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Archive for June, 2014

How to avoid the tenant from hell

Most residential tenants are long term tenants who pay their rent on time and properly look after a landlord’s property . The trick is to do the proper research in advance so that you do not end up with the tenant from hell. Here are some tips to follow:

1. When you advertise for tenants, whether on Kijiji, Viewit or gottarent.com, also state “we do background and credit checks.” You will receive a greater percentage of qualified tenants.

2. Do a proper credit check using Equifax or TransUnion. The cost is approximately $20. Or join a group such as the Ontario Landlord Association where after becoming a member, you can do a credit check for as low as $10, and receive use of all of their supporting materials to assist you.

3. Call all references, especially prior landlords. Remember that the current landlord may be lying just to get rid of them. Start with the previous landlord.

4. Check social media. Google the tenant to make sure the information checks out with their rental application. In addition, if you are concerned about possible pets, check Facebook. If the tenant has a pet, there will likely be a picture of them with the pet on Facebook.

5. In a face to face interview, there are signs that may indicate that the tenant is not being truthful. This can include one or more of the following: incomplete answers, not looking at you when they speak, changing the subject, fidgeting, dropping names of important people, or volunteering to do odd jobs for you.

6. Ask open ended questions such as “Tell me about yourself or why are you leaving your current apartment?” You will be surprised how much you can learn about someone with such simple questions.

7. Interview the tenant where they currently live. You will see first-hand how they treat someone else’s property. It is also hard to hide the smell of a pet, if you are concerned about that.

8. Give the tenant a deal. It should not be about charging the highest rent possible. When tenants think they overpaid, they will almost immediately start looking for another place to live. Give tenants a break and they will be happier, and stay longer.

9. Give tenants incentives. Why not a $10 gift card if the rent is paid on time? Or a Christmas present, just to show that you appreciate your tenant. Treating a tenant with respect often results in the tenant not only paying the rent on time, but they will also take care of your property better.

10. Consider rent to own. In a rent to own, you give the tenant the option to buy your property at a set price two to three years from now. In this way, you can guarantee your profit if the tenant exercises the option and the tenant has extra motivation to look after the property even more carefully, since they may end up buying it later.

By doing the right research in advance and treating your tenants with respect, you can ensure that your real estate investment continues to increase in value.

Mark Weisleder, Real Estate Lawyer, Author, Speaker

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Be prepared when you go to Small Claims Court

Buyers will typically sue sellers in Small Claims Court over problems that arise after closing when the amount in dispute is $25,000 or less. The main reason is that you can make the claim without a lawyer and the costs are relatively cheap. However, you are much better off using a lawyer or paralegal to represent you.

Here’s why:

Some of the common mistakes people make when doing this themselves are as follows:
1. They forget that most lawsuits must be brought within 2 years of the action arising, or you forfeit your ability to sue.
2. They do not sue the right person; for example, they sue a corporation without the word “Limited” at the end. Any judgement obtained may be worthless.
3. Failing to provide sufficient evidence; ie. Invoices, receipts to justify their claim.
Michael Abrams, an experienced paralegal at www.abramslegal.com tells me that since Small Claims Court hearings are open to the public, it is a good idea for anyone thinking about filing a claim to go watch a typical trial to learn what is being done correctly and what judges frown upon.

An experienced paralegal or lawyer will review with you right at the start whether your claim has merit, but more importantly, will ask whether you will be able to collect any money if you win?

If you win in court, sometimes after two years, the judge does not ask the loser for a cheque. You have to collect this money separately.

There is little point spending money and time to get a judgment against someone if you can’t collect. To garnish wages, you need to know where they work. To go after their bank accounts, you need to know where they bank. To go after real estate, you need to know where they may own property.

The cost to file a claim in Small Claims Court is $75. To file a defence cost $40. If you use a lawyer or paralegal and you win, the fee will vary up to $2,500 but if you do win, you can ask the judge for part of your costs, up to 15% of the actual claim; but judges have a lot of discretion to vary this amount up or down. For example, if you make an offer of settlement that is refused and you end up getting more at trial, you can ask for double the fee.

Jordan Farkas, a lawyer with www.mrsmallclaimscourt.ca tells me that some tips for people making a claim are as follows:
1. Remember that your initial claim is the first document that will be read by the judge. Make sure it is not scribbled in a hurry. Make it clear and attach all receipts or documents that support what you are asking for.
2. Every case will have a pre-trial settlement conference to try and settle the matter. Be prepared for this. Review your opponent’s evidence at the hearing and ask questions, so that you will not be surprised by anything at the trial.
3. Make sure that any final argument you make at trial is supported by the evidence, receipts or invoices, so that it clearly sets out your position.
Also remember before making any claim that most judgements become available on the internet. If you lose, a lot of people may read about it.

Be prepared before going to Small Claims Court, so that you have your best chance to succeed.

Mark Weisleder, Lawyer


One man’s $50,000 real estate commission lesson

When you sign an agreement with a real estate brokerage to sell your home, you are responsible to pay commission if you make a deal with someone who was introduced to your home during the listing period. If you try and make a private deal to avoid paying commission, you are likely to get burned.

Here’s why:

Seller Mr. Kim signed a listing agreement with Peggy Laidlaw, an agent with Sutton Group All Pro Realty, for the sale of his home in Fenelon Falls, Ontario, in March of 2012, with an asking price of $990,000. The Agreement was signed on March 21, 2012 and had an expiry date of October 31, 2012. The commission payable was five per cent plus HST.

Every listing agreement also contains a holdover clause. This says that if the seller signs a deal with someone who was introduced to the property during the listing, even up to 90 days after the listing expires, the seller still owes commission, unless they sign a new listing agreement with another brokerage firm and pays them instead.

Mr. Kim called Ms. Laidlaw in the middle of October of 2012, stating that he had buyers who were interested in his home. Laidlaw attended and showed the potential buyers the property on October 17, 2012. Mr. Kim told Laidlaw that these were his buyers and he would not be paying commission.

Laidlaw reminded him that her listing did not expire until October 31, 2012, and that she expected to be paid if he signed a deal with these buyers. Laidlaw agreed to reduce her commission to three per cent as a compromise.

Mr. Kim later signed a deal privately with the buyers on November 1, 2012 for $895,000 and refused to pay commission. Sutton sued for the full amount of the commission, plus HST.

Mr. Kim later said in court that he thought the listing actually expired at the end of September, 2012, that Laidlaw never gave him a copy of the listing, and that he started advertising the home himself on Kijiji in October, 2012. He also pointed out that even though the listing was for a period of more than six months, his agent did not have him initial this term on the listing form, which is a requirement under the agent’s code of ethics. He also said that Laidlaw did not explain the holdover clause to him so he did not understand that he might have to pay commission.

The buyer later said in court that he only learned the home was for sale through Mr. Kim’s ad on Kijiji, not through any advertising done by Laidlaw or her company. He also said in court that he first saw the property in 2011 and was shown around by a tenant who lived there, after he saw a for sale sign near the property.

Laidlaw told the court that as this was the fourth home that she had sold for Mr. Kim, he was fully aware of the terms of the listing agreement, including the holdover clause. She also had emailed him a copy of the listing agreement before he signed anything with the buyer.

The case was decided by Judge Graeme Mew on February 26, 2014 in the Ontario Supreme Court of Justice. Judge Mew decided that even though the listing agreement may not have been signed and initialled properly, it was binding on Mr. Kim, even if he carelessly did not read all of the terms. It was clear that he preferred the evidence of Ms. Laidlaw when he wrote:

On an assessment of the evidence, the defendant (Mr. Kim) knew full well what the term of the Agreement was. His evidence to the contrary should be rejected because it is not consistent with either his own actions at the time or the email traffic between the defendant and Ms. Laidlaw in which he failed (until after his transactions with the buyers had been effected) to refute Ms. Laidlaw’s assertions that the listing period expired at the end of October and that a commission would be payable in respect of a sale of the Property to the buyers.

Judge Mew ordered Mr. Kim to pay the full commission of $44,750 plus HST of $5,817.50 for a total of $50,567.50.

The case is interesting because the judge noted that even though the listing agreement was for greater than six months, the failure to have the time period clause initialled should not render the listing agreement invalid. Still, the lesson to all real estate agents is to make sure to be careful to explain all clauses in the listing agreement to sellers, have them initial all key clauses and leave them with a copy of the agreement after they sign it.

By Mark Weisleder


Ottawa resale market overview

June, 2014

Spring buyers have come out of hibernation

Members of the Ottawa Real Estate Board sold 1,792 residential properties in May through the Board’s Multiple Listing Service® system, compared with 1,797 in May 2013, a decrease of 0.3 per cent. The five year average for May is 1,765.
“Looking at the units sold this year in comparison to last, there is only a difference of five units. May was a bit slow for the Ottawa market, but it appears with the great weather in May, buyers have come out of hibernation,” explains Randy Oickle, President of the Ottawa Real Estate Board. “May sales are up 26.6 per cent from April – or 372 units. The inventory on hand continues to grow and prices remain stable.
If we look at residential properties alone, the units sold year over year are up 1.2 per cent. Although residential sales are performing as anticipated, the market for condos has been sluggish,” says Oickle. “We’re seeing a 19 per cent increase in the amount of inventory on hand over this time last year and unit sales are down 7.1 per cent. If you are looking to buy and hold, the selection and prices are attractive.”
The average sale price of residential properties, including condominiums, sold in May in the Ottawa area was $381,172, an increase of 3.2 per cent over May 2013. The average sale price for a condominium-class property was $280,661, an increase of 6.9 per cent over May 2013. The average sale price of a residential-class property was $401,626, an increase of 2.1 per cent over May 2013.

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Ten tips for first time real estate investors

First time investors in real estate are often very confused with the process. Here are some helpful tips to guide your buying decision.

1. Visit a mortgage broker or your bank to determine how much money you can afford to borrow responsibly for your investment.

2. Look for properties that generate a positive cash flow. What this means is that the rent that you receive from tenants should be enough to pay your mortgage payment, property taxes, utilities and insurance bills. Budget an additional ten percent on your overall payments to pay for minor repairs that will invariably arise. Currently this is very difficult to find so do not be afraid to expand your search to smaller communities, where you will be able to find more properties that match your search criteria.

3. Use an experienced local real estate agent who also invests in real estate themselves. Investors learn about the process through first-hand experience, both good and bad, and you want that experience working for you as well.

4. Have any property inspected by a professional home inspector. In addition, find a contractor that you trust to give you the right advice for any minor repairs or renovations that may be required, especially for older properties, in order to add the most value to your investment.

5. Consult with your accountant and lawyer as to how you will take ownership of the property. There are some benefits in taking title in the name of a limited company in order to protect yourself against personal liability should someone get hurt on the property and for other tax planning purposes. However, on the other hand, you will also have to pay about $1,000 in incorporation fees and have to file a separate tax return each year for your company.

6. Keep proper records of income and expenses for your investment property. Do not mingle these with your personal bank account as it will become difficult to properly trace this when you have to file a tax return at the end of the year, regardless of whether you own the investment in your personal name or in a company name.

7. If you are buying with a partner, make sure you have a proper partnership or joint venture agreement to protect both of you should things not work out as planned. In particular, provisions should be made covering the situation if one of the partners wants to sell and the other one doesn’t, one partner is not paying their share of expenses or what happens if one of the partners dies.

8. Hire an experienced property manager to assist you in finding suitable tenants and dealing with any ongoing maintenance, repairs or other complaints by tenants. You do not wish to be woken up in the middle of the night to handle emergency repairs. Budget an additional $100 per month for this service.

9. Be careful not to buy and sell properties quickly. The Canada Revenue Agency may view this activity as business income. This means that you will have to pay tax on any profit you make on your investment. It is preferable to buy properties for the long term, rent them out and use your positive cash flow to reduce the amount of your mortgage owing, building equity in your property. If you then sell years later for a profit, it will likely be classified as a capital gain and thus one half of your gain will be tax free.

10. Don’t be afraid to walk away if the deal does not work for you, no matter how much time you may have invested in the property.

Be prepared before buying any real estate investment.

Mark Weisleder
mark@markweisleder.com
Mark Weisleder is a real estate lawyer, author and speaker


Disclose problems you know about when selling your home

By Mark Weisleder

Buyer beware, or Caveat Emptor, is a phrase used to describe the outcome when you buy something and later find a problem with it. In plain English it means tough luck – you’re buying the thing ‘as is’ with all the defects in it.

In some cases involving the purchase of a house, it’s not as easy as that for a seller to get off the hook. If you know there’s something seriously wrong with your house, something that might not be found in a home inspection and you don’t disclose it, you can be successfully sued later.

Here’s why:

In October, 2011, Buyers A and B agreed to buy a 35-year-old home from Sellers C and D. The buying couple had a home inspection done before they put in an offer and the inspection found no sign of plumbing drainage problems.

The deal closed in mid-December. Two months later on Feb. 20, Buyer A found sewage backing up into the basement bathtub and sink. Roto-Rooter cleared the drain, but could not get past a certain point in the pipe. A TV scope showed water pooling inside the pipe. A quote of $6,000 plus HST was given to repair the problem.

Mr. A contacted his insurance company and the work took longer to do and cost more because the basement had 36 inches of concrete. The buyers had to move out while the repairs were being done because of the dust and noise from the jack hammering. Also Buyer B was pregnant at that time. The insurance company paid for them to stay in a hotel while the repairs were completed.

Buyers A and B contacted their Region and learned that they had been out to the property twice in 2010 to inspect and clean out blockages from the same sewage line. The Region had sent a letter to Sellers C and D after the second visit in July, 2010 suggesting other repairs be done.

Buyers A and B sued for $14,945, which were the additional costs not covered by their insurance to repair the problem. They asked for $5,000 more in aggravated damages, because they had to move out and have their baby while outside the home.

Mr. C admitted in court that he had a problem with the basement bathroom but that after the Region came out and cleared the blocked area, they told him that if he had no further problems for six months, he would be good to go. He also said in court that the basement bathroom was used every day and did not have any problems from July 2010, until the sale in 2011. He stated in court that he did not mention this to the buyers because he felt that this was no longer a problem.

In a decision released this month, the Judge at the Small Claims Court used the law of hidden defects to reach his decision. He said that if the seller knows about a defect that has caused any loss of use or enjoyment of a meaningful part of the premises, then it must be disclosed to the buyer. The Region inspectors testified that they discussed the potential sewer pipe problem with Seller C.

This. together with the letter, convinced the Judge that Seller C. knew about a structural problem with the pipe which should have been disclosed.

He awarded the buyers $10,500 for the repairs to the pipes but nothing for aggravated damages as the sellers did not do this with any ill motive and there was no evidence of mental distress.
The buyers were fortunate to have uncovered the evidence from the Region to support their position. Without it, it would have been difficult to prove that the sellers knew anything about this.

Here are lessons:

• Buyers may be wise to consider a separate test for the drainage system as part of any home inspection with older homes, even if this costs an extra $200 to $300.
• Sellers should disclose any structural problems to avoid getting sued later.