Hi BPers,
I'm wondering if anyone here has experience in the Vancouver, BC rental market with long term tenants. Currently, it looks like Vancouver has a rental increase cap of 2.9% annually. Does this get "reset" to market rates once the tenant has moved out? Not sure how this works...
This is what I'm referring to:
http://www2.gov.bc.ca/gov/content/housing-tenancy/...
You are mixing a few different things together in your list.
I am not surprised Vancouver has placed a rent-cap within the City given the real estate madness of the past decade.
Item number three in your list falls under conditions under which a landlord can terminate a lease. In most provinces in Canada, taking personal possession - or having an immediate family member move into a unit - provides the landlord with the ability to terminate a lease (in some places, even early termination). This is not the same as "evicting" a tenant. Landlords can still evict tenants for non-payment or excessive disturbance or {willful/negligent} damage - the exact list and wording in your instance will be in the BC Residential Tenancies Act.
Items 4 and 7 in your list have to do with tax withholdings (capital gains and income) on foreign nationals when capital leaves the country. Most countries, the U.S.A. included enforce similar withholdings on foreign nationals (@George P. - not that crazy). When it comes to income, the withholding, and whether the investor gets "credit" for the taxes paid in their home country, depends very much on any tax treaty between Canada and the investor's home country. In the case of capital gains, there is an election that can be files at the time a property is sold which will reduce the immediate withholding - your accountant can explain this to you, or you can look it up on the CRA website.
Item 5 on your list occurs because you inherit the contracts (leases) associated with the property when you acquire it. This is no different than if you purchased any company (i.e. Sunshine Coast Jams & Jellies). Any contracts in effect at the time of purchase (i.e. Sunshine Coast Jams & Jellies has a 2-year agreement to provide condiments to the Fairmount Empress) remain in effect and do not immediately dissolve.
Item #6 - it's not the mortgage which has the prepayment penalty but the Note (extended by the lender) which the mortgage (given by the borrower) secures that has the prepayment penalty. When you borrow money, you agree to a principal amount, an interest rate, a repayment schedule and a term. Based upon these parameters, the lender calculates their income from the relationship. If you prepay the mortgage outside of those terms, you are negatively impacting the lenders income stream. The pre-payment penalty is a means by which the lender recoups some of that lost income.
Good question and would like to know also if it is reset for new tenants (I would think so).
Also if you sign a one year lease with a tenant, when this lease is due for renewal can you increase it more tan 2.9% if same tenant?
No you can't on lease due for renewal because basically, you would only raise the rent when the lease is renewed. The % is set by the government and it varies by year (at least as indicated by the link). Not sure about the reset...
Since no one responded, I did a bit of digging, spoke to some agents here in Vancouver, etc. Here's some more info:
1) City of Vancouver sets the max rental increase per year on existing tenants. This is a once a year increase (and if you happen to have one year leases for your tenants then you would only raise rent once a year).
2) New tenants can be charged market rate. If they stay for more than a year, see item 1.
3) Landlord provides a full month of rent in the event that the landlord evict the tenant to move themselves in or wants to sell the unit. Not sure if this is possible for any other reason.
4) if you are a non-resident, any gains will be TAXED 25% EXTRA vs a resident.
5) Let's say you inherit a tenant, you CAN NOT reset that tenant's rent to market rate, you're still under the max indicated in item 1.
6) Mortgages tend to have prepayment penalties.
7) If you sell as a non-resident, Canada holds on to some % of the proceeds until the following tax season.
You are mixing a few different things together in your list.
I am not surprised Vancouver has placed a rent-cap within the City given the real estate madness of the past decade.
Item number three in your list falls under conditions under which a landlord can terminate a lease. In most provinces in Canada, taking personal possession - or having an immediate family member move into a unit - provides the landlord with the ability to terminate a lease (in some places, even early termination). This is not the same as "evicting" a tenant. Landlords can still evict tenants for non-payment or excessive disturbance or {willful/negligent} damage - the exact list and wording in your instance will be in the BC Residential Tenancies Act.
Items 4 and 7 in your list have to do with tax withholdings (capital gains and income) on foreign nationals when capital leaves the country. Most countries, the U.S.A. included enforce similar withholdings on foreign nationals (@George P. - not that crazy). When it comes to income, the withholding, and whether the investor gets "credit" for the taxes paid in their home country, depends very much on any tax treaty between Canada and the investor's home country. In the case of capital gains, there is an election that can be files at the time a property is sold which will reduce the immediate withholding - your accountant can explain this to you, or you can look it up on the CRA website.
Item 5 on your list occurs because you inherit the contracts (leases) associated with the property when you acquire it. This is no different than if you purchased any company (i.e. Sunshine Coast Jams & Jellies). Any contracts in effect at the time of purchase (i.e. Sunshine Coast Jams & Jellies has a 2-year agreement to provide condiments to the Fairmount Empress) remain in effect and do not immediately dissolve.
Item #6 - it's not the mortgage which has the prepayment penalty but the Note (extended by the lender) which the mortgage (given by the borrower) secures that has the prepayment penalty. When you borrow money, you agree to a principal amount, an interest rate, a repayment schedule and a term. Based upon these parameters, the lender calculates their income from the relationship. If you prepay the mortgage outside of those terms, you are negatively impacting the lenders income stream. The pre-payment penalty is a means by which the lender recoups some of that lost income.
@Mimi H. The rules seem to be about the same as in Ontario. You're lucky that your rent increase is 2.9%, ours is only 2% for 2016. A couple of year ago they also decided to cap the rent increase guideline, so it cannot be above 2.5% in any year, no matter how high inflation is.
Also, I'm not sure how it is in BC, but in Ontario a tenant needs to be given 90 days notice of a rent increase, and it must be on the form prescribed by the LTB or it isn't valid.
If you are going to landlord in Canada, you need to read and memorize your local Residential Tenancy Act every night before bed and research case law before you start buying houses. You need to know these restrictions - they are as much if not more a part of the business that you are entering than the terms of your mortgage or EVEN YOUR LEASE.
In Vancouver a lease is never "up for renewal". At the end of a year it goes to month-to-month. Now, it is a common scam for landlords to say to a tenant "I don't want to renew the lease so you'll have to find a new place to live" (a friend of mine just bought that line and had to move out where he is now paying $200/mo more for similar conditions and the one he moved out of is up $300/mo). So yes, if you can convince them to leave and you think they won't sue you for deception (like my buddy won't) then you get to pick your own rent for new people.
The law is not that you can increase once per year, it is that you cannot increase again after less than 12 months. So if you increased Jan15, you can increase Jan16, but if you wait till Feb16 you'll have to wait till Feb17, etc.
The amount of increase is, as others have said, variable each year and depends on the provincial cost of living index (which of course, doesn't keep up with your property tax or your utilities, or the cost of your plumber). This number will be given to you 3 months before the year begins so that you can give 3 months notice to your tenant if they are due to increase in January.
There is an exception to this *IF* you have put significant capital improvement into the place. I don't know about BC, but in this case in Ontario you have to prove the before/after capital, your costs, and APPLY to the Landlord Torture Board to see if they'll let you increase the rent and by how much.
Now, go find your RTA, print it off and put a copy beside your bed and one beside your toilet - you can decide for yourself if the one by the toilet is for reading or for other purposes.
Yep great correction, it's every 12 months from the last renewal with a three month notice. Painful if you're an investor. The flip side is that Vancouver real estate appreciates nicely if you're someone that cares about that. However, if you're only going into it for cash flow, good luck! Definitely one of these learn from my mistakes moment.
@Luc Boiron same in BC, 90 day notice for rent increase. Sigh. The only benefit here is that there's a likelihood of moving into the unit in a handful of years, since Vancouver Real Estate is what it is, it would be a challenge to afford to buy in at this rate and so far, there's been a great tenant who's been there for years. Since he's a good $100 below market, it's unlikely that he'll move so he's essentially paying off the mortgage.
@Roy N. great corrections. Since you're so knowledgeable you could have chimed in earlier! Why are you holding out on us? :) ;) Also, you seem to know everything, what are the rules for whatever the proper Canadian term is for removing a tenant? let's say the tenant is NON-negligent. In other parts of the world, this is called a buyout.
Re: taxation, I get that it depends on taxation agreements between countries. That wasn't my point. My point was simply that if you happen to be a non-resident, these are some items that one would want to consider prior to investing.
As for item 5, sure that's true in Canada but it does not always work the same way in other countries. Quite frequently there are acceleration clauses for things like buyouts in companies. So let's say that you're a new investor and not familiar with this, the main take away here is that you can become aware of the larger buckets of impact.
Lastly, for Item #6. Considering that there are no penalty annual prepayment options for up to 20% of the original mortgage, it's quite possible to pre-pay the amount done to... zero in a handful of years. Since there isn't a fee for "recouping that income" in that scenario, then it's totally possible to not have the fee. Also, mortgages outside of Canada work differently so the point is read the fine print and decide if this is the right thing.
All of these may be obvious for those who are Canadian, live in Canada, and familiar with these things. However, I assure you that this is not obvious to most people from other countries. And, you can see from some of the posts prior to yours, even to Canadians who don't happen to be landlords.
@Matt Geerts can your buddy sue? That seems like a horribly unlawful, not to mention unethical thing for the landlord to have done.
I'm sure he COULD sue. He COULD have just cancelled his moving truck and told the landlord that they're stuck with him. He was fed up with a lot of quasi-legal or illegal things that the landlord was doing and wanted to just get away from them instead of use the system to get retribution.
The point here is that a tenant CAN sue you for these things, especially in a tenant-friendly jurisdiction.
I seem to have struct a nerve, my apologies.
You can be certain I do not know everything - far from it - and the longer I do this, the less I am certain I know.
However, I have spent a great deal of time researching the markets in provinces in which we are contemplating investing - even then, I still get things wrong. In my previous post I was trying to illustrate that some of the items in your initial list were not {closely} related and others were not merely arbitrary regulations or excises forced upon foreign investors, but exist for practical reason and are common business practices {not just in Canada}.
Under the residential tenancy act in most provinces, there is a distinction between the "normal" termination of a tenancy at the end of term (Note that in some situations and jurisdictions, only the tenant is afforded the right to decided to terminate the tenancy) and termination with cause - which is commonly achieved through an eviction.
The concept of "buying out" the tenant from their lease does occur, but it is a practice typically outside of the legislation (save for situations where the landlord is entitled to exercise {early} termination - such as taking personal possession of a unit, carrying out significant renovations, or demolishing the property. In some jurisdictions, the landlord is required to compensate a tenant in these situations).
Item 5: An acceleration clause for the buyout or purchase of a business (presumably by a party who already has a position of ownership), is a completely different thing than any contracts which exist between that business and its suppliers or customers. If you or I purchase a business which has existing purchase and sales/supply contracts (as in my first response above), the business is not released from those obligations simply because it has new owners. While it is possible that any contract with a vendor or customer may contain an early termination clause and, transfer of ownership may be a condition which triggers the clause, the new owners are still bound to abide by the terms of the contract.
It is very possible this does not hold true in business practices globally and I've yet to encounter it, though in the couple of dozen places where I have done business there have been variations in legal systems, but contracts have always been binding on the parties despite a change in ownership.
Item 6: Yes, it is true that a {closed} mortgage note may allow a certain amount of prepayment annually (in Canada it tends to vary between 10 & 20%, but there are outliers). Such prepayment allowances are factored into the lenders income projections - hence there are no fees if you avail yourself of this facility. However, if you exceed the prepayment allowances set out under the terms of your financing agreement, there will be penalties (as laid out in your agreement).
An open mortgage typically has no prepayment restrictions, but, in exchange, the interest rate is greater.
I am sure mortgages vary around the globe, and my personal experience is limited, but thus far, the only significant variation in underlaying lending principals I've encountered has been in societies where it is illegal and/or immoral to charge interest.
@Roy N. no apologies needed! :) It's great to have people on here that have more knowledge of a local market than myself (I say this noshing on coffee and pastries overlooking this gorgeous city). It's more of a "I wish BP was around when I'd first gotten into this years ago". Some folks out there have made the comment that there's a price for education and let's just say that I'm paying that price in 0 cash flow. :P
Please do share and share alike - I have a lot to learn in this market for sure + anyone reading this will get a fuller picture.
My initial reason for purchase here was not for investment reasons, it was for immigration. Back then it was much easier to immigrate to Canada and it was something I was considering for the parents. So, my factors were a little different. Now, it seems challenging to come here as an older person so I'm a little "stuck" with a property. There are worst places to be stuck with real estate, for sure. :)
Being a noob back then, there were a lot of things that I didn't know that I didn't know. Much of it was sadly, a pretty lousy agent. The 2 (?) lucky things - I have a great tenant, and I'm pretty happy having a great tenant even if he's paying a little bit below market. I used to manage apartments with Section 8 tenants (this is in the US + subsidized) and unfortunately, a lot of them were very challenging to manage, very high turnover, very high on evictions (actual evictions due to negligence, etc.). The other, great appreciation so far. A lot of that is due to the high US Dollar so Canada seems like a bit of a fire sale to a lot of Americans...and Mainland Chinese who are trying to get their money out of China. Not sure how that will change as the tides turn, I typically don't bank on appreciation.
Either way, I appreciate the discussion and the education. So please tell us more, I'm just soaking it all up. :)
@matt - I was wondering more alongside of why your buddy decided to not sue. The landlord sounds sleazy as all hell. I bet s/he's likely doing the same thing to the next set of tenants.
@Mimi H. accidental investor in origin perhaps but present and future powerhouse investor, more than likely. Your desire to learn and ability to reposition will bring you many opportunities and most probable great success. Looking forward to seeing your progress. 馃槃