When rent is less than half of market value.....

Question

Hi all, new investor here. In my area (Eastern Ontario, Canada), there are quite a few duplexes or multi-family properties that are coming up for sale that have incredibly low rents. One I was just looking at was a duplex where the rents were $600 for the 1-bedroom unit and $650 for the 2-bedroom unit. The units aren't in too bad shape, a bit dated, but could definitely be renting for far more. From what I've read, it seems like there's nothing that could be done about that. If I were to purchase this property, I would assume the tenants at this rent and could only increase rent if and when they move out. And even if we wanted to completely renovate the entire unit, it's my understanding that I need to offer the unit back to the tenants as the same price they were paying previously before I could search for new tenants. I guess I'm asking if these buildings are just lost causes??

Roy Cleeves · Answer

Hi Jamie

The key is to get the current tenants out so that you can reset the rent.

You can always ask the Sellers about the possibility of "cash for keys". Will the tenants take $5,000 and move out? Or whatever amount you are willing to pay. It may seem like a lot yet it can be considered part of your purchase price to get it empty.

You can have the Seller do that as part of the deal. Tenants must volutarily move out - signing an N11.

This is easier said than done. Yet worth a try. Good luck!

Account Closed · Answer

@Jamie Blair this is the challenge with rent control that exists in many provinces in Canada. Landlords are expected to subsidize the costs of housing as rents don't keep pace with market or with inflation (Ontario claims its 1.2% allowed increase in 2022 is aligned with CPI.... )

Options include moving into the unit yourself, offering cash for keys, applying for a large rent increase through LTB (form L5), or massive renovation (requiring N13).

Steven Foster Wilson · Answer

If they are on month-to-month then you can inform them that the next month the rent will be increased. If you would like to renovate like the above post states,you could do cash for keys. In my first duplex that I purchased here in Columbus I did cash for keys. I was ready to renovate and their lease was not up yet. I offered them their security deposit back and one months rent. They got out within 24 hours.

If you cannot find a good deal there that makes sense, you should consider checking out Columbus or Cincinnati. Your money will go very far, you'd be able to pick up a multifamily portfolio and start your cash flow. Not to mention Ohio is a landlord-friendly state.

Patrick Drury · Answer

WOW. I would consider looking elsewhere if that's the case. You would have better luck investing in the united states than there. There is a lot more opportunity in a state here in the US that's landlord-friendly and is growing rapidly like Columbus. In Columbus, there is no rent control. You can raise rents to whatever ever market supports (given they are month-month or if their lease is up). Also, if you can't raise rents to market, it's impossible to make money on those deals if the prices are going up, but rents are unable to correlate along with the prices. It's like buying a property for 2022 prices but renting it with market rent from the 1950s.

Jamie Blair · Answer

Hi @Steven Wilson! Unfortunately in Ontario, rent increases are controlled by the government and a landlord can only increase one time per year. In 2022 that's 1.2%, but that's pretty standard, varies between 1 and 3%.

And good to know about Columbus and Cincinnati! I'm planning on keeping it local for a while though, investing in the US would add a whole other set of things to learn!

Jamie Blair · Answer

This is the first time I've heard of "cash for keys" but totally makes sense. Thank you both for your input!

When rent is less than half of market value.....

When rent is less than half of market value.....

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