Blessed by the Potato

We are fairly well-read people (in the sense that we read a lot, not that we’ve read all the classics), and own a buttload of books. I keep trying to rename our dining room “the library” since it’s basically wallpapered in bookshelves, but the name hasn’t stuck yet. Now as we find it’s time to move, we’re faced with the task of moving these hundreds and hundreds of heavy, heavy books.

We just don’t wanna.

After all, a lot of them we’re never going to read again, or loan out to friends to read, so why hold on to them? In just a brief round of going through the bookshelves, we found 5 boxes worth of books to pull out and discard without the slightest regret (i.e.: books we had zero emotional connection to and would have no desire to read again). The question became: what to do with them? We figured that they had to be worth something, and kept planning to haul them down to the used bookstore to see what we could get. Even if it was just a dime a book, that’d make the trip down worthwhile since we had so many.

Unfortunately, our time has been quite tight lately, especially during business hours, so we just haven’t gotten around to doing it. Now we’ve got just a few days left before the big move, and the damned books are still sitting there in their boxes, and we don’t want to move them! So, abandoning our plan to recoup some of the costs of these tomes, we started looking for convenience. Just any way to get rid of them that would be a step above the recycling pile. Much to our surprise, the London Public Library makes book donations very hassle-free: we called in and set up an appointment for a fellow to come to our house and pick the books up.

And of course, we love the library now: we can read all the books we want without having to pay for — or store them!

In my last post on the CMHC, I said: “Unfortunately it’s one of those things where what’s good for one person is bad when it happens to everyone in society at once.”

I tried to find out what that thing is called. Surely there’s an economic theory of some sort that describes this phenomenon — if not, I will gladly accept a Nobel prize in economics for outlining it here. :)

It’s a concept that’s similar to, but not quite the same as, the tragedy of the commons. In the tragedy of the commons, you have some finite public resource, and even though everyone would be better off if consumption was limited, each individual gains when they take a bit more, whereas the costs are spread out amongst everyone, so overconsumption results unless there is some organization between the players to prevent it.

Here there is no finite resource: the government keeps increasing the CMHC’s budget so everyone can get cheap money. For one person, access to an affordable homes program like that lets them get a house with a lower downpayment (and thanks to the insurance, lower interest cost than would be expected with a low downpayment), so it does make housing more affordable. Of course, as I outlined before, when everyone has the same access to the program, asset prices skyrocket and a bubble forms.

Ignoring the confound of government involvement, the same thing can happen with other behaviours. For example, it’s a good thing for people to save their money for a rainy day. When the economy starts going into upheaval, it makes sense for an individual to start saving more as their perception of the risks of say losing their job increases. However, if everyone suddenly reduced their spending at the same time, that would be bad and would cause or worsen a recession.

So, aside from “congestion” (which doesn’t seem to fit well with every case) what’s the term that describes this negative unintended result of following the herd, where each person is acting individually in their best interest?

Well, we have successfully found a place to live for the next few years. It is about 35% smaller than our current place in London, and about 30% more expensive — welcome to the cost of living in the Centre of the Universe! Compromises were made, but fortunately it’s on the low side of the rent range we were looking in, and that extra money in our pocket will go a long way in the form of take-out when I don’t feel like cooking in the small kitchen, or better yet if we can save it, towards the downpayment for a house that will be perfect (a few years from now… after sanity returns to the market, and I find some stability in my work life). Don’t get me wrong, it’s still a nice place (we wouldn’t consider it otherwise), and we simply can’t beat the location (right by the subway).

We had a few different places make the short list, and as you could probably tell, they were all owner (or property manager) listed. The owners all seemed friendlier than many of the agents, and certainly seemed more motivated to make things happen in terms of actually responding to our calls/emails and setting up appointments. Housing requires a lot of upkeep it seems, and the owners were always prepared to mention that something was new, or going to be replaced, or what have you — also giving us the impression that they would continue to do their part of the maintenance.

The house we eventually went with we found through Viewit, though we answered a lot of ads on Craigslist as well. We tried to see a few that were listed on MLS, but less than 1/3 of the agents there ever got back to us, let alone proved their use to the prospective landlords by trying to sell us on the house (though I forgot to mention Gian-Piero Furfaro in my last post — he was a nice guy, learned a lot of details about the house for the showing).

The landlord seems like a reasonable guy, and we were able to negotiate some improvements to the house, including critically central air. In exchange, we agreed to a longer than 1 year lease (which works for us anyway, since we hate to move). We’re also going to have a dishwasher installed — as a compromise, we’ll buy the dishwasher, and he’ll hire the plumber. We didn’t try to negotiate the rent rate itself (which was pretty typical for the area and size of the house). Like I’ve been saying all along, just because you’re renting doesn’t mean you don’t have the freedom to customize/improve your living space. We’re probably also going to install a bike rack in the garage, or at least a better way to secure the garage itself so our bikes will be safe.

Tips for potential landlords to get us to respond to your ads:

First, I’d have to recommend going to the effort of either doing the advertising yourself, or finding a good real estate agent/property manager. The majority of agents aren’t going to help you get tenants quickly!

Next, take pictures. If you have to use old pictures from the last time it was vacant, so be it; if you have to include your tenants’ stuff in the pictures, so be it (though try to get them to clean up as much as possible). We found we were mostly able to see beyond the stuff to what was under it, but we can’t see anything if it’s just a 2-line text description! Maybe it’s just me, but I found pictures of the kitchen and bathrooms to be especially useful — living rooms and bedrooms are just spaces waiting to be filled, but kitchens and bathrooms have to be functional the way they are, so if I don’t see photos of those, I assume they must need to be hidden for some reason! Most decent ads had at least 4 photos, with most on Viewit sporting 8-10, but you can always include more, and I’ve never said “wow, that was too many photos”.

Advertise everywhere. Our new landlord had ads on Viewit, Kijiji, and the Toronto Star that I found, and possibly elsewhere. I’ve heard various anecdotal reasons for picking one medium over another (e.g., professionals use the ‘net, seniors read the classifieds), but some are free and the others aren’t expensive. As a searcher, I preferred Craigslist to Kijiji (it was just a cleaner interface, and half the screen wasn’t taken up by irrelevant paid ads), but Viewit was also fruitful. Hometrader was ok, but didn’t have a lot of ads for detached homes (it mostly seemed to be apartments/townhouses). We never looked at the newspaper classifieds, but that doesn’t mean it isn’t an avenue worth exploring. The off-campus housing ads can be a good place to advertise if you’re close to a university and want students, but if you don’t want students, then obviously don’t bother.

Details! Almost every ad for a given housing type will say “clean, [housing type] close to [stuff]. [X] bedrooms and bathrooms.” so if that’s all your ad says, you’re not really selling yourself. If there are any details that help sell it, include them! New A/C or furnace? Nice garden? Crown molding? Finished basement? Parking for X cars? Storage locker? Price? Likewise, anything that’s included should be mentioned (and to be fair, if utilities are extra, mention that too) — utilities, cable, lawn care, snow removal, window service — these are all perks that a renter will see value in, and may help explain why your rent may be higher than average (if it is). Other important details include when it’s available (note: if it is now November and your ad says avail Sept 1, change it to “avail immediately”, or people will wonder what’s wrong with it that it’s been sitting vacant for so long!), the term of lease you’re looking for (e.g., for us it would have been helpful to say “1 year lease with option to extend” or even just “1+year lease”), and a location that’s as exact as you can (preferably the actual address). For a person that doesn’t drive, there’s a huge difference between a place that’s a 5-minute walk to the subway and one that’s a 35-minute walk, even though both might be in “Willowdale”. I’ve seen people mention which school district the unit falls into if they’re trying to attract families. Finally, one thing that MLS does right that the others don’t is report room sizes. If we do some work from home and need to set up an office space, then we might be looking for a 3-bedroom if the rooms are small, or a 2-bedroom if the rooms are large. For houses in particular, explicitly mention if it’s the whole house that’s for rent, or if there’s a basement apartment that’s rented separately.

Current tenants: For the most part, it’s not an issue to work with outgoing tenants to have the place clean and ready to show. However, as we experienced with “Mr. Superlative”, if your tenant is crazy and/or obstructive and/or messy, then it might be worth eating a month or two of vacancy to get them out before showing it to the next group. Likewise, if you’ve successfully managed to keep your unit rented out for 10 continuous years, it might be time to do some maintenance for the wear and tear that’s accumulated over those years.

Know the laws: Many landlords request post-dated cheques in advance; we usually give them since it’s fairly convenient for us and not worth fighting over. However, in Ontario it’s not legal to demand them, so you shouldn’t say so in your ad of all places. Likewise with security deposits beyond the last month’s rent. And of course, we’ve already covered the issue of discrimination.

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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.

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Well, I just had one of the best curling games of my career today. Man, if I could curl that well all the time I could go competitive… unfortunately, I’m usually just the wrong side of average, so I have no idea where today’s awesomeness came from. Anyway, a nice start to the weekend.

A thought worth repeating:

In the comments to his weekly wrap-up post, Michael James says “Actually, the ultimate barometer of the correctness of a decision is whether it would be right to make the same decision if the same situation comes up again.”

Enjoy what may be the last snow-free weekend in Southern Ontario!