How to Avoid Problem Tenants: Have a Good Apartment Screening Process

Good tenants are the best way to protect your investment! Choose wisely

Picking good tenants is almost as important as getting a good deal on a building. Quality tenants will help keep your rental building profitable. They protect your investment and determine the quality of your life as a landlord. All the more reason to choose carefully!

Here are some best practices for stream-lining your tenant selection process.

Without a doubt, the most common question I get asked from students and newbie investors is: “How do I deal with problem-tenants?”

It’s a question I usually answer with a question.

The real conundrum should be: “Why did you rent to problem tenants?”

To avoid renting to problem-people, you need a steam-lined and thorough tenant screening. Your tenants determine the quality of your life as a landlord. So listen carefully! And don’t leave things to chance. This article is the first in a series of 4 that will show you how to run an effective tenant-selection operation.

Advertise in the Right Place

The best way to set up a winning tenant-selection process is to have the biggest possible pool of candidates to choose from. You do this with effective advertising. Onlineis the way to go these days. Forget about newspaper Ads!

Pick the Right Platform

The first thing to do is to determine which platform works best in your area. In Montreal, we use www.kijiji.ca : 98% of our rental are concluded this way. Other platforms  are Craigslist (which also attracts a lot of scammers) and MLS (www.realtor.com). Usually we only use them because a client asks us to. They’re anyway redundant with kijiji.ca in our area.

For MLS, you need an agent to list a property. A professional rental service will cost you one-month’s rent, so you may want to think twice before doing this. In my experience, MLS works best for unique- or very high-end properties.

Facebook posts can yield some leads, but in my experience not very good ones.

A good way to test which platform works is to ask a few people who’ve recently been in the rental market. They’ll know which platforms yield the best results.

Market Your Unit Properly

Unit marketing basics are: awesome photos, the right price, and a clear, truthful description. These are the keys to effective online marketing for rental units. They’re also really straight-forward.

Photos

My advice on photos: pay the 100$ it costs to get a professional to photograph the unit when it is clean and presentable. These photos will serve as a marketing tool for the next 5 to 10 years. They can also easily add 50$-100$ on the value of the rent you can demand. In our high-traffic, saturated media environment, you really can’t attract decent attention without awesome pics.

Price

Rent is a very price-sensitive. 50$ up or down can make an huge difference. Most tenants shop on a budget.

A tip: start your advertising early. This lets you be optimistic and a bit greedy 🙂 Always post a higher rent amount that you think your unit is worth. If after a week or two you’re not satisfied with the number of responses, lower the price. It’s the best way to make sure you’re not leaving money on the table.

Another tip: if your unit isn’t renting, consider dropping the price by 50$-100$. When you weigh the alternatives with your calculator: major renovations, or having the unit empty for a month, you’ll see how cost-effective it is to adjust your rent downwards. (50$ x 12 months = 600$). Depending on your unit price, dropping the rent by 50$ will probably make more sense than having the unit empty.

Phone Screening Script

Don’t waste time on useless visits. Don’t get into silly conflicts or interminable discussions with bad candidates.

I don’t get off my ass to open a unit unless I’m convinced the people can:

  1. afford the place
  2. speak to me in a courteous and efficient way
  3. tell me a coherent story about who they are and why they want to rent the place

I don’t want to waste my time running back and forth to open doors. And – perhaps more importantly – I don’t want to have fights when I refuse unqualified potential tenants because I let them see a place they fell in love with.

The gate-keeper to useless door-opening is a good phone-screening script. You want to find out:

  • who will live in the unit (how many people | are all adults on the lease) ? is the number of occupants appropriate to the size of the place ?)
  • do they have good credit ? a history at the rental board ? references from a previous landlord ?
  • what type of income do they have (does everyone work? | are Mum & Dad paying the rent? | are they on social assistance?)
  • why are they moving (relocation | divorce | new baby | unhappy with their last place) ?

If any of these answers make you uncomfortable, take down their number and tell them you’ll return a call at a later time. In my experience, it’s a better alternative than the shouting match that can ensure from refusing an application live on the phone 🙂

Set Up A Winning Visit

Sounds self-evident, right? Here are a few things to watch out for. When you’re planning on showing a unit, be aware of what things can turn candidates off a place.

  • bad smells (buy a candle | show up 5 minutes early and open the windows)
  • messy tenants (schedule visits with lots of notice & explain to the tenants that the faster they clean up, the faster you’ll stop your visits)
  • existing tenants who’ve caused problems and who may run off their mouths to new candidates (plan visits when the tenants are not home)
  • big dogs (some people don’t like dogs & they can have a bad visiting experience if one lives in the unit. Ask the tenants to go for a walk while you show the place)

Have a Thorough Application Form

Do

  • request social insurance number & bank account info; if the tenant defaults, you won’t have to hire a detective to get this info
  • get a signed authorization to run a credit check
  • request contact info of the previous landlord
  • ask for a guarantor if the candidate has questionable credit, is from out of town, or doesn’t pay the rent him/herself
  • request employment information
  • take a small deposit while you do your background check. (You can deduct this from the first rent cheque, or else refund it if you refuse). A small amount of money makes the candidates more likely to commit and not waste your time running a check while they decide to rent elsewhere.

Do check all these points thoroughly!! Don’t forgo a credit check because it’s costly or complicated to obtain one. In my experience, credit history is the single best predictor of what kind of person you’re dealing with.

Don’t

  • let the candidates leave out information
  • not give you the deposit
  • get away with anything you wouldn’t want to accept later on in your relationship; the application process is your time to set the tone

Trust Your Gut

As a candidate jumps through different hoops and you have multiple interactions, pay attention to what your gut says.

  • Are your requests handled in a courteous and timely manner?
  • Is this the kind of person you want to deal with regularly for the next few years?
  • Do they quickly return phone calls or force you to make multiple requests for simple things?

Your tenants are your quality of life. If there are behavioral red-flags at the beginning, think twice. Do you really want someone harassing you every 5 minutes with silly requests? Not returning your calls when you have urgent requests? Being unpleasant or incoherent on the phone?

A final word: tenant selection is like dating. If it’s complicated from the start, maybe it’s not meant to be 🙂

Best Investing Books for Canadian Real Estate Investors in 2018

Top five must-read books for Canadian Real Estate Investors in 2018

Want to learn about the best investing books for real estate? Read this!

Reading is one of the best ways to learn how to do something. You can get how-to advice right from the horse’s (or in this case world-class expert’s) mouth. It’s also really cheap! For about ten bucks a pop, you can have access to what the world’s experts have to say on any topic. There’s so much you can learn about real estate investing just by reading a few books!

Not sure where to start?

I’ve put together a list of the top five books you should read if you’re interested in real estate investing in Canada. Below, you’ll also find a summary of one of the main ideas in each one. Just in case you’re feeling too lazy to read the whole book, I don’t want to leave you with no take-away after reading this article.

So if you want to learn about real estate investing, before you spend all kinds of money on online courses or seminars, please please read these books!

 

  • Book no. 5 : The Wealthy Renter by Alex Avery

People assume that buying a principal residence makes good financial sense. Why throw money away on rent, right?  Not so fast, says Alex Avery. Investing is all about leverage, so the question should be: what else could you do with that money? Avery thinks you can find better ways to leverage your down-payment money, instead of plunking it into a single-family-home.

Some Numbers

Let’s take a simple example. Suppose you want to buy a condo or cottage for 300k. Let’s assume you put down 20% (60k). At 4% interest, these payments will run you 1250$ / month. Add 200$/month property taxes and the same in condo fees or, in the case of a home, 250$ in maintenance (no upgrades!!), and you’re running 1950$ in monthly payments. None of these expenses is tax deductible. You’re building equity at a rate of about 500$/month. Your ROI in terms of building equity is 6000$/60,000$ or 1%. Sound like a good investment? I’m thinking, Meh.

“What about market appreciation?” you say.

Okay. Let’s assume 3% appreciation per year. (We’re not accounting for the ups-and-downs of real estate cycles). You’re now making 4% on your money. Still sound like a good investment? Remember: your payments are made with after-tax dollars. None of the work or maintenance you do is tax deductible, neither is your mortgage interest. Sure, you won’t have the capital gains hit when you sell. But still, 4%?

Let’s consider what happens if you put the same money down on a rental property. Your cost structure is the same (1950$ / month), but now you’re making 1950$ in rent. Also, you expense all sorts of things to help create a loss in the early years of ownership, creating a tax advantage. You can also expense your mortgage interest.

What about my rent? you say. You need a place to live.

Sure! Let’s make your rent 1000$/month. In this case, your out of pocket is half the amount it would cost you to own.

Now, let’s say you’re still making 3% appreciation like in scenario 1, but you’re also saving 1000$ per month because your tenants are paying your mortgage and building expenses. Add 12k to the initial 6k being capitalized. You’re now making a 30% return, plus the 3% market appreciation. That’s 33% return versus 4% as a homeowner. See Avery’s point?

I Hate My Landlord’s Kitchen

But wait, you say. There are other blah things about renting. I can’t upgrade or really customize my place, right?

Says who?

I’ll tell you right now, if one of my tenants offers to redo a kitchen for me, I’d happily reduce the rent a bit. Consider what happens if you spend 5k redoing your landlord’s kitchen in scenario two.

Suppose you negotiate a 100$ rent reduction in exchange for 5k of renovations. You now save 13,200$ on your living expenses in comparison with scenario one. Subtract 5k for the kitchen renos from your savings, and you’re still ahead by 8,200$ over the person who bought their home. Now add the 6000$ of equity. That’s a 24% return! Still think becoming a landlord and redoing someone else’s kitchen is such a bad idea?

The key idea in Avery’s book is this: you need to understand the cost-structure and opportunity cost of plunking down-payment capital and after-tax dollars into a principal residence. His calculations are sometimes a bit hard to follow (maybe like mine where in this summary?), but the reflections these two financial scenarios is really important before making investment decisions.

That’s why I put his book in position number five on my list.

 

  • Book no. 4 : Secrets of the Canadian Real Estate Cycle

It may sound a bit silly, but the main idea in Secrets is that there are real estate cycles in Canadian markets and that we, as investors, should be mindful of these cycles in our purchasing decisions. Amazing, right? In all our excitement about investing, we sometimes forget to assess where our particular market may be in it’s inevitable up-and-down price cycle.

Influencing Factors

The authors point out that real estate markets in Canadian cities are influenced by a very specific factors. Because real estate cycles are long (usually many years in depth), and because the media give us all sorts of conflicting information, we sometimes forget that there are a limited set of elements that come together to determine real estate prices and the availability of housing both for renters and owners.

Authors Don R. Campbell, Greg Head, and Kieran Trass do their best to name these influencing pressures in Secrets. For example, net incoming migration, economic patterns and industry concentrations, amount and quality of available rental housing, as well as possibility for geographic expansion are all factors that impact local markets. Rent control, for example, like in Montreal, or lack thereof (like in Calgary) can also greatly affect building profitability. Macro- factors such as interest rate trends and government regulations (especially in Canada’s regulated banking industry) also impact both local and national markets. (Think of the Bank of Canada’s lending laws or Vancouver’s foreign buyer tax as a few examples).  

Case Studies

The authors carry out case studies of each of Canada’s major markets (Toronto, Montreal, Vancouver, Ottawa, Calgary). They present some of the different forces that led to boom-and-bust cycles in each of these cities in the last decade. The cases studies are super valuable in terms of illustrating how different markets respond to different types of pressures. (For example Toronto has an incredible rate of growth due to immigration, whereas Montreal has limited on-island space. Calgary has a very resource-based economy, and so on.)

The one weak point I found in reading is that the authors spend a lot of time stating and re-stating that there are wise investors, and lemming-investors who tend to jump over a cliff because of frenzied information in the media. There’s obviously truth in this. That being said, at times I found this detracted a bit from space that could have been used to elaborate on more tangible and practical tips for understanding real estate cycles.

Still, this book is a must-read for any Canadian investor looking to make a buck and capitalize on the up-and-downs in his or her local market. That’s why I make this book my no.4 pick.

 

 

  • Book no. 3 : More Than Cash-Flow by Julie Broad

Julie Broad is not a happy camper. Her book begins by voicing her (intense) disappointment with some of the (very expensive) real estate seminars she attended. Despite her level of anger, there are two really great things about this book. First, Broad really puts into perspective the realities of owning rental property.

Crackheads & Roaches

From crack-head tenants to the challenges of owning rental property in far-away places, she gives the would-be investor an up-close-and-personal set of impressions of what it means to be a landlord. This is valuable because so few authors and speakers who deal with investment property are really clear about the weird, wonderful and wicked realities that come with tenants and rental buildings. Broad pulls no punches here!

Bigger, Better, Bust

The second very important thing she does is question how the real estate coaching industry celebrates more deals, less money down, better numbers, a bigger portfolio. A lot of educational material on real estate investing celebrates high-risk leveraging practices. Workshop presenters often tell stories of investors doing fifty, eighty, one hundred deals in a year. What they don’t tell us, Broad suggests (and I agree), is about all the heart-attacks and bankruptcies that happen because newbie investors go to far too fast. Depending on your profile and ambitions, slow-and-steady may be a better idea than fast and furious.

#Landlordlife

Overall, what I like about Julie’s book is that she paints a very realistic picture of what it means to landlord, exploring what happens when real estate investment is a key part of your financial picture. This is rare in the industry, and it’s valuable. I appreciated her anger a little less. But, sit tight, read past this, and you stand to gain some valuable insight into what life as a landlord may be like.

 

  • Book no. 4 : It’s Not About Money by Brent Kessel

    This book is not specifically about investing in real estate. So what’s it doing in a top-5 list of real estate books?

    Well, so far no one has written a real estate investing book that so cleanly addresses the practice of living a financially free and fulfilling life. Kessel’s book is ultimately about money management and financial planning. I highly highly recommend reading this as you’re looking at ways of making more money, because in trying to make ourselves financially richer, it’s very very very important not to lose sight of the true prize of wealth, which is – of course not a bigger bank account – but a better, more fulfilling life. Real estate investing is, at it’s base, a vehicle for building wealth, and so it fits neatly under the umbrella of what Kessel is talking about.

    Better Not Bigger

    Kessel’s book makes a great case against the our society’s drive for bigger, better, faster. His goal is to push the reader to reconsider his or her relationship to money, thereby increasing both financial stability and contentment. Kessel takes inspiration from Buddhist thinkers such as Thich Nhat Hanh, as he asks us to evaluate what he calls the “desires of the wanting mind.” He goes on to point out eight archetypal relationships people have to money and suggests ways of working within our archetype

    His book is persuasive and intelligently written. He takes us on a voyage of self-evaluation, encouraging us to pinpoint our financial acts of self-sabotage. Overall, his goal is paradoxically, to get us to realize that financial planning and investing is “not about the money”. Building wealth at it’s best should be a practice of cultivating a better life that suits our individual needs and desires, not some sort of competitive sport, or a place to let our neuroses run rampant.

Money and Mindfulness

The other thing that’s cool about Kessel’s book is that it’s a great counter-weight to Julie Broad’s anger in More Than Cashflow. While Broad is (justifiably) unhappy with the level of charletanry and exaggerated claims made in the real estate coaching industry, her anger is sometimes not terribly constructive for someone hoping to develop a mindful and healthy relationship with wealth. Until someone writes a real estate investing book on how to build an empire without trading in your peace of mind, read Brent Kessel.

 

  • Book no. 1 : Rich Dad, Poor Dad by Robert Kyosaki

If you’re consider investing in real estate and you haven’t read this book: shame on you! Rich Dad, Poor Dad is the bible for real estate investors. While Kiyosaki’s book offers many insights and inspirational words for the new investor, the essential take-away is being able to recognize the mindset that separates the wealthy from everyone else.

Don’t Trade Your Time For Money

Kiyosaki defines three money mindsets. The working class, for him, have expenses and liabilities. Cars, rent, TVs, food, vacations – these are all expenses or consumer goods that lose value with time. Spend on these things and you’ll be subject to the law of diminishing returns.

The middle class, on the other hand, usually own a family home and believes it to be an asset. While it is true that real estate tends to appreciate over time, once you factor in that mortgage-, maintenance- and upgrade payments are made with after-tax dollars, plus the fact that neither interest nor work on the property is tax-deductible, you’ve basically only contributing to a forced-savings plan (see Alex Avery in Wealthy Renter for a more detailed explanation of this).

So, working-class families tend to have no assets, only expenses. Middle class families tend to have liabilities (a single family home) that they consider an asset. But the true defining factor in creating wealthy has to do with cash flow and passive income.

The real trap, according to Kiyosaki, is to tie the number of hours you work to the ceiling on your salary. Anyone who’s main source of income is dependent on the numbers of hours they have to sell with forever bump against the fact that their number of “billable” hours are limited. If you get paid by the hour, your revenue depends on how much time you have to sell. Worse, the only real way to increase your income is to sell more hours. See where this little trap leads?

Wealth Mindset

“Passive income”, of which rental income is one source, is Kiyosaki’s answer to this problem. For him, cash flow is the defining marker of what separates the wealthy from everyone else. The wealthy set up systems – businesses or investments – that generate cash flow while they sleep, go on vacation, or work at their other jobs. In this analysis, real estate becomes an easy vehicle for creating a revenue stream that doesn’t require a specific amount of work-hours to produce fruit. In addition, there are all sorts of tax-breaks and deductions that come with real estate investment. Kiyosaki mentions this as a further advantage to owning property. The middle class, for him (and I am inclined to agree), is burdened with the largest tax burden vs. income structure, as the wealthy tend to have all sorts of strategies for paying less tax. Real estate is one such vehicle.

It’s Time

So, if you’re looking at investing in real estate and you haven’t yet read Rich Dad, Poor Dad, it’s time.

 

Can You Afford Not to Read These Books?

I’ll leave you with this closing thought: real estate gurus and coaches sell education packages that usually start with five-figures. These five books combined will run you fifty Canadian dollars if you buy the Kindle version or perhaps seventy-five bucks if you opt for paperback. The amount of time it’ll take you to read them is probably comparable to a three-day weekend seminar.

If you’re potentially becoming a landlord, can you afford not to spend this money and take this time to get similar value? On your path to building a cash-flow empire and a mindset that will slowly lift you from the ranks of the middle- or working-class, I’m hoping that the answer to this question will come easily.

 

 

 

 

 

How to Build a Killer Investor’s Network

Missed Our Last Workshop?

A Sneak Peek At What Happened…

Networking is one of the keys to success in the real estate industry. But it’s a struggle for so many of us!

Networking can be a struggle because we don’t have a good understanding of the science of effective networking building. We go to random events, wasting time and effort and often enduring social awkwardness because we don’t know how to network effectively.

Without giving away everything that happened at the workshop (including networking), here are a few do’s and don’ts:

– Do attend activities that allow you to have regular contact with people (recurring meet-ups, BNI breakfasts, etc). Networking is more like farming than hunting. You’re building a network, so the more you see the people in your network, the more you’ll be top-of-mind, and the deeper your relationships will become.

– Do attend events with an objective in mind. Who do you want to talk to? How many people would you like to connect to? Who do you want to meet? Otherwise, it’s too easy to spend the evening talking to the same 3 people.

– Do think of other people. When you meet someone new, keep in mind how you can be of use. Ask yourself: how can I add value for this person? Who can I connect them with? How can we help each other? This prevents you from being in sales-pitch mode.

– Do attend smaller, focused events. It’s better to be in a room with ten useful connections, than in a room with one hundred tourists.

– Don’t be afraid to ask potential mentors or peers for a 15-minute Skype call, a lunch or coffee with the phrase: “I admire what you’ve done. Would you have a few minutes to tell me how you did it?” You’ll be surprised how far a little flattery will get you!

– Don’t assume that once you’ve made a connection it will “stay warm”. There is a science to maintaining your network with scheduled phone calls, newsletters, emails and so on. There are some great podcasts on this topic. Schedule time to maintain your network so you remain top of mind.

– Don’t be afraid to use social media. LinkedIn and Facebook are obvious ways of connecting with people, whether peers, clients or potential mentors. There is also a new Tinder-like app called Shapr that will connect you with people who have similar interests and want to grow their network.

In Real Estate and in life, your social capital (or network) has a direct impact on your financial outcomes. Whatever the current state of your personal- and professional networks, there is always room to improve.

 Did I leave anything out? Got any favourite networking tips or techniques? 

Leave your comments below.

Looking to grow your network? Hope to see you at our next networking event!

Property Management Workshop : What to Do About Problem Tenants

Wednesday, Mar 14, 2018, 6:00 PM

Centre d’affaires Communoloft HOMA
3965, rue Sainte-Catherine Est Montréal, QC

8 Investisseurs en devenir Went

The most popular question my clients ask me is: “What can I do if I have problems with my tenants?” BEFORE you sign your leases for 2018, don’t miss this workshop. We share property-manager’s secrets for how to avoid renting to problem-tenants.

Check out this Meetup →