Condos, the new rental buildings

When condominiums first appeared in Ontario, they were designed as an affordable alternative to semi-detached and detached houses. They were residential units in apartment buildings and townhouse complexes.

They were built as residential homes. Many condo apartment buildings contained only two and three-bedroom units.

Rental properties

A traditional rental apartment building

As late as 2001, condos were built and sold to people who intended to live in them. Data from the city of Toronto shows the number of renters:
55% Privately owned rental buildings
20% Public housing
20% Non traditional rental units
(basements, over stores, rooming houses, boarding)
05% Condominiums

Few new rental buildings
Rental housing was supplied by private purpose-built rental apartment buildings, private houses for rent and basement apartments. Then, due to rent controls, tax laws and other political pressures, developers stopped building rental apartment buildings.

By 2006, about 50% of all Ontario renters live in private-purpose built apartments, 30% live in the secondary rental market that is made up of houses, rented condos, duplexes and units above stores. The remaining 21% of renters live in social housing.

Condos filled the rental gap
Developers saw that small-time investors were buying condo units as rental properties. They encouraged this new market for condos by increasing the number of bachelor and one-bedroom in their projects. Every year, the average unit size got smaller. (It did not hurt that jamming in more units in in taller buildings increased profits.)

The growth in the rental market in Toronto has now swung away from the private-purpose rental buildings to rental units in condo buildings. This has created a condominium building boom.

On the average, 23% of all condos in Toronto is thought to be be rented. (Most likely it is far more.) In some downtown condos, up to 60-90% of the units are owned by small-time investor-landlords who do not live in the building. Some do not even live in the country.

Real Condo Investor
Real Condo Investor is a new supplement to Condo Life, a free Toronto magazine that promotes new condominium developments. Published four times a year, Real Condo Investor shows just how important the rental market has become for new condo sales.

As the Cinema Tower, a new condo building, was being completed in January 2014, the owners of between 96 and 118 units, out of a total of 445, were looking for tenants. This staggering amount of rentals flooding the market shows that many condo corporations are really little more than rental buildings.

How landlords find their tenants?
Some advertise on Craigslist and Kijiji, some put leaflets on bus shelters and the condo's bulletin board or newsletter, others place ads in the ethnic newspapers and everyone uses word of mouth.

Many investor-landlords sign on with real estate agents who charge one month's rent if they rent the unit. (If there are two agents involved, they split that fee.)

There are professional property management companies, a few owned by the developers who built the condo towers, that will manage condo units for investors.

The down-side—other owners
The developers and sales staff enjoy the benefits of selling condo units to small-time landlords who intend to rent their units and then sell them, hopefully for a profit, sometime down the road.

However, the owner-residents in these buildings are losing out. Property values don’t rise in value at the same rate as those in buildings where owner-occupants predominate.

This is because the common elements take a beating as the elevators and carpeting wear out prematurely and the hallways get banged up due to having renters constantly moving in and out.

Many small-time investors do not properly screen their tenants so there can be noise and trash issues, vandalism and over-crowded units.

If the condo is on a subway line or is close to community colleges, universities or language schools for foreign students, the resident-owners may be living in a building full of young students and over-crowded units.

You may want to give these condo buildings a second thought.

The down-side—investor/landlord
Too often the investor/landlord thinks that once the lease is signed, all he has to do is sit at home and wait for the monthly cheques to arrive. Being a landlord is not always so easy.

If the owner gets a letter from the property manager saying there are behaviour problems with the tenant, the landlord needs to act immediately and had better not ignore that letter. The tenant needs to be warned, in writing, that any more complaints will result in an application for eviction. A copy of that letter should be sent to the property manager.

A letter from the corporation lawyer means that the issue has escalated. The legal letter comes with a demand to pay the cost of the letter. Ignore that letter and a $700 cost quickly rises to $2,000. Within 90 days, a lien may be registered against the unit.

The landlord needs to hire a lawyer or a paralegal to advise the corporation's lawyer that proceedings to evict the tenant has been initiated at the Landlord and Tenant Board and ask them to forebear until such time as the proceeding has concluded.

I could go on about damage to the unit, other units and the common elements that the owner could be also be responsible for but there should be no need.

Can't restrict leasing
In the United States, many condominium Declarations cap the percentage of units that can be leased.

The Veterans Administration, Federal Housing Administration and mortgage giants Fannie Mae and Freddie Mac all have rules setting limits on the number of units in an association that can be leased. For an FHA-insured mortgage, for example, the property must be at least 50% owner-occupied.

Some American banks check the status certificates and will not give a mortgage if there are too many units in a given condo corporation that are leased out.

However, in Ontario, a condo corporation cannot put a limit on the number of units that can be leased. However, the Act does give the corporation many powers to be able to control any unacceptable behaviour by a renter mainly by making the owner-landlord, responsible for any damage done by the tenant. It also allows the condo's Declaration to limit the number of times a unit can be leased and the length of the lease.

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