Busting the Myths of Roommate Renting

roommate renting

Toronto renters know it: There is such thing as an ideal tenant in our city, and they’re most definitely not two or three roommates splitting a two-bedroom condo.  But if you’re throwing out rental applications from roommates, you’re likely missing out on some quality tenants—and narrowing the field for your own rental unit.

So this week, we’ll make the case for seriously considering tenant applications from roommates for your condo and looking at roommate renting from all the angles.

Myth: Adults living with roommates are unsuccessful or financially unreliable

No one would want to live with roommates once they’re an adult, right?  The only reason the potential tenants on your doorstep would is if they just can’t afford a place of their own, and that’s not someone you want to rent to.

That’s the biggest myth around when it comes to renting to roommates, and all it takes is a look around at Toronto’s real estate prices to consider it busted.  Although Toronto and the surrounding area frequently make up for it in opportunities, fun, culture, and social diversity, they aren’t cheap places to live for anybody—and many renters are sharing space with roommates into their twenties and thirties for a whole bucket of reasons on top of affordability.  Sometimes it’s a question of being able to live in nicer digs or a neighbourhood that’s near work, friends, and family; making a prudent decision about their own financial capacity rather than going it alone, going into debt, and wrecking their own credit ratings, and just generally being responsible.

For many Toronto renters, though, it’s not about the money: roommates are also a way to save up to buy a place of their own, make a permanent Toronto home worthwhile while working a job that’s heavy on the travel, or just have the sheer pleasure of coming home to friendly face in a city that can be isolating.

So when showing roommates your condo for a potential tenancy, make sure you’re looking at the renters in front of you, not a general idea of why people share space or not.  Evaluating each tenant for a good fit—and not their social habits—is both a great way to find good tenants and a protection against getting fooled by the bad ones who know which signals to send.

Myth: Roommates are risky

What if someone leaves?  What if plans change?  Will you, as the landlord, be on the hook for continuing tenants who can’t make their rent?

The indicator that this is a myth—and needs busting—is when we ask those questions of potential tenants, and when we don’t.  Marriages break up all the time, but tenant screening generally doesn’t ask about the health of people’s marriages when they come to view a condo unit.  People routinely rent to couples who are moving in together for the first time, even though that’s when you find out all about the fingernail clippings your partner lovingly stores away.

Again: Look at potential roommates as tenants and people, and consider whether their work history, tenancy history and expressed habits make them likely to be reliable.

Myth: Roommates don’t keep units clean and will trash the place

This is a subset of that unsuccessful, unreliable, irresponsible idea just above: That living with roommates after school is a sign of immaturity, and therefore adult roommates will inflict their immature behaviour on your walls, floors, and appliances.  And while that might have been more reasonable in the times when you could buy a house at 24 on a blue-collar job—and let’s be fair, it probably wasn’t—it’s definitely an outdated hangover of an idea now.

Tenants who are splitting a condo with roommates for financial reasons are stating some pretty clear priorities just by showing up: Even though they’d get more space and privacy for less in a basement apartment or corporate high-rise, they want to live somewhere clean, safe, and central—and are ready to split that space to do it.  That’s fundamentally an intensely adult decision.

A tenant who’s done that math and still showed up at your door is quite likely to take good care of your unit.  They know why they want to live in it, they’re working hard to meet that higher rent, and house-proud tenants are the ones who’ll be most meticulous about tidiness, maintenance, and collaborating with you to keep on top of the necessary repairs to keep your unit in great shape.

Myth: Roommates are the tenants no one else wants

This one’s pernicious—and pretty murky.  While it’s true that sometimes potential tenants buddy up with friends to shake off a spotty tenancy records, it’s also true that there are many very uncomfortable reasons why great tenants find it hard to rent in Toronto.  While we live in a progressive city, it’s also a city made of people and people’s individual biases—which means sometimes the reason a tenant wants to bolster their case with a roommate is because they’re a first-generation immigrant.  Or part of a visible minority.  Or a single woman who doesn’t want to view apartments—or live in them—alone.

Unfortunately, sometimes people confuse being a good tenant with being exactly like themselves—the same habits, the same career and family plans, the same skin, religion, or sexual orientation.  And to be blunt: That is not what makes a good tenant.

In short, sometimes the tenants who are finding it hard to rent alone aren’t having trouble because of anything they did.  Treating them with seriousness opens the door wide to a whole pool of marvelous potential tenants—and is a vital step to making sure your unit’s profitable, well-loved, well-lived-in, and treated with care.

Five Ways to Maintain Your Investment Condo’s Value

Investment Condo

So, life is good: You’ve bought a nice investment condo in a great Toronto neighbourhood, lined up some conscientious, friendly tenants to live there, signed the lease, handed over the keys, and everything is going according to plan.

But since you’re in this for the long haul, how do you make sure everything keeps going to plan?

     1) Make sure your tenants are on your team

One of the easiest ways to make sure your investment condo stays in great shape is to enlist your tenants onto Team Great Property.  They want a lovely, well-maintained place to live, and you want the value of your property to grow, so there’s a lot of ground to work together and keep that unit looking great.

Simple ways to make sure your tenants are looking out for the space itself are to foster a landlord-tenant relationship that thrives on honesty, cooperation, and trust.  This means encouraging your tenants to report issues as soon as they happen, acting fast on both necessary and proactive maintenance, and doing small but vital things like leaving spare air conditioning filters or paint in the right colours in the utility closet, so your tenants can touch up any dings or scratches as they occur.

People like a chance to take pride in their home, however temporary it might be.  Let your tenants do that—and choose tenants whose eyes light up when you say you want a collaborative relationship—and half your property maintenance issues will evaporate right out the gate.

     2) Inspect the property regularly

Make it a ritual when you set an appointment to renew your tenant’s lease or pick up any spare mail that might go to your investment property’s address: take a walk around the unit, check out its state of good repair, and ask your tenant if there are any issues you should look into—no matter how small they might seem.

Property maintenance is one of those areas where putting in a little effort more often will frequently ensure you don’t find yourself dropping everything to bail yourself out of a crisis situation.  Catch small problems now, prevent them from becoming big problems, and you’ll make sure your property stays in marketable, valuable shape.

More to the point, if you develop relationships with reliable contractors—plumbers, carpenters, and so on—before water comes gushing across the floor, you’ll spare yourself the stress of comparing quotes on short timelines and be able to just get ‘er done.

     3) Stay in touch with your condo board

No, you don’t live there, but the decisions your condo board makes will affect the value of your investment property.  Are they adding amenities, or have amenities been delayed?  Are they making decisions which will raise your condo fees—and cut into the value of the building, as well as your margins?

As an owner, you have a vote on your investment property’s condo board and a seat at their AGM, and it’s in your best interests to use both of those actively.  Knowing the shape of the next year for the entire building will help you make prudent, fiscally realistic plans for your investment property—and know what sorts of tenants you can and can’t attract.

     4) Charge smart rents and take out smart mortgages

The smartest rent isn’t always “As high as you can get away with,” just like it’s not always “Low enough to get that tenant you think is a great fit”.  A good—and dynamic—knowledge of market rates in your area, as well as who tends to rent in that neighbourhood, is a valuable thing when it comes to setting rent for your unit.

It’s also valuable to plan your requested rent in tandem with your monthly condo fees and the mortgage on that unit.  Make sure your rent covers your expenses, with a buffer set aside to cover any repairs which might come up and, more importantly, your taxes.  Property rental income is declarable income, and saving up for taxes will spare you a nasty April surprise.

If you’re uncertain about the area, or if the building is new, a variable-rate mortgage can be a godsend for a new landlord: If, two years in, your math just didn’t work out, you can adjust the mortgage rate to accommodate the rental income you’ve committed to for the length of that lease and make sure that investment property isn’t a hit to your personal pocketbook.

     5) Know your goals

The most important thing about investment property is that it’s not an end in itself; it’s a means to achieve professional and financial goals.  Know, from the outset, what your goals are for this property: Are you looking to rent it for the long term, or just to cover the mortgage while the property value matures for a resale?  Are you holding onto that spot for a family member who’s retiring and downsizing, or graduating and establishing themselves in the city?

If you’re looking to establish stable long-term rental relationships with tenants, then it’s practical to offer two-year leases as a stability incentive.  But if you’re looking to sell that unit when the market is ripe, one-year leases, which you can evaluate year by year, are the better move.  If you’ve got that unit in reserve for a family member, a higher mortgage rate which accumulates equity faster is more beneficial than if this is an income property only.

Knowing what you want out of the investment condo experience—and reevaluating that actively as your life circumstances, goals, and needs change—is the key factor to making sure you make the right decisions to maintain the value you need for the goal you have in mind, and that everything keeps going according to plan.

The New Landlord’s Quick Guide to Tax Time

Tax Time

So this year, you had a great idea: You rented out that investment condo to a great tenant (or two!), built a fabulous working relationship with them, and now that condo on its way to making an income for you while providing someone a comfortable home. Trouble is, it’s tax time. And suddenly your usual T4 and a few charitable donations are just the beginning of the paperwork you’re facing as a landlord.  So, how do you deal with your rental condo when it comes to taxes?

Rental income is declarable income

It should go without saying, but Revenue Canada will be very much interested in the income you’re making from rent.  Regardless of whether you’re renting an investment property or part of your own personal home—a separate unit in your home or just a room in the condo you live in—that money needs to be formally declared as part of your taxes.

But there are a lot of things you can legally write off

Renting your condo unit means you have rental-related expenses, many of which you can claim against your income at tax time.  You can write off rental expenses that occur at any part of the rental process, including:

  • Fees you’ve paid to advertise your condo unit to prospective tenants, including listings with real estate agents, rental agencies, property listing sites, cleaners, and staging companies;
  • Fees paid to any management company you’ve hired to take care of the property;
  • Maintenance and repairs to your property;
  • Office supplies you’ve bought for administering your condo, including small stationery like pens;
  • Property insurance on your rental condo;
  • Property taxes on your rental condo;
  • Interest that accrues on your mortgage while you’re renting the property;
  • Utilities to the rental condo that are included in your lease with your tenants, including condo fees;
  • Your accounting and legal fees;
  • Travel costs, if you’re doing your own maintenance.

That’s just the run-of-the-mill stuff—your current expenses.  You can also write off a whole category of expenses called Capital Cost Allowances—the big purchases—which include any appliances, equipment, furniture, fixtures that you’ve purchased for your rental property.

What you can’t deduct: The principal on your mortgage, land transfer taxes, or your own maintenance labour.

So I hope you kept your receipts

It’s a fundamental: hold on to your receipts for any expenses that relate to income.  Going forward, create a folder for all your rental-related expenses, and hold on to any receipts or proofs of payment that come your way.

Got everything!  Now, how do I do all this stuff?

Pick up a Form T776 from your closest available Internet, and fill it out with all this assembled information.  The number it spits out at the end of that afternoon should be your net rental income, which goes on Line 126 of your personal tax return and factors into your overall total taxes owed.

This is not making all that much sense to me.

When in doubt, ask the CRA.  The great thing about Revenue Canada is that they tend to want you to succeed at your taxes, not fail, so they’re generally quite forthcoming with information and tips—and have a handy guide for everything you need to know about rental income on your personal taxes.  The CRA’s guides aren’t short, but they’re detailed, and they’re full of clear examples on how each exemption and regulation works.

No, really.  I’m lost.

If you still find yourself out of your depth, or start to handle multiple rental properties, it’s a good idea to outsource to a local accountant.  They’re worth their weight in delicious tax credits, know both your obligations and the advantages you can bring to bear on your taxes as a landlord.  And overall, it never hurts to have the peace of mind you get from a professional on the case.

Estimate for next year

Now that you’ve got that done, estimate what your expenses might be for next year—and put that against your expected year’s income.  If you do this right, and set aside what you’ll need to pay in rental income taxes as the money comes in, paying your taxes next year should be absolutely painless.