What Rental Property Owners Need to Know in 2021

As we look back at 2020, we are thankful to continue to work with our valued clients! Our team here at Bodewell is working hard to ensure their properties and tenants are taken care of now and in the future. As part of that effort, we have compiled important information below for Rental Property Owners regarding new items to look for in 2021.

Are Rent Increases Allowed in 2021?

Rent Increases Are Frozen For The Time Being
As of January 14th, you can issue a Notice of Rent Increase on April 1st to come into effect on August 1st, 2021. However, we do not advise that every property move forward with an increase due to changing market conditions

2021 Maximum Rent Increase: 1.4%
Rent increases are only possible if it has been at least 1 year since the rent was established or last increased.

Rent Increases Can Be Given Once A Year
If your rental increase is not applied on August 1st, 2021, you can issue a Notice of Rent Increase anytime as long as it has been at least 1 year since the rent was established or last increased.

Review & Update Your Rental Property Insurance Deductibles:

Ensure your rental property is still fully covered
As you may be aware, there have been many changes in the insurance market this year. Please ensure you have sufficient deductible insurance for your properties.

BC and Vancouver Rental Property Tax Declarations

Vancouver Properties: TIME TO DECLARE!
For owners of properties in Vancouver, the deadline to submit your Empty Homes Tax property status declaration is February 2, 2021

British Columbia Properties, Including Vancouver
Speculation and Vacancy Tax declaration documents should be arriving in the mail soon; keep an eye out for this notice to submit your declaration by the prescribed due date.

All property owners with a property in BC must submit a Speculation and Vacancy Tax declaration.

Take care of yourself and your family. As always, if you have any questions please reach out to us with questions at info@bodewell.ca.

Lease guarantor Locnest finds a rental niche
By Kerry Gold | The Globe and Mail

People in search of a home but priced out of the market and unable to buy sometimes find different, but no less daunting, barriers to renting. Now, a company is introducing a “lease guarantee” product that offers tenants a way to avoid the upfront cost of a security deposit and landlords protection against delinquent tenants.

The idea of a rental guarantee, or lease guarantee, is established in parts of Europe, but in Canada, it’s a new idea whose success depends on how well it is embraced by property managers and landlords. Representatives for landlord and tenants groups in Vancouver say they are wary of the idea, citing concerns that it may place more burden on tenants. B.C., which has an estimated 1.5 million renters, has some of the lowest vacancy rates in Canada.

A lease guarantee is when a company provides assurance to a landlord up to a certain amount, covering them against rental loss or damages caused by a tenant. In B.C., it either replaces a security deposit of half a month’s rent, or it supplements it. The landlord doesn’t pay anything and the tenant pays a fixed eight per cent of the guarantee amount each year. For example, if the landlord wants a guarantee of $1,000 on the unit, the tenant would pay $80 a year to the guarantor company, Locnest. The tenant would not pay a security deposit. And once the tenant moves out, they wouldn’t be refunded anything.

The company bills itself as a financial service, “with a mission to improve housing.” As long as nothing goes wrong, the business model works. However, if the tenant does damage or leaves without paying rent, the guarantor would be on the hook for recovering the money.

“Obviously that’s not what we are hoping for,” says Joe Munster, executive director of the new Vancouver branch of Locnest. The Canadian company started in Ontario and Quebec last year, where it’s had some success because landlords are not allowed to collect security deposits in those provinces. It’s moved into Alberta and more recently, into B.C., where security deposits are often not enough coverage in case of damage to a property. As well, the vacancy rate in Vancouver is near zero, which means there’s more competition. Locnest says that the assurance it provides landlords could give a preapproved tenant an advantage.

“This is definitely a behavioural change where the mass public will have to get on board. If you look at the origin of company, in terms of Switzerland, the guarantor model has a market share of roughly 30 per cent and there are several organizations operating with this type of model. So we are new and committed and we have grown across four provinces and tripled our growth in the last two years. But we understand it will take a lot of volume, because the profit per lease guarantee is a small fee.”

He says the rate of delinquency, when a tenant leaves owing money, is around 7 per cent to 7.5 per cent in Canada, but his company does enough due diligence to minimize that rate further. When a tenant applies and goes through preapproval, they have to prove income and undergo credit checks. But in markets where housing is difficult to find, he says that tenants are more likely to want good referrals and rarely incur damages or skip rent. And landlords are saved the administrative work of handling security deposits. However, in the event of a claim, the landlord would still have to go to arbitration in order to get paid out.

“We can protect up to $5,000, so that amount far exceeds the traditional damage deposit in B.C.,” Mr. Munster says.

Donald Mackenzie, who CEO of Bodewell, says the idea appeals to him, but more as a supplement to a security deposit and not in lieu of one. For example, in B.C., a landlord can request another half a month’s rent as a security deposit specifically for a pet, and in lieu of that, he might accept a guarantee instead. For new units, where the damage deposit is only $900, for example, he could see supplementary coverage being appealing to homeowners.

He had never heard of a business model such as this one before and he’s been talking to Locnest for the past couple of weeks.

“Instead of having a cash deposit as security, I would have a kind of promissory note from this company that they will pay if the tenant defaults. Well, who are you and will you be here tomorrow? If they can satisfy all those things for me, I will recommend them to homeowners,” Mr. Mackenzie says. “But you don’t want a problem in five years down the road. As long as they are in existence – which I have no reason to think they won’t be – in a way they are helping people in a cash flow situation with their security deposit.”

For the property owner, the model is appealing because security deposits only offer small comfort in the event of major damage caused by a tenant, he says. The downside for the tenant, however, is that after many years of being a responsible tenant and paying an annual fee, they don’t recover any of that money when they leave. They are out of pocket, Mr. Mackenzie says. He equates this instant cash flow seeking behaviour to the use of payday lending.

“You are paying $80 or $100 a year because you don’t have the cash flow for a security deposit and in 10 years time you’ve paid the equivalent of the security deposit – and you have nothing to show for it when you move out. You go to get the next place to rent and you still don’t have security deposit saved up,” he says. “So it does have the same cash flow addiction for people in the low end of cash flow. I think it’s like a payday loan.”

Mr. Munster doesn’t agree with the comparison to payday loans and says they have a different demographic. It’s giving tenants a chance to use their cash for other expenses other than a security deposit.

“It allows the tenant to free up the money when moving into a home … it gives you more breathing room and of course we work on your behalf to help you get into that place to provide that confidence and assurance you need sometimes in today’s rental market, with a super low vacancy.”

A Boomtime for Property Managers
By Kerry Gold | The Globe and Mail

New taxes designed to push homeowners into renting out all or part of their empty homes are achieving the goal – at least while the housing market in B.C. remains soft.

Lower Mainland property managers and realtors say they’re seeing an increase in the renting business, now that homeowners in urban areas can’t leave properties vacant without incurring the province’s speculation and vacancy tax.

Vancouver homeowners also face the City’s empty-homes tax (EHT), which was a response to the affordable housing shortage.

“The point of [the tax] was to make it so the homes weren’t being unoccupied and being used for the population that lives and works here, so in that sense, it does seem to be achieving its purpose,” says Jessica Lee, co-founder of new property management firm Bodewell, which launched a year ago in anticipation of a growing rental market.

Donald Mackenzie, company president, says that business is growing at about 50 per cent per month. They work with realtors who are advising clients to hold until the market goes back up. The expectation is that the client will then return to the realtor to sell the property, Mr. Mackenzie says.

“We enable them to hold and keep making a return until the market has picked up again and maybe in three or four years they will be selling,” he says. “And there are a lot of good tenants out there. It’s working.”

Mr. Mackenzie said that they were also motivated to launch their firm when they saw all the condo completions coming online, such as the Tate tower downtown, where they have many client investors holding units and now renting them out.

Laneway house builder Jake Fry says that for the first time in his long career he got an inquiry from someone looking to avoid the EHT.

“The first question was, ‘If we build laneway on this property will we avoid the empty homes tax if we rent it out?’ I have never had that question before,” he says.

He says an effect of the market downturn has been a return to business on the west side of the city. When extreme wealth started pouring into west side neighbourhoods such as Point Grey, Mr. Fry’s business moved eastward because west side homeowners looked down on the idea of a laneway house rental, he says. Now that the market has slowed, new owners on the west side are open to the idea of a laneway house as a mortgage helper.

“When prices jumped up and people were paying exorbitant rates, those Point Grey people wouldn’t talk to us anymore, because why would they have a rental unit? It was déclassé,” he says. “So our work was moving steadily east. And now we are going back and finding more and more projects on the west side, because these homes are now staying as family homes.

West Vancouver realtor Dez Tsourpi says the bulk of her clients are investors and she is also a property investor.

“But I’m unique in that I purchase rental properties specifically to rent out – I’m not a flipper. I buy them specifically as part of my retirement plan to get a renter in there, pay [the properties] off eventually and have income down the road, because I’m self employed and I don’t have a pension. This is all part of my wealth building plan,” Ms. Tsourpi says.

She’s been referring her clients to property managers such as Mr. Mackenzie because they aren’t flipping presale condo assignments or newly built units as they used to. Ms. Tsourpi says investors have typically bought around transit such as SkyTrain and in walkable, desirable areas.

A low vacancy rate means they can demand high rents, she says. A typical one bedroom downtown is about $2,100 a month.

8 Reasons to use a Property Management Company

Professional Property Managers can add great value to your rental property while delivering stress-free passive income.

1 Charging the Right Rent for the Right Property

A professionally researched CMA (Comparative Market Analysis) is an essential part of a marketing plan. The CMA will highlight what similar properties in the neighbourhood are rented for and what competitor properties are asking to be rented for. Using the CMA as a guide your property manager will work with you to decide what is the right rent to market your specific property. This is an invaluable service as over or under pricing your rental can be costly by sitting empty or locking in a tenant for too little.

2 Marketing Your Rental Property

A professionally researched CMA (Comparative Market Analysis) is an essential part of a marketing plan. The CMA will highlight what similar properties in the neighbourhood are rented for and what competitor properties are asking to be rented for. Using the CMA as a guide your property manager will work with you to decide what is the right rent to market your specific property. This is an invaluable service as over or under pricing your rental can be costly by sitting empty or locking in a tenant for too little.

3 Finding the Right Tenants

Meeting, interviewing and vetting tenants is more complex and time-consuming than it may look. Property management companies like Bodewell vet potential tenants on many levels. They will carry out credit checks, past landlord references, income verification, and more. The right tenants pay on time, minimize wear & tear, and care for the property they are renting. The importance of finding and selecting the right tenants cannot be overstated. Smart investors leave this to the professionals as bad tenants can be costly and are not easy to lose.

4 Rental Property Contract Writing

With your tenant selected and vetted your property management company will provide a solid contract that is up-to-date with the often changing Residential Tenancy Act. Government legislation and regulations are constantly being updated and revised. Professional property management companies stay up to date on these changes and will ensure the contracts are created to protect and facilitate your needs. Your property manager will then ensure contracts are signed, filed and appropriate security deposits are collected and held in registered Trust Accounts prior to anyone moving into a property.

5 24/7 Property Maintenance and Tenant Support

Professional property management companies receive all tenant requests for any maintenance or emergency work needed to your property by providing 24/7 support by phone or online. Your property management company manages an array of on-call professional tradespeople to quickly respond to any issues. These tried and tested professionals will help ensure any problems large or small are taken care of efficiently and at the best price. Bodewell does not charge additional fees or accept any “kick-backs” or referrals from any trade or services people. We always provide fully Transparent rates to benefit our clients.

6 Collecting and Accounting for Rental Revenue

Your property manager will collect rent from tenants and pass it on to you net of fees and expenses. Modern professional property management companies provide their clients with private and secure online accounts where their client can see their rentals financial history, inspection reports, and more. Online accounts keep real estate investors up to date 24/7 from wherever they may be.

7 Regular Inspections

Property managers will perform a minimum of 2 inspections per year to ensure your rental property is secure and being cared for. Professional Property Management companies like Bodewell will post onto your private online account the report of inspection as well as updated photos of your property. This allows you to keep informed about your property without infringing on the rights of the tenant.

8 Year-End Accounting Summary for Tax Savings

Each year-end you can easily print off a complete summary of revenues collected from your Property Management online account. This report will include revenues collected and expenses incurred to be used for tax purposes. In most tax jurisdictions your property management fees are also deductible as they are seen by tax authorities as a legitimate cost of professionally managing your real estate investment.

Effective Interest-free Government Loans Earn Real Estate Investors Big Returns

Don’t tell them, but our government is effectively lending real estate investors millions of dollars interest-free year after year.

This is another reason to hold and rent the property you own. Holding on to these real estate investments is one of the ways you can use the government’s money to earn you and your family money for years to come.

As soon as you sell your real estate investment you have a tax consequence on the increased value of that property. As long as you hold that investment and rent it you are effectively enjoying an interest-free loan from the government. Holding on to your real estate Investment and renting it out means you’re earning a return on the money you’d otherwise have to give to the tax man.

As an example, a client bought a 1 bed + den condo in Yaletown in 2003 for $365,000. At that time they rented it out for $1200 a month, which could rent for 2,500 today. If they sell that property in today’s market for $800,000 with a gain of $435,000 they would have a capital gains tax based on a 50% inclusion rate.

They would have to add $217,500 to their income and be taxed on that amount at their taxable income rate. The owner would easily lose $105,000 to taxes. In the end, the owner would be left with $665,000 investable income from the $800,000. ($800,000 less taxes $105,000 and commissions and legal fees approx.$30,000)

By holding the real estate and renting it out they are enjoying the return on a $800,000 investment. Liquidating would mean they need to find a way to enjoy equal or better total return with only $665,000 to invest.

Smart long-term investors hold on to their real estate investments, rent them out through professional property management companies and enjoy the hassle-free gains and returns on what would otherwise become the government’s money!

Fair and reasonable profitability is essential to creating safe, secure and sustainable Vancouver rental housing.

If you are a registered owner of residential property in Vancouver you are required to make a property status declaration each and every year. If you fail to complete the declaration by Feb.4th this year, your property will be deemed vacant and you will be charged an additional tax of 1% of the property’s 2018 assessed value.

You can complete your declaration by visiting this link. It is an easy to follow the process online, don’t delay as any declarations after Feb.4th will be penalized $250.00 if your home is deemed vacant or not.

How can real estate investors finance much-needed maintenance and repairs to ensure safe secure housing to all sectors? It is important to always remember the Golden Rule when setting policy: “He who holds the gold makes the rules”

When we see policymakers trying to change, break, or even disregard “The Golden Rule”, we inevitably see black market activities rearing their ugly head to ensure profitability is still achieved by the ones who hold the gold. Black market activities can include, for example, charging “key money”, (buying and selling rent-controlled leases under the table), not declared and untaxed income for real estate investors, loss of tax revenues for the government, and no savings for tenants.

While it’s not a legal practice it has often been a common practice in large urban centers which are over controlled and regulated. The BC rental task force must keep in mind fairness to both real estate investors as well as tenants. This is key to long term effective policy as greedy actions by owners or renters will inevitably have negative consequences for both.

Your Empty Homes Tax Declaration Is Due February 4th

If you are a registered owner of residential property in Vancouver you are required to make a property status declaration each and every year. If you fail to complete the declaration by Feb.4th this year, your property will be deemed vacant and you will be charged an additional tax of 1% of the property’s 2018 assessed value.

You can complete your declaration by visiting this link. It is an easy to follow process online, don’t delay as any declarations after Feb.4th will be penalized $250.00 if your home is deemed vacant or not.

If you use your property more than 180 days per year but don’t declare as such it will be deemed vacant and you will be taxed. Secondary property owners who are required to be in Vancouver for work can simply show their contract with their employers requiring their attendance for at least 180 days per year.

The challenge is for owners who are in Vancouver weekly working for themselves and clients and have principal residences elsewhere. In these instances, proof of client contracts, meetings, hydro and cable bills should be at hand should you be audited after making your declaration.

The city’s objectives and intentions are good, we need more rental housing and there does seem to be a number of homes sitting empty. Hopefully, the revenue from the empty home’s tax will be put to good use to subsidize and help people with housing needs.

An easy solution to avoid the tax for owners who don’t use their properties is to use professional property management companies like us at Bodewell. We can help them start enjoying additional hassle-free income and avoid these additional tax burdens.

For more information on the Empty Homes Tax visit vancouver.ca/eht.

To learn how we can help you avoid this tax by renting out your property visit bodewell.ca or call (604) 633-5511

Empty Homes Tax and Vancouver Rental Inventory

Will The Softening Market & Empty Homes Tax Increase Vancouver Rental Inventory? For the time being, some of the heat has come out of the Vancouver real estate market. The days of seeing buyers line up around the block and struggle for access to buy off-plan presales may be temporarily gone.

New Strategies In The Market

Today we are seeing investors who were savvy enough to have purchased a coveted piece of Vancouver architecture now choosing to hold these investments. They are now renting them out instead of selling or assigning their contracts. That new strategy in the softening market means there’s a renewed emphasis on reliable and skilled property management services. Vancouver’s Bodewell Real Estate Management has stepped into that emerging space.

Mr. Tize is an active real estate investor who has been strategically investing in Vancouver’s presales real estate market. His strategy until most recently has included buying off-plan and lucratively selling the same contracts even before completion of the buildings. However, Mr. Tize recently revised this strategy. When asked why the change of strategy he replied:

“It’s a good time to hold and rent the properties I purchased in the now formerly hot market. I am working with a licensed property management company. They find me the right tenants, processes them through a vetting process, collects the rent,
and manages everything for me. It has made me worry free. This way, my investment property is taken care of, my tenants are happy, and I can enjoy the passive income.”

“There is always an opportunity in every kind of market,” says Donald Mackenzie, CEO of Bodewell. “Rental incomes are secure passive incomes and an ideal way to safeguard your money. “We are seeing more and more investors bringing inventory to the rental market with many presales now completing in combination with the Empty Homes Tax.

“Smart investors are enjoying hassle-free returns and passive incomes by hiring companies like ours to safeguard their investments and manage their properties within the ever-changing legislation of the Residential Tenancy Act.”

However…

Softening markets resulting in increased supply should have some impact in a small sector of the market. We will also keep an eye on how well our city manages the now projected $38 Million incremental tax revenue from the controversial new empty homes tax. We know $8 Million has been allocated to affordable housing so far. It was reported that setting up the collection of this tax costs $7.5 Million. Furthermore, it will cost at least another $2.5 Million annually to manage the collection of these taxes. That leaves a projected $20 Million unallocated that needs to be wisely and strategically spent.

Are Vancouver’s presale condos coming up for rent?

Many real estate investors who purchased contracts to buy some of Vancouver’s beautiful new condos in the previously booming presales market had planned to sell their contracts before completion. In doing so they would have been able to “assign” them to another investor and enjoy big gains. Today, investors who purchased a presale contract four to two years ago are revisiting their strategies. As completion of these new condo buildings is now approaching, many investors find themselves facing a slightly lackluster market, as evidenced by the number of Assignments for sale.

New Presale Condo Strategies

Real estate investors in the presales market are now considering a different strategy by holding on to their investments and renting them out. Historically this has proven to be a smart long-term investment strategy while immediately providing passive and hassle-free income

Investors may be in a better position than they realize as a typical deposit on a presale condo is 20% of the original selling price with the balance due upon completion. Obtaining mortgages for the balance of the investment property may be a smart and viable option.

Mortgages for investment properties do require larger down payments than those obtained for primary residences. However, due to the deposit requirements, investors will be more attractive to lenders as they will have pre-paid 20% of the original price. For example, a presale condo valued today at $1,200,000 that was purchased for $1,000,000 would mean the investor would only owe $800,000. A mortgage will then be required for approximately 66% of the value of the property making it easier to secure financing.

Mortgage brokers are often the best option as they know which banks and lenders give the best deals, and which will lend based on your specific circumstances. Lenders are most importantly looking at a borrower’s ability to meet their monthly payments and take care of their investment.

Smart real estate investors looking to rent their investment properties to meet these monthly payments are well-advised to approach potential lenders with their plan for securing qualified and well-vetted tenants that are ideally under contract.

Donald Mackenzie, President of Bodewell explains “we help investors find the right tenants, carry out credit checks, ensure contracts and all details are compliant with ever-changing BC Landlord Tenancy Act while enjoying the right rental income. Going forward we also manage tenant rental payments, repairs and requests as well as general tenant relations. We take all the hassle out of renting out investment properties. This allows investors to enjoy hassle-free passive income while securing and protecting their investments. More and more clients are telling us; “if we can’t assign it at the right price, we will rent it”.

Real estate investments and rental properties are proved to be an inflation proof long-term investment strategy enjoyed by some of the most famous and successful families of multi-generational wealth.