Condo landlords
“The interest of the landlord is
always opposed to the interests of
every other class in the community.”
—David Ricardo: 1817
“Drink
is the curse of the land. It makes you fight with your neighbor. It
makes you shoot at your landlord and it makes you miss him.”
—Irish proverb
The first condos in Ontario were built as affordable housing for single
families. People bought them to live in them.
When the owners wanted to move, normally they would sell their units.
Some owners however, kept their units and rented them out.
Times were different in the early 1970s. A new two-bedroom condo sold
for between $12,000 to $17,000, taxes and maintenance fees were low and
a unit would carry for about $200 a month, a little less than what the
rent would be at a regular rental building. A unit would appreciate at
approximately 6% a year. There was both positive cash flow and capital
gains.
It was harder back then to sell condos so renting them out seemed like
a reasonable alternative to waiting for a buyer.
Investors
At some point the general public realized that condos could be used as
rental properties and not just as primary residences.
The developers then started building more bachelor, one-bedroom and
one-bedroom plus den units as these smaller units were cheaper to buy
and easier to rent.
A whole industry came into existence to attract and serve the condo
landlords.
The result
In some downtown condo developments, absentee landlords may own as much
as 50-80% of all the units and instead of having a community of
owner-residents, you have a majority of renters who plan to stay for
only
two or three years.
What's worse, is rather than a "rental" building having one
professional landlord who has standards for vetting potential tenants
and dealing with mis-behaving renters, these condos can have hundreds
of amateur landlords, some who are
not living in the country, having vastly different abilities to screen
tenants and to control their behaviours.
In some of the large condo towers, having up to 600 units,
there are so many renters moving in and out, the protective pads in the
moving elevator are never taken down.
Rental agencies
There are dozens of rental agencies that will manage your individual
unit for the "investors" for a fee. Some are small companies, often a subsidiary of a real estate office and some are subsidiaries of the condo developers that build the condo corporations.
Governance
The costs of managing a condo "rental" building are higher than a
building that has a low number of renters. Maintenance costs are
higher as the large number of moves adds wear and tear in the
hallways and it is conventional wisdom that renters do not take care of
the common elements as well as owner-residents.
Large number of rental units makes it harder for the board to
achieve a quorum for owner meetings and to be able to pass new by-laws
or to amend existing ones.
Are condos a
safe
investment?
In the main, they have been so far but with builders charging
$650-$1,000 a square foot for new units it is hard to tell how anyone
is
going to be able to collect enough in rent to pay the total carrying
costs.
If resale prices tank, then there will go the owner's expected capital
gains.
Special
Assessments
A hefty special assessment will wipe out any chance of profits and
almost always drives down the resale prices. It is the same with rising
maintenance fees or if the corporation takes out a loan.
That is why most condo landlords resist increased condo fees, special
assessments or the condo taking on loans and will give their proxies
to the candidates that promise to freeze fees.
Not limited to
Toronto
Investing in condos is not limited to Toronto. In China there are
68,000,000 empty condos that have been bought by rich people. The
owners pay the monthly condo fees and leave their units empty.
They have no intention of renting them; the units are considered safe
long-term investments.
Rows
of brand new empty condominiums.
Are Canadian investors willing and able to be so patient?
top contents
chapter previous
next