More Minor but Very Important Tips for Landlords and Property Managers:
1. Watch for the Midnight Move, frozen water mains and know your insurance policy:
As a landlord or an income property owner, you have probably heard of the ‘midnight move’ or ‘the tenant has bolted!’ Every property manager hears these words once in a while. For no apparent reason, the tenants are suspiciously late with the rent, they have not contacted the office, and they are not returning your phone calls. So you go over to the property to see what’s ‘going on’ … only to find they are gone! And the furnace is off! And there is a flood in the house. This can and does happen!
In Canada, the primary danger of a tenant unexpectedly and secretly moving out of a property is that they take themselves out of billing for the utilities and leave the house unattended, possibly in the middle of winter. This is really dangerous if temperatures dip down causing water mains to break inside the house. The best solution to avoid this from ever happening is the ‘Utility Service Transfer Agreements’, between the owner of the property and the utility companies. These agreements are mandatory here in Saskatchewan for rental houses, and I know they exist in other provinces. They can protect a house from freezing up if used correctly, but if an owner is unaware that they exist, they aren’t of much help. The security in these agreements is that if a tenant disconnects without anyone else lined up to go into billing, the utilities companies automatically puts the owner into billing, free of all connect fees and more importantly, alerts the owner (and the property manager) that the current tenant has unexpectedly disconnected.
In all fairness to the utility companies, they don’t automatically go around turning off the power and the gas the minute the tenant goes out of billing – anymore! It’s been a few years since they were ‘famous’ for doing this, but it’s not SO long ago there were 6 figure lawsuits between property owners and their property managers and the utility companies surrounding these types of disasters. It was a big mess – literally and financially!
Personally, it is my opinion a property owner cannot expect the utility companies to carry their bills for months on end, in the event a property remains vacant. As a property management company, we often receive calls from the utility companies with a list of vacant properties looking for the owner’s contact information – on properties we don’t manage. In some cases there is no one in billing for up to 6 months. It’s frustrating for them as it’s not really the responsibility of the utility company to keep the property heated free of charge for this length of time.
It doesn’t seem like the most riveting information, but it’s one of the MOST important items that I, as the broker of the company make sure is complete and done correctly when I’m checking the final paperwork on a new property. It’s very important for me to make sure these forms are completed and sent to the utility companies to avoid future problems like houses freezing up, pipes bursting, flooding, insurance claims and lawsuits. As always, it’s the seemingly small but crucial mistakes in property management that can be very costly and time-consuming.
The Insurance Policy: A property owner should evaluate their insurance policy every year to make sure the liability and the insured values are correct. Some owners never revisit their insurance policy once it’s in place. Meanwhile, their properties become increasingly more valuable and drastically under-insured over the years. It is my opinion that not all insurance agents are created equally. A good agent should give the property owner a quick call every year just before the annual renewal date to discuss the current value of the property and the recommended liability coverage.
As a side note, one critical tip for all rental property owners is to NEVER mislead the insurer about the current use or the intended use of the property. They must be informed that the property is currently being used as a rental property. The small amount of savings on the premiums will absolutely not be worth the losses if the insurance company finds out if they have been mislead and rejects the claim (and they will find out). In addition, the property must be insured in the event of a vacancy. All insurance companies that insure rental properties require that the property be ‘checked’ inside and out on a regular basis. This is where a property manager becomes an invaluable and integral part of your insurance coverage as a good property manager should be checking a vacant property at least twice a week even if there is no interest from prospective tenants.
2. Buying the Right Rental Property: Knowing the facts before you buy:
Just like real estate markets, rental markets can change from one month to the next and typically follow the same seasonal patterns year after year. So even though the stated ‘vacancy rate’ according to CMHC changes is studied twice a year, there are many shorter-term factors that affect the vacancy rate and the ‘rentability’ of the property.
The dead of winter is obviously the worst time to have to re-rent a rental property, for obvious reasons. Tenants don’t want to move in freezing cold temperatures or over the holiday season. But there is another reason that it becomes increasingly difficult to re-rent a single family home in the late fall and winter. The supply of vacant homes increases dramatically in about November or December when home-owners who didn’t sell over the summer months or ‘snowbirds’ realize their home will be vacant for winter and look for temporary rental solutions. Almost every fall, our list of vacant ‘single-family home for rent’ doubles, making the stated vacancy rate completely irrelevant information for those few months.
It should also be stated that the data that CMHC collects to calculate a city’s vacancy rate is only from multi-family rentals (4+ units per building). They do not collect any data from single-family home rentals. Many investors of single-family homes are not aware of this fact. Therefore, the stated vacancy rate applies ONLY to apartment rentals, which can be VERY different from the vacancy rate of single-family homes. When a property owner hears that the vacancy rate is very low they believe there is limited supply of available housing to rent and they assume that tenants will be banging down the door trying to rent anything that is on the market. It’s not true. The vacancy rate cannot be applied to higher-end, somewhat expensive, single-family homes that are up for re-rent.
It is recommended that investors check with the local property managers to find out what kind of rental units are currently renting and buy those types of properties instead of assuming that all rental markets are the same in every city or assuming that the CMHC data applies to all seasons and types of rentals.
By Kathy Berner
