# Rents rising more than inflation



## james4beach (Nov 15, 2012)

CBC reports that rent prices are rising at 1.7% year-over-year, with inflation at only 1.1%
http://www.cbc.ca/news/business/inflation-slows-to-1-1-in-august-1.1861756

Congratulations, landlords! Seems you're making good money from rent, better than inflation.


----------



## fatcat (Nov 11, 2009)

my condo costs including taxes, insurance and strata fees have been rising higher than inflation for several years

i'm sure landlords are experiencing similar costs


----------



## SpendLessEarnMore (Aug 7, 2013)

I haven't raised rent on any of my 4 tenants that have rented from me last 3 years. And I think I have the lowest rental rate too out there.

Been thinking about raising it though by just $10/mth each person. That would be $480 extra a year and I just blew 4 grand on a new furnace today.

But they've never given me problems nor abused the house so I don't know how they would react to paying $10 more.


----------



## Sampson (Apr 3, 2009)

SpendLessEarnMore said:


> Been thinking about raising it though by just $10/mth each person. That would be $480 extra a year


This is not allowed in Alberta, one increase per year.


----------



## Sampson (Apr 3, 2009)

Re: rising rents. I think they are just catching up to housing prices. All this noise about historically expensive housing may or may not slow if rents can rises sustainably.


----------



## rd_aaron (Jun 24, 2011)

Sampson said:


> This is not allowed in Alberta, one increase per year.


Why not? All of the tenants have been there for 3 years and he hasn't increased the rent before. As long as he gives appropriate notice (3 months in AB I believe).



SpendLessEarnMore said:


> I haven't raised rent on any of my 4 tenants that have rented from me last 3 years. And I think I have the lowest rental rate too out there.
> 
> Been thinking about raising it though by just $10/mth each person. That would be $480 extra a year and I just blew 4 grand on a new furnace today.
> 
> But they've never given me problems nor abused the house so I don't know how they would react to paying $10 more.


They wouldn't react to a $10/month increase. $120/year is a small price to pay to not have to look for a new place to live, arrange movers/U-haul/etc., possibly take time off work. If they've been there for 3 years, they obviously like the place and I doubt anyone would move over $10/month increase.

We moved to save about $160/month (and to get a little more space). That has paid off big time, but it was still a hassle and if I hadn't found the place we're in now, or it was only like $30/month cheaper, we might not have moved.


----------



## andrewf (Mar 1, 2010)

Sampson said:


> Re: rising rents. I think they are just catching up to housing prices. All this noise about historically expensive housing may or may not slow if rents can rises sustainably.


Housing is not just expensive in terms of rents, it is also expensive in terms of income. Incomes are not rising anywhere close to the rate house prices are.

Let's not get too excited about rents rising slightly faster than core inflation. Rents still rose by much less than house prices.


----------



## sags (May 15, 2010)

We just received notice of a 0.8% increase in our rent. That is a typical increase by our landlord.

At $1030 a month for a 3 bedroom townhouse, (all inclusive except hydro and with membership to a private club included), I would think our rent is much lower than it would be in other places.

Around here.......new landlords are competing with landlords who bought 50 years ago.

As to inflation, our car insurance went up 15%, despite adding one more year of claim free driving to our records. 

The inflation in some of these other things, is much higher than rent.


----------



## andrewf (Mar 1, 2010)

sags, which city do you live in? 1080 all in for a 3 bed townhouse is a steal. You'd be crazy to buy at that rate, I'd think.


----------



## Sampson (Apr 3, 2009)

rd_aaron said:


> Why not? All of the tenants have been there for 3 years and he hasn't increased the rent before. As long as he gives appropriate notice (3 months in AB I believe).
> .


Somehow I misunderstood the quote. I thought the poster wanted to increase monthly...


----------



## sags (May 15, 2010)

andrewf said:


> sags, which city do you live in? 1080 all in for a 3 bed townhouse is a steal. You'd be crazy to buy at that rate, I'd think.


London, Ontario

The cost is 1030.........plus hydro.

We moved in January 2008 and were paying 985, so it hasn't gone up that much in 6 years.

It is impossible for us to find anything equivalent to rent.

Our landlord built these units in the 1960s......so they can make money at the current rents. 

They are mostly interested in long term tenants, so they keep the rent increases low.


----------



## Sampson (Apr 3, 2009)

andrewf said:


> Housing is not just expensive in terms of rents, it is also expensive in terms of income. Incomes are not rising anywhere close to the rate house prices are.
> 
> Let's not get too excited about rents rising slightly faster than core inflation. Rents still rose by much less than house prices.


It was really a 'side' note, since I put no value in these cross-Country statistics (outside of some inflation metrics). In Calgary, rents have been increase far higher than the quoted 1.8%, but again, you are correct, cost of buying is outpacing. In the end, all the metrics need to be applied within a single market to judge how pricey things are.


----------



## marina628 (Dec 14, 2010)

We just gave all our tenants a $100 a month increase ,they pay anywhere from $1100 -$1350 a month now.First time we raised rents in 3-4 years and probably wont raise them again for another couple years or until they move out.Guy next door to my one house is paying $375 more a month than my tenant for identical house.


----------



## NorthKC (Apr 1, 2013)

^Wow, a sudden $100/month increase?? That is high.


----------



## none (Jan 15, 2013)

I don't understand this way of thinking. If the landlord could sell the place for more than 220K per unit he'd likely be making more to do that and just invest it.

Charging rent based on how much you paid for a place is like saying you should charge any rent for a place that is fully paid off. It makes no sense. Current rents should be a function of current house prices.

Of course, it doesn't take too many of these to drag down/ keep down rental prices, and as a renter, I say all the power to you old math challenged people!




sags said:


> London, Ontario
> 
> The cost is 1030.........plus hydro.
> 
> ...


----------



## marina628 (Dec 14, 2010)

Even with the increase they are paying under Market Value


----------



## HaroldCrump (Jun 10, 2009)

none said:


> I don't understand this way of thinking. If the landlord could sell the place for more than 220K per unit he'd likely be making more to do that and just invest it.


On paper, maybe. But think in practical terms.
Not everyone can invest in the stock market and get guaranteed monthly income.
sags said the landlord built these houses in the 1960s, ergo, they are seniors now.

Are you saying that, at this age, they should sell their tried and tested source of monthly income and learn to invest in the stock market?
And give up a source of income that has withstood at least 4 major recessions?
Just sags' unit is paying them $1,030 flat every month for the last 5 years.

What is the rate of return that they need on the stock market on a capital of $220K to generate $1,030 relatively risk free?
Nearly 6%, innit?

Why would they be crazy enough to do that?


----------



## none (Jan 15, 2013)

It's hardly $1030 a month 'relatively risk free' once taxes, maintenance etc is calculated. I'd say it's probably more like $600. pretty poor and there are better things to do with comparable risk.


----------



## andrewf (Mar 1, 2010)

They may well be better off buying GICs.

It does not make sense to set rents based on the original cost of the property. The rent can't be any higher than the market will bear or you will have vacancy. Any lower and you're just throwing money away. Original cost or carrying cost has nothing to do with it. This is like the joke of people calculating yield on cost for bank stocks they bought back in 1992. All it's good for is giving you warm and fuzzies--it has no bearing on reality today.


----------



## sags (May 15, 2010)

Well.........the landlord is a private family owned business.

Grandpa bought the land in the 1960s and built the units as a rental "village".

The family owns 1200 units and have used the rents from these original units to become multi-millionaires many times over. 

They own golf courses, office towers and all kinds of developments.

They employ their own full time maintenance staff and equipment.

Maybe it was an old fashioned method to build the units........keep rents low to keep tenants long term.........and use the proceeds to build the business over 50 years, but it was highly successful for them.

The rental market in this area is competitive.....so overzealous landlords soon find themselves begging for tenants.

The return on capital has probably been a lot higher than realized. These units, in this city, would sell for 150,000 at most.

Given the capital they invested, our landlord can offer the lower rents that make them more competitive than someone buying a new townhouse and trying to recover their costs.


----------



## none (Jan 15, 2013)

On the contrary, if the unit is worth less $150K then they are getting more than enough rent for it. Go oldy moldy!


----------



## HaroldCrump (Jun 10, 2009)

none said:


> It's hardly $1030 a month 'relatively risk free' once taxes, maintenance etc is calculated.


Well, based on how the business has been running successfully for over 50 years, through 4 major recessions, I'd say it is less risk than the stock market.
Note that pure rate of return % may not be the most important thing for everybody - some value the stability and predictability of the source of income higher.



> I'd say it's probably more like $600. pretty poor and there are better things to do with comparable risk.


Ha, you are assuming that 40% of the rent receipts are going towards expenses.
If that is indeed so, then yes I agree it is a poor return on investment.
But based on the story recited by sags, it seems that the reality is the exact opposite - this family has done exceptionally well in the R/E business.

Again, not everyone should, or can, or wants to, invest their entire net worth in the stock market.


----------



## mylund39 (Jan 15, 2011)

Was wondering if commercials leases are also rising.
Good for reits.
Regards


----------



## andrewf (Mar 1, 2010)

none said:


> On the contrary, if the unit is worth less $150K then they are getting more than enough rent for it. Go oldy moldy!


Yes, that's actually not a bad yield. I'm guessing these towns are less nice than I pictured. It may be a fair rental rate.


----------



## andrewf (Mar 1, 2010)

mylund39 said:


> Was wondering if commercials leases are also rising.
> Good for reits.
> Regards


Commercial rents are somewhat uncorrelated to residential rents. Commercial rents have been rising due to the pressure exerted by all the US retailers trying to enter the Canadian market. On the other hand, square footage growth is rising faster than population which might hurt retailer productivity and the rents they are able to bear. I suspect some weaker retailers may start closing underperforming locations.


----------



## Just a Guy (Mar 27, 2012)

Inflation numbers are so silly to begin with. I can tell you my buying power has decreased a lot more than the inflation rate would indicate, so comparing that fictional number to rental increases (which can be measured) is pretty meaningless unless your looking for headlines or some reason to go after the "rich" landlords. 

As for return on investment, if you do it right and leverage the places, you can get huge returns, if not infinite (if you leverage the place 100%, but still generate cash flow). 

As for rents, over the years I've increased and decreased my rents depending on what the market would bear. Right now, I'm charging more than usual, but less than the average so my tenants thank me and pay to keep me happy.


----------



## Rusty O'Toole (Feb 1, 2012)

Tenants are better able to cope with a small, annual increase in rent than if you do nothing for several years and raise it unexpectedly.

In Ontario rent control tells you how much you can raise, less than 2% as a rule, and allows one raise a year. If you do not take the raise you lose it forever, it is not retroactive.

Some landlords have gotten themselves in trouble. They did not bother to raise the rent for several years, found that they were losing money, then found they could not raise the rent. This happened to me when rent control first came in.

It is easier to deal with a small annual increase as dictated by your senior partner, the government.


----------



## none (Jan 15, 2013)

I know, landlords should always increase rent at a minimum with inflation - why wouldn't you? Every year my landlord doesn't raise my rent she's effectively reducing my rent.

Here in Victoria, allowable increase this year is a measly 2.2% this year. If she raised it I wouldn't even care.


----------



## andrewf (Mar 1, 2010)

My landlord also has not raised the rent for 5 years. In real terms, my rent is 10%+ less than it was when I moved in.


----------



## SpendLessEarnMore (Aug 7, 2013)

Sampson said:


> This is not allowed in Alberta, one increase per year.


Sorry for not clarifying. The rental increase was for my Mississauga property. You're right $10/month increase is not much. I'll let them know their rent will increase in the New Year due to higher utility and property tax cost.


----------



## fraser (May 15, 2010)

We rent....for the first time in 35-40 years. We were not certain what we wanted but after six months we like renting.

The math on our condo is such that after paying condo fees and taxes, the owner is left with a 2.5 percent return....based on the market value of the property.

But, a special assessment by the condo assoc. has effectively wiped out three -four years of that 2.5 percent return.

We may rent for a while longer.


----------



## Cal (Jun 17, 2009)

none said:


> I don't understand this way of thinking. If the landlord could sell the place for more than 220K per unit he'd likely be making more to do that and just invest it.QUOTE]
> 
> Which is exactly why I sold my rentals....far better use of my capital, than in the rent money I was receiving. The places had simply gone up in resale value by too much.


----------



## james4beach (Nov 15, 2012)

fraser: your 2.5% rate of return is similar to what I've heard from some friends. The numbers seemed in the ballpark of 3% generally.

At times I've considered buying a property to rent out (I mean it seems so glamorous on Home & Garden TV) but then I think about the 3% 'yield' and ask myself, do I want to take on that much debt and get LEVERAGED so high in a single speculative investment for just a 3% yield?


----------



## andrewf (Mar 1, 2010)

To be fair, using the assumption that real estate keeps pace with inflation, the yield is 3%+2%. Of course, that 3% real yield may not be accounting for other expenses, such as maintenance. It also has to cover fixed costs like transactions cost of buying/selling.


----------



## Sampson (Apr 3, 2009)

I think there is too much focus in this discussion about yield and return. In some of the examples already presented, it is clear some retirees use rental properties to generate relatively steady yield, and in a diversified portfolio, even with REITs, a rental property isn't always a terrible idea as many people seem to suggest.

One very important question is what the impact a housing correction will have on the cost to rent. It seems the assumed effect will be that rent will decrease proportionately to the cost of the house, but I would challenge that assumption. During the credit crisis, yield on REITs declined significantly, housing by upwards to 20% in Calgary (for many condos), but rent did not even decrease by nearly as much, in fact between 5-10%.

I think the reason is that home ownership rates are already quite high in Canada so even if a housing correction is coming, it isn't like there are that many people leaving the rental pool and dragging down rents. Also, what kind of correction are we talking about? 30%? In the major cities, and bubbly cities, will 30% even make housing affordable. Will all those young renters in Vancouver suddenly be able to afford a $525,000 instead of a $750,000 home?


----------



## kcowan (Jul 1, 2010)

In West Van, it is 4%/year rent control. So every October I get the 90 day notice effective Jan 1. Still a deal when compared to RE prices here. And new rentals cost more than I am paying.


----------



## the-royal-mail (Dec 11, 2009)

3% return on RE?

Elsewhere in CMF, someone posted that RBC is offering 2.9% GICs on 5 year terms.

No broken pipes, no RE, no constant outflow of money and chasing after rent and doing constant repairs and cleanup after tenants leave etc.

Cash is king once again.


----------



## james4beach (Nov 15, 2012)

Yes of course the price of real estate could rise (or fall) but I think many people do look at properties from a 'yield' perspective, just how people are obsessed with dividend yields on stocks.

Mind you, 3% return on RE was an after-tax figure I think.
On your GIC it's going to be 1.5% return after-tax.

But Sampson: you're right, not bad to have a property in a diversified portfolio. I wish I owned property, and I want to -- but there's no way I'll buy at current prices.


----------



## andrewf (Mar 1, 2010)

No, I think 3% was net after expenses and pre tax, which would be the taxable amount. Also, most seniors are not facing a 50% MTR. Most seniors are paying 30%...

All these discussions are skewed by the fact that a lot of investment literature is written for HNI. Most people do not face the highest MTR. Not even close.


----------



## james4beach (Nov 15, 2012)

If that's the case then GICs look brilliant compared to "income properties".


----------



## Berubeland (Sep 6, 2009)

There are a few different kinds of landlords and they buy real estate for different reasons. 

The "construction" landlord buys a run down property and adds value to it and rents it out. These tradesmen will buy 10 or so houses to potter around in and improve. They do the work themselves and keep pretty nice properties. Because construction is an up and down business it works out well for them. Then once they pay off the house... Voila! a pension. 

The "Inheritor" landlord inherits a house from a death in the family and can't bear to let go, keeps the house and rents it out. 

The "mover" landlord has a house but finds a job in another city or country even. Has plans to come back, rents it out. 

We can sit here and judge all we want abut ROI but there are a lot of reasons to own an income property. Granted a house is not investment grade property but for many people providing a housing service can be very valuable way to make extra money for their retirement. Slow but steady. 

We also cannot take for granted the fact that some people are very "hands on" thinkers and so they can understand the housing market a lot better than the stock market. A house also afford people the opportunity to add value by adding their skills, something a G!C will never do. 

For some people, myself included, proving housing services is something that is very satisfying.


----------



## andrewf (Mar 1, 2010)

All good points, Berube. But the yield has to be a factor.


----------



## sags (May 15, 2010)

andrewf said:


> Yes, that's actually not a bad yield. I'm guessing these towns are less nice than I pictured. It may be a fair rental rate.


Actually they are quite nice. Won awards as Ontario's best rentals.......and they are one of Canada's best managed companies.

http://www.sifton.com

http://www.sifton.com/residential/berkshire-village.html

Real estate in most of Ontario is much, much cheaper than the GTA.

Note the rental prices on 2,3, and 4 bedroom townhouses.


----------



## andrewf (Mar 1, 2010)

Decent towns in KW are over $200k. Usually well over. I didn't think London was that much cheaper.


----------



## sags (May 15, 2010)

Garth Turner did a comparison of K/W and London the other day on his blog.

Average home price in K/W was $100,000 more than in London.

If I recall correctly, an average home in London costs 262,000.


----------



## sags (May 15, 2010)

I don't know if it works out the same today............

But many of the people I have met along the way, who have a comfortable lifestyle and retirement, were landlords for many years. 

Of course, they weren't buying homes to rent at historically high prices........and I never heard any of them talking about "yield" on their investments.

They were all saying they had tenants paying off their mortgages, so they could retire with a nice income after the places were paid off.


----------



## fraser (May 15, 2010)

For us it was all about lifestyle. Even now, as we rent, it is about lifestyle and the ability to walk out, lock the door, and be absent for extended periods of time. It was only when we were not sure what we wanted that we considered renting. After looking at various properties we were better equiped to do the math.

At this point in our life, we are not certain that we want to trade renting, and at the same time earning 5-6 percent on our home equity, with ownership and all of the responsibilities that go with it.

As we get close to a decision we will have to look at it from an after tax perspective given that capital gains on personal residences are not subject to tax.


----------



## marina628 (Dec 14, 2010)

sags said:


> I don't know if it works out the same today............
> 
> But many of the people I have met along the way, who have a comfortable lifestyle and retirement, were landlords for many years.
> 
> ...


Sags that is exactly our thinking when we started buying rentals years ago to eventually have about $10,000 a month after taxes in income and the paid off assets.


----------



## james4beach (Nov 15, 2012)

Maybe getting off topic here, but are KW property prices in danger now that Blackberry is laying off so many people? I lived in that area for years and it feels like the whole town is about RIM/BB. I couldn't go a day without hearing about RIM back in its heyday when the stock was $150... my lab at the university was RIM sponsored, I used to hang out at RIM park, and everyone I met seemed to work there or had interned there.


----------



## andrewf (Mar 1, 2010)

I would say yes. But Waterloo is not a one-company town anymore. I think there will be a slight cooling relative to the overall S. Ontario housing market.


----------



## fraser (May 15, 2010)

KW has a relatively high unemployment rate. 

When a RIM or other such well paid job disappears, there are other jobs in other companies, vendors, consultants, etc., that disappear with them.


----------



## the-royal-mail (Dec 11, 2009)

It's also a very tough city to get good replacement tech jobs in, because everytime some tech firm lays off all those workers immediately (or have already been doing so on a regular basis) start applying for work into a shrinking pool of good jobs. The competition is fierce and the unversities and numerous other schools continue producing new waves of graduates each and every year.


----------



## andrewf (Mar 1, 2010)

There's a shortage of good tech workers in KW--over a thousand openings. I suspect those being laid off will be okay.


----------



## tyson12 (Aug 20, 2013)

Landlords are seriously taking advantage of the rise in real estate prices.


----------



## marina628 (Dec 14, 2010)

tyson12 said:


> Landlords are seriously taking advantage of the rise in real estate prices.


Yes we are by charging $1200 a month rent for a $300,000 asset 
Here is how it works , landlords buy a house and get a mortgage then they advertise the home for rent and 40-50 people are fighting over it.Ask poor jungle , he had a lady demanding he explain why he would not rent to her .He was lucky and first person to apply was a fantastic candidate.It is all about supply and demand and more and more people are getting priced out of the markets and the scary part is soon landlords like myself will not be interested to continue renting at today's rates.
I own 5 rentals in Ontario and 3 in USA now but even I rent an apartment in Toronto for my daughter because I refuse to pay the crazy prices there.I expect my daughter's landlord is getting maybe $400 a month from my daughter's rent to pay towards a mortgage.


----------



## tyson12 (Aug 20, 2013)

marina628 said:


> Yes we are by charging $1200 a month rent for a $300,000 asset
> Here is how it works , landlords buy a house and get a mortgage then they advertise the home for rent and 40-50 people are fighting over it.Ask poor jungle , he had a lady demanding he explain why he would not rent to her .He was lucky and first person to apply was a fantastic candidate.It is all about supply and demand and more and more people are getting priced out of the markets and the scary part is soon landlords like myself will not be interested to continue renting at today's rates.
> I own 5 rentals in Ontario and 3 in USA now but even I rent an apartment in Toronto for my daughter because I refuse to pay the crazy prices there.I expect my daughter's landlord is getting maybe $400 a month from my daughter's rent to pay towards a mortgage.


Now thats some intelligent mind :/ 
btw do you get to rent rtm homes too? I own a rtm home and want to rent it out.


----------



## marina628 (Dec 14, 2010)

tyson12 said:


> Now thats some intelligent mind :/
> btw do you get to rent rtm homes too? I own a rtm home and want to rent it out.


We buy only detached single family homes on 40ft+ lots ,our homes range from 2001 -2009 in Canada .In USA we bought homes built in 1998 -2006 and they are all detached as well.One family per home as we bought a house 3 years ago and we finished the basement and rented it out ,the tenants were leaving in both units before year was up because they didn't get along so we sold that house last year.


----------



## sags (May 15, 2010)

marina628 said:


> We buy only detached single family homes on 40ft+ lots ,our homes range from 2001 -2009 in Canada .In USA we bought homes built in 1998 -2006 and they are all detached as well.One family per home as we bought a house 3 years ago and we finished the basement and rented it out ,the tenants were leaving in both units before year was up because they didn't get along so we sold that house last year.


One would think a home with a finished apartment in the basement would be a big plus these days.

As Garth Turner put it in his blog,...........we buy a home planning on staying there forever, and raising our kids in it, then when they are grown up, finished school, and young working adults.........they move into the basement.


----------



## marina628 (Dec 14, 2010)

We bought a 5 bedroom 3900 sq ft and finished the basement while we are raising our kids as soon as youngest moves out we will buy a 1 bedroom maybe even a bachelor so they don't move back lol


----------



## tyson12 (Aug 20, 2013)

marina628 said:


> We bought a 5 bedroom 3900 sq ft and finished the basement while we are raising our kids as soon as youngest moves out we will buy a 1 bedroom maybe even a bachelor so they don't move back lol


So do you think that a 1 bedroom condo or a rtm home will make a good piece of profit for investment?


----------



## Just a Guy (Mar 27, 2012)

It depends on what you pay for it and what cash flow it can generate. If you wait for capital gains, you are gambling not investing.


----------



## marina628 (Dec 14, 2010)

tyson12 said:


> So do you think that a 1 bedroom condo or a rtm home will make a good piece of profit for investment?


rtm=READY TO MOVE?If so I know a few who bought them and they all lost money .As for investment I would not buy a 1 bedroom for investment , it was a joke we tell our kids 
For investment we buy 3-4 bedroom with 2+ bathrooms .But you can find bad investments everywhere.


----------



## dBII (Mar 12, 2013)

I wouldn't have done it for 2.5%. I'm in at 6-8% ROI on 3 units. The first two years were a wash since I was spending a great deal on getting them set up. This year, they have been fully rented and repair costs are minimal.


----------



## Just a Guy (Mar 27, 2012)

I'd normally agree with marina and avoid 1 bedrooms, but we just got a 1 bedroom offer accepted today for 63k which will rent for 8-900/month, so I broke the rule. It should generate 2-300/month profit plus principle pay down.


----------



## tyson12 (Aug 20, 2013)

Currently i stay in a 2bedroom condo with my girlfriend. 
My girl owns a rtm home and i own a 1 bedroom condo. Both are resting and eating dust.


----------

