I wanted to wait until we actually had a place lined up before starting to rant about our Toronto housing search, but I’m so angry right now I just can’t help it. As an appetizer to start, the more level-headed part of the post drafted months ago:
In past posts I mentioned that a landlord couldn’t buy a house at current prices and make a profit. I just thought I’d provide a few specific examples (without direct links to the ads or addresses since I don’t want to tip off a potential landlord just yet!) from our housing search.
First off, a quick bit of background: Wayfare and I are looking for a place to move to in Toronto. We’re being exceptionally picky in the places we’re looking for: ideally less than 1 km to a subway station (since she works downtown and doesn’t like to walk, drive, or take the bus), preferably close to a major highway too (since I don’t have a job yet and don’t know if I’ll have to be commuting by car or where I’ll be commuting to). A host of other things, like two washrooms, ~1200 sqft, 3 bedrooms, air conditioning, etc., but right up there is the fact that we hate to move. So we want to find a place that we’ll stay in for at least a few years, and a landlord willing to continue renting to us for that time. Part of ensuring that means that we’ve been doing quick searches on potential rentals to see if they sold or were listed recently, and at what price. Our reasoning for this is that a landlord that tried to sell but couldn’t might try again, and then we might have to move out 60 days after a sale. A landlord that just recently bought a place might only be renting for a year or two before moving in themselves, or may decide to bail (or just as bad, neglect repairs) if rates go up and they find themselves losing money. While the market may be crazy and I wouldn’t want to be a landlord when you can take the quick money right now, many landlords have owned their properties for years, and don’t consider the current yield, but rather their yield-on-cost, so those sorts of issues probably won’t apply to landlords who haven’t recently listed/bought their houses.
Finding past sale data is quite difficult to do reliably without an agent, but Google’s cache has been surprisingly useful in this regard. For brand-new buildings it doesn’t take a leap of logic to know that the landlord must have just bought it, in which case similar recent sales is all you need to get an idea.
Anyhow, one example is a house between Finch and Steeles that sold for $560k just a few months ago, and was up for rent for $2400 a month after the sale. Neither the sale price nor the asking rent are unusual for the area and size of the house, so this is pretty representative for the area. But if you do the math you see that that’s a rental yield of just about 5% (234X rent multiplier). If you assume that the costs (property tax, insurance, maintenance) run about 2%, that leaves them making only 3% on their money. If they have a large mortgage and rates go above 3%, they’d probably end up losing money renting the house out. Of course, I’m not about to go and offer them more rent, but I am going to have to consider the possibility that despite all the protections Ontario offers tenants, I might be having to look for a new place to live in a year’s time. [Plus this one was above our price range]
Mr. Cheap had a post recently on “discount purchases” and mentioned that co-ops can sell for less than comparable real estate. Indeed, our one counter-example from our rental search was a townhouse that was up for rent. The asking price on the one next to it was just $200k or so, giving the rental a 8.5% yield (127X multiplier). The trick there was that the co-op required, in addition to other restrictions, a 25% downpayment. That perhaps gives you some idea of how far prices have risen on the back of negligible down payments.
Realestate agents: The biggest thing I’d say I have grown to hate in the search for a rental home are realtors. I don’t know why landlords want to use them, they’ve been nothing but obstructions so far.
Many of the listings by agents don’t bother putting any pictures up, which is just ridiculous since that’s basically their whole job. Oh, no, their job is to also act as intermediaries between the landlord and the potential tenant, which would involve a few very simple tasks such as answering the phone, and maybe setting up viewings. However, they can’t manage that either: most agents we had to call an average of 3 times before they’d call us back, usually a week or more later. Only one has responded to email. Then they’d know nothing about the listing except for the 2 lines of text already in the ad, and would either just continue to be unhelpful, or have to ask the landlord to then get back to us. It’s an unnecessary obstruction — and an expensive one for the landlord, since the agent’s fee is usually a month’s rent.
Some in particular have driven me crazy. Let’s call one “Toad”. He has dozens of listings up on craigslist, and they’re all basically carbon copies of each other: no real meaningful information, no pictures of the unit itself, just a cut & paste description and photos taken from the sales literature for the condo building. While some of those units may have been of interest to us, after seeing how useless some other agents (who did take photos!) were, I can’t bring myself to waste my time with Toad, especially since a highrise apartment is a second-choice for us. Who knows, maybe he’s (she’s?) a really nice, capable froody dude, but the inability to even grab some photos with a blackberry and upload them to the web turns me right off.
But the worst has been “Mr. Superlative”. We paged him through the office (the number on the listing) 2 or 3 times over the span of a week or two, and he never once called us back. Finally, we got ahold of another agent in that ReMax office to show us another listing, and she gave us his “direct” cell number (half the time it just ends up forwarding back to the office, where we page him, and get nothing). We set up an appointment to view the house (his house, as it turns out), confirmed it the day before… and then we show up, and the person who lives there now tells us it’s cancelled, then closes the door on us (not that he opened it more than an inch in the first place)! We walked away super pissed, since he never called us to say it was cancelled… Now, this looks like it may be an issue of the soon-to-be-former tenant being a crazy asshole, since about a half hour later we did get a message from him saying that the appointment wasn’t cancelled and wondering if we were still interested in the house. Nonetheless, it’s been days of phone tag here — we still haven’t managed to get this guy on the phone to find out what exactly happened when we were supposed to view the house…
Probably a good thing though, since if he’s this hard to get a hold of when something isn’t leaking/on fire, we probably wouldn’t want to have him as a landlord, either. Or maybe it’s a cautionary tale, that if your tenant is batshit loco, it may be best to just eat the loss of having the place sit empty for a month so you don’t have to deal with him (or his stuff) while you show the place to the next tenants. On the other hand, we don’t know the full situation: maybe he forgot that the landlord has to give the tenant 24 hours notice before a showing, and didn’t, and that’s why the tenant decided to go nuts.
Maybe it’s just a co-incidence because it’s such a big company, and so prominent in the areas we’re looking in, but almost all of our “stupid realtor” anecdotes are about ReMax agents (the Willowdale office specifially — “Team Oulahan” did return calls and even answer email!). Maybe the whole place is full of tools (though “right-at-home/homelife realty” was not much better), I don’t know. But here’s the big thing that bugs me: they’re getting paid a lot more than I am to do a job that is basically all about dealing with people. It’s a sales job — you don’t need to know much about architecture, or structural engineering, or finances to muddle through as a realtor, as long as you can answer the phone, and show up at the door with some forms, a key, and a camera (and refer people to a lawyer, engineer, inspector, broker, or accountant for the heavy lifting in those areas). It’s also a job that depends a lot on word-of-mouth referrals: there are thousands of real estate agents in the GTA, and people are generally going to go with one recommended by a friend. Right now we’re looking to rent a house, but in 5 years or so, we’ll probably be looking to buy one, so why treat us like shit now, and jeopardize that future business?
A few agents have actually been somewhat helpful. Jenny Wu at ReMax actually returned our calls, and did set up an appointment (and called us when the landlord changed her mind and cancelled); Julia Warren at Royal LePage was nice and competent and even tried the expected realtor move of chatting me up and trying to become our agent; it was a shame that we felt the unit she was representing was over-priced by ~10%. David Fleming writes a blog, and while I think his views on leverage are borderline insane, he offered to help us out sight-unseen, and — crazy concept, I know — values business. Even when they’re competent though, I can’t really justify using an agent in my head: while MLS has a near-monopoly on listings for sales, it’s probably second (or third) fiddle to craigslist, viewit, or hometrader for leases. A landlord doesn’t really need access to it to find a tenant. Sure, an agent can do some of the advertising, screening, and showing legwork, but being a landlord is not exactly a completely hands-off job: you’ve got to be prepared to deal with your tenants at some point, so you might as well start from the time you first offer your house for lease. Plus we’ve had much better luck when dealing with potential landlords directly in terms of getting information, actually getting appointments to see places, and of course, giving us a feel for whether the landlord would be a good fit for us.