potential tenant.  If you have a unit where you’re asking rent of $2,400 per month and the tenant pays hydro and electricity of about $100 per month on top of that, the tenant has housing costs of $2,500 per month.  That’s $30,000 per year.  If the tenant makes less than $90,000 per year, you’re getting into a situation where they may not be able to afford the rent if some other unexpected expenses come up.  If everything else looks good, a smart landlord might still proceed, but if they make less than $90K and have some other issues with the application, you’re asking for trouble if you hand the keys over.

Question #2 – Do they have a good track record?

This question gets to the heart of whether the prospective tenant will be a responsible occupant of the property on a mid to long-term basis.  There are a number of ways in which a smart landlord can assess track record.

• What’s their credit score? A good credit score is established and maintained over a length of time by establishing financial commitments and living up to them.  A tenant who has had a car loan for five years and had paid on time consistently is a good indication they understand financial commitments and have the stability to live up to their obligations.
• Have they been a tenant at other properties for typical lengths of time (one year or longer) or have they moved around from short-term tenancy to short-term tenancy? While there can be valid reasons for such activity, it is often the sign of a bad tenant who is being evicted or leaves their rental to escape problems they are encountering.
• Is their employment record consistent or inconsistent and has it changed recently? Someone who makes good money at a job they have had for a long time is likely to continue to be able to live and act in a way consistent with their past behaviour.  A new job or role every couple of years is often accompanied with financial struggle and if they have just switched to a new role, it is worth considering how that might impact their track record moving forward.

A good track record isn’t necessarily a sign that they will continue to be responsible, consistent people moving forward, but it is certainly much preferred over someone with a spotty track record or no track record at all.

Question #3 – Do you feel comfortable with their overall package and approach?

This final question is more about following your gut.  A smart landlord (with an experienced agent on their side) can identify red flags in applications  and the approach being taken by the tenant or their agent that should cause concern.

A few questions that should clarify the situation are as follows.  If the answer isn’t yes to these questions, then think twice before you proceed.

• Did they provide all of the requested information in the application package? A tenant who applies but skips certain aspects of the process is either inattentive, disorganized, or trying to hide a potential red flag.  Regardless of the reason, if they can’t be bothered to follow the rules as established for the application, it does not bode well for them following the rules of the tenancy, such as payment on time, respecting condo rules, maintaining the property, etc.
• Does it seem (as far as you can tell) like they will continue to be reliable? It can be hard to be consistent and responsible when there are major changes in circumstances, so a smart landlord looks for recent or upcoming changes.  If the tenant was employed full-time with a salary but started their own business two months ago, the past history of financial responsibility may not continue.  If the tenant has a great credit score but has had a dozen credit checks performed by debt companies in the past three months, they may have encountered financial issues and are starting to build up debt that can cause financial issues moving forward.  While changes in a tenant’s life don’t necessarily mean their track record will sudden change, it is worth looking to see if the circumstances that allowed them to be a good applicant will continue to be in place once you hand over the keys.
• Are their expectations and questions reasonable? A prospective tenant who is asking for unusual actions on the part of the landlord (such as agreement to take rent payments in cash or provide a minimum of 48 hours notice for visits) can indicate they are not reasonable individuals who may have some unreasonable plans for their time at the property.  The reverse of this is true as well, and smart landlords look out for tenants who don’t care about things that most people would need to know.  A tenant who says don’t worry about having it cleaned after the prior tenant leaves, or who reacts to news of a temporary defect (such as AC needing to be replaced as it isn’t functioning) with no concern can also be red flags.  A good tenant, with good income and a good track record, has reasonable expectations for their rental and their landlord.  Be wary of a tenant who doesn’t seem to care about anything most people would want to know more about.

There is no simple formula for assessing how comfortable a landlord will be with a prospective tenant, but whether you’re looking at it from a landlord’s side or a tenant’s side, think about the big picture and whether there might be some less tangible causes for concern.

In tight rental market conditions, landlords have more choice and tenants have more difficulty securing a rental home.  If you’re a landlord, make sure you consider these three questions so that you’re choosing the best possible option amongst the applicants.  If you’re a tenant, likewise review these three questions and consider what you could do in order to best present yourself.

In either case, if you want to work with agents that understand the rental process and will work with you to get it done properly, don’t hesitate to get in touch with us.

Any homeowner who has bought a home to live in that also has an income suite in it knows it can have a huge impact on the affordability of the home.  While income suites take away some of the space in the house that could otherwise be used by you, the cashflows that come in with the renting of the space change your carrying costs considerably.

Let’s review some key points and then consider an example.

Most Lenders Take Rental Income at 50%…

If you’re looking at buying a home with an income suite, the good news is that the income from renting the suite increases your income in the eyes of a mortgage lender.  If there is a tenant already in place at the home, paying $1,500 a month, that’s $18,000 in annual income.

The bad news is that most lenders discount that rent, often at 50%, in order to account for vacancy.  Unlike a salary, lenders are concerned that the rental income won’t always be there and while it does allow you to increase your approved mortgage amount by some, don’t count on the full 100%.  A good mortgage broker might be able to find you a lender who will take 75% of the rental income, but expect it to be discounted by some amount.

… but the Cashflow is absolutely 100%.

Regardless of how a lender looks at the rental income, when you have a tenant, you are absolutely getting the full amount of rent they pay deposited into your bank each month.

With current mortgage rates (1.99% for a fixed, five year term, amortized over 25 years), every $100,000 in mortgage costs you about $425 per month.  If you’re considering buying a home with an income suite or two, you can figure out how much of your mortgage can be paid by the rental income by dividing it by $425 and multiplying it by $100,000.

• $1,000 per month from a basement suite? That rent pays for $236,000 worth of your mortgage.
• $1,500 per month from a bigger, nicer basement suite? Now $353,000 of your mortgage is covered.
• $2,500 per month from the other half of the duplex you just bought? Congratulations, that rent pays for $589,000 worth of your mortgage.

There are two ways of looking at the impact of your rental income and both are pretty great.

First, when you do the math like above, you can consider the mortgage amount that the rent pays to effectively be a discount on the home.  After all, if you buy a home with $1,500 in rental income, you’re going to paying the same each month as a home that costs $353,000 less.  In exchange for giving up some of your home’s space until you want it for yourself and your family, you are getting a heck of a discount on the effective price of the home.

The second way to look at it is that the rental income means your home cashflows the same as a home that costs $353,000 more.  You can buy a home for $1.2M with no rental income, or a home for $1.5M with $1,500 in rental income and it costs you the same on a monthly basis once you add the rental income into the equation.

If one income suite is good…two are even better.

Let’s go over an example of a listing our team has coming out shortly.

144 Quebec Avenue is a massive (over 2,700 sf above grade, plus another 900 sf of finished basement) detached home just north of High Park.  The home has five bedrooms, four full washrooms, a detached garage accessed by a back laneway, two upper level decks and a backyard patio oasis.  It has absolutely everything you need in a home.

The home is zoned as a triplex and it is currently configured with the owner suite on the main floor and basement, and two updated, attractive income suites.   The one on the 2^nd floor brings in $1,325 in rental income (and that is actually below market rates) and the 3^rd floor unit brings in $1,500 per month.  That’s $2,825 per month in rental income and it could easily be over $3,000 when the rent for the 2^nd floor is brought up to market rates.

With current mortgage rates (1.99% for a fixed, five year term, amortized over 25 years), the $2,825 in rental income pays for over $650,000 of the mortgage.  Let that sink in for a moment.  $650K.  If we look at it from the other perspective, this home cashflows the same as a home that costs $650,000 more.  You can buy it, or a home that costs over half a million dollars more, and your monthly mortgage costs are going to be the same.

Check out the virtual tour here or by clicking on the house below.  If you or someone you know loves the idea of buying a massive home at what is effectively a massive discount, let us know and we’ll arrange a showing.

While being a landlord isn’t for everyone, there are absolutely huge benefits to having an income suite in your home.  If you like the idea of effectively getting a huge a discount on a home, get in touch with us so we can help!

If you own investment properties or are considering one, it’s worth understanding how such properties are treated when you sell them, whether in a short-time frame (a “flip”) or in a longer-time frame after renting it out to tenants for a length of time.

While primary residences in Ontario are exempt from capital gains (any increase in the value of the property since you bought it), non-primary residences are subject to capital gains tax.

What is this capital gains tax you speak of?

Put simply, capital gains tax is a tax you pay to the government when you make a profit by selling something for more than you originally paid.  This applies to all sorts of assets, including stocks, bonds and of particular interest to us, real estate investments.

How is the capital gain calculated?

The good news is that determining your capital gain on an income property is pretty straight forward.  You just take the sale price of the property, and you subtract your adjusted cost base (ACB) and you have your capital gain.  This of course leads to the next question, what’s an “adjusted cost base”?

Here’s what goes into your adjusted cost base.

You can think of your “adjusted cost base cost” (ACB) as what you paid for the property when you bought it, plus the costs of any improvements you made to the property, plus whatever it costs to sell the property.  You can’t add in all your costs (such as a property manager, property taxes and other ongoing costs), but anything you did to improve the property should be recorded separately so you can add it into your ACB.

While using a professional realtor to sell the home helps you get the most amount of money on the sale, the commissions paid on the sale can be significant.  The good news is that those sale transaction costs (also including legal fees, bank fees and so forth) are added to your adjusted cost base.

Here’s an example of how it all works.

Let’s go through an example of figuring out your capital gain on an income property.

Here’s the key aspects:

• In July, 2011, you inherited some money and decided to invest in real estate in Toronto. You bought a semi-detached house for just about the average price for one back then, $502,000.
• You had to pay both the Ontario and Toronto land transfer tax (introduced in 2008) and that cost you about $10,000 at that time.
• Over the years, you spent some significant money on some renovations to keep the house in good shape. You redid the roof, you bought a new furnace, updated the bathrooms, had it painted top to bottom a few times and you eventually had the carpet replaced with some hard wood flooring.  All in, you spent $82,000 on the home over the ten years you owned it.
• In 2021 you decide to take a year off work, and in July, 2021, you decided the time was right to sell the property. You hired a good agent and managed to get a bit above the average for a semi-detached in Toronto, selling for $1,220,000.
• You paid $61,000 in real estate commissions (5% of the sale price), $1,500 in legal fees and your lender charged a $500 fee for discharging the mortgage.

Take all of this into account and here’s what we see.

When all is said and done, you’re adjusted cost base for the property is $657,000.  When we take our sale price of $1,220,000 and subtract your ACB, your capital gain on the property is $536,000.

OK, got it.  Now I know my capital gain.  So..I have to pay that?

Nope.  You only pay tax on 50% of the capital gain you realize on your income property. This means that half of the profit you earned is taxed, but the other half is tax-free.  Here’s what that looks like if we continue the above example.

In this case, your taxable profit on the sale is $281,500, which would be added to your income and taxed by the CRA based on your personal circumstances.   Given you decided to sell in a year when you had no other income (as you were taking a year off work), your overall tax will be lower than if you did this during a year where you also had other income.

Make no mistake, selling an income property where it has appreciated significantly can result in pretty high taxes.  Take comfort in the fact that the other half of your capital gain on the property was tax-free.

Whether it is a long-term rental property or a short-term flip, the bigger the difference in your adjusted cost base and sale price, the more tax you pay.  The timing of the sale can have a huge impact on the overall profit you realize and you need to work with agents who understand income properties.  If that sounds appealing, don’t hesitate to get in touch!