Rental Market Discussion Points For 2020

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TorontoRealtyBlog

So, how was your weekend?

Mine was pretty uneventful.

I spent a few hours making a massive toilet-paper pyramid in the backyard with my daughter, since we bought 11,800 rolls in the last six days.  I’m not sure why, but we just sort of felt the urge.

I can’t tell you how much flak I got for Friday’s post.

“Why would you tell people you’re sick?  It doesn’t matter if you’ve got a runny nose or a broken neck, why would you put that out there?”

Geez, I guess I was naive.

I literally had a stomach bug, and by Thursday night, I felt so weak I couldn’t think or type, so writing a blog was out of the question.  But at the risk of “T.M.I.,” I figured saying, “See you Monday” and adding that I wasn’t feeling great would probably suffice.  I mean, what was I supposed to do?  Tell people who I wanted to hear from those jerks hoarding the world’s toilet paper supply because, well, I kind of needed it??

No Coronavirus here, folks!

But that didn’t stop a host of people from telling me that I shouldn’t meet clients for a month, or that I should quarantine myself from my dog, or that I should move to the moon.

And that’s the realization that I came to on the weekend.

If anything comes from this COVID-19 situation immediately, it’s that we’re all going to start judging each other based on how we act, and how we think others ought to act.

Just watch.

The “he did, she did” Armageddon is coming.

I ran an open house this weekend for a listing (a member of my team was hosting) and a neighbour called me to complain.  She said that I was “Offering a forum for infected people to transmit the disease.”

Really?

I am not downplaying this.  I’m not Donald Trump.

But having two random people walk into an unoccupied home, where one other human being is standing, is not going to transmit a virus any more likely than going to Tim Horton’s where one other person is working, and we all know that there’s more than one person in Tim Horton’s.

I guess I don’t blame people for judgment, since fear and panic are two emotions that spiral.  Those emotions, of course, are borne of misinformation, lack of information, and information overload – three very different things, but all of which we experienced this weekend.

On Sunday night, a client emailed me to say that the City of Toronto was shutting down on Monday.  Then my painter told me that she heard “from a friend” that Ottawa was going to shut down everything except pharmacies, grocery stores, and gas stations.  Then a buddy told me that the Ford Government was going to ban all private businesses from opening.

Then I read this:

“Ontario Not Considering Lockdown”

Everybody heard “from a friend” that a different wing of government was declaring martial law like Bruce Willis in a bad 1990’s movie, and yet nobody can verify the info.

So here’s what I’m doing: I’m going to continue to work.

I’m going on with business as usual, until I’m told otherwise.

If we do end up all huddling in our basements for two months, I will continue to entertain you with three blogs and one video per week.

I have an offer night on a condo listing on Monday night, and for the bears, cynics, and doomsdayers, I will be you that I get 10+ offers and sell for a new record in the building on a PPSQFT basis.  Anybody want to take that bet?

I will continue to tell stories about the real estate market, whether the market continues on its merry way, or whether Russians invade like its Red Dawn (the 1980’s version, not the crappy remake) and take all our houses and condos from us.

Sound good?

The topic today is new issues I’m spotting in the rental market this year, or rather “discussion points,” because I’m not sure that these are all issues.  They’re trends I’ve seen so far in 2020, and topics of conversation because they’re happening with increasing frequency.

There are three specific points I want to explore today…

Tenants think the first horse to the trough gets to eat.

Imagine you’re a tenant, and whether the rental market is red-hot, or tepid, you’ve probably been disappointed in the Toronto market at least once before.

Maybe you submitted an offer to lease, only to find that you were up against nine other people.

Or maybe you wanted to see a new listing on the weekend, but it was leased before you could get there.

Either way, the rental market has been, at times, far hotter than the market for condo sales, and at worst, it’s been a balanced market.

But what many tenants are failing to realize this year is that there is no real prize for expediency.  The market for lease is not like the market for sale.

If a property was listed for sale in a different market where there were no “offer dates” and properties didn’t sell for over the list price, you might run out as fast as you can to see a new listing so that, if you liked it, you could submit a full-price offer with a short irrevocable date, and the seller would sign immediately.

But the lease market isn’t like that.

In the sale market, the seller doesn’t care who they sell to.

You have an offer for $705,000 from James and Jane and an offer for $700,000 from Ken and Karla?  Do you really care if Ken and Karla are nicer people than James and Jane?  That was rhetorical, FYI.  I don’t want to hear from anybody who claims, without substantiating, that they would take less money for this person or that person.  Because I’ve never seen it happen, and the one story every other year that comes out in the Toronto Star is not enough to pretend like this is anything but an anomaly.

So let’s assume a seller couldn’t care less who buys his or her property.

Can the same be said for the lessor of a property?

Of course not.

But the tenant pool out there often forgets this.

Maybe it’s because they’re too mesmerized by the sales market and they don’t stop to think about the inner workings of the lease market.

I received an offer on Friday at 5:30pm for a lease listing, and the buyer/tenant agent said, “The irrevocable is 11:59pm tonight because my clients really need an answer asap.”

Let’s forget, for a moment, that I already had two other offers in hand.

Let’s pretend that this was the only offer.

Let’s even pretend that this property had been on the market for 45 days, and that it would be vacant on March 15th.  Just pretend.

Wouldn’t the seller still need time to check the tenants’ employment, credit, and references?

The agent on the other side seemed stunned when I asked her this.

“It’s 5:30pm on a Friday,” I told her.  “You’ve given me two employment letters with contact information for people who have already left for the weekend,” I explained.  “I need until Monday to check up on this.”

She said, “No you don’t.  It’s right there in front of you.”

Yes, in front of me were two PDF’s of scans of letters that could have been typed in Microsoft Word, with a JPG of “Bell Canada” or “TD Bank” or any other reputable company out there inserted into the file, and maybe even with contact information pulled right off LinkedIn, so it’s seemingly real!

But that’s all I had in front of me.  Two pieces of virtual paper.

I found a tremendous amount of irony in the fact that this other agent was taking me to task for doing my job.

She felt that by simply submitting an offer with the necessary paperwork, that the deal would be rubber-stamped.  I was amazed by her arrogance, but more so by her assumptions, and her lack of understanding of leverage.  She really thought that a “deadline” would motivate us to accept an offer, whether we had other offers or not, and whether the property was in-demand or not.

Tenants out there are often led astray by overzealous buyer/tenant agents who don’t understand the two different markets for selling and for leasing, and I believe that was the case here.

A tenant needs to understand that a seller doesn’t care who buys his or her house, because that seller is moving on, and no longer a “partner” in the deal as soon as it closes.  A property owner, who is looking to lease, is going to take a personal stake in the character and integrity of those tenants, and thus there is a selection process that isn’t present during the sales process.

I’ve never seen this more misunderstood than through the first two months of 2020.

Does the relationship between tenants matter?

Let’s assume that nobody is listening, nobody is judging, and you’re free to silently answer these questions to yourself without fear of being accused of discrimination.

Would you want to rent your 1-bedroom condo to two students?

Be honest.

Some people don’t care, but if I’m speaking from experience, most do.

A 1-bedroom condo is generally seen as suitable for one bed.

So would you rather rent to, say a couple?

Yes.  Yes you would.

Now here’s a relatively new issue for 2020: many would-be roommates are faking a relationship to be seen as a “couple,” and thus more appealing to landlords.

I believe I touched on this once in a blog post last year, but I’m constantly seeing this in 2020.

If James and Jane were a couple, had been dating for six years, had lived together previously in their last two apartments, and submitted an application to rent your 1-bedroom condo, would you look more favourably upon them than two individuals who planned to put a bed in the living room?

Yes.  Yes you would.  All landlords do, whether they want to admit this or not.

So what if this other couple, Scott and Sandra, pretended they were a couple?  Then what?

I suppose the easy answer is: who cares?

Do you, as a landlord, really care if there’s a couch in the living room, or a bed in the living room?

What if they pay their rent on time, they work hard, spend most of their waking hours out of the condo, and are model tenants?  Does it really matter what their relationship is?

A client of mine recently told me, “If they start our relationship as landlord-and-tenant by lying to me and presenting themselves under false pretences, then that’s not a good sign.”

This is a fair point.  If lying is their very first move, then does that make them dishonest?  Does that make them more likely to create problems than the other candidates?  Or did they lie out of necessity, because landlords are hanging on to unreasonable ideas and evaluation criteria?

Call it crazy, but some landlords just don’t want to inspect their biggest investment one day and find bunk beds lining the living space like army barracks.  Some landlords prefer to rent to one person than two.  Some landlords understand the plight of today’s renter, but don’t want to offer their investment as a litmus test to potential solutions.

There probably isn’t a right or wrong “side” here.

I merely bring this up because it’s happening a lot.

And as another client told me last fall, “If those two roommates, who are pretending to be a couple, each have a significant other, then that’s now four people living in my 580 square foot, 1-bedroom condo, and I can’t have that.”

That statement is tough to argue with.

Nobody, and I mean nobody knows what to do with foreign students.

One of my clients received an offer last month from two students.

Both were from overseas.

Both were attending the University of Toronto.

Neither had any source of income (since they’re students) and neither had a credit score.

Both provided screen-shots of their respective bank accounts, showing $35,000 each.

And both had “guarantors” from overseas.

So I ask you, the reader: what the hell would you do with this?

How do you rent to people with no income?  One of the biggest evaluation criteria in this game is income, so what do you do with students?  They have money in the bank, that’s great, but what are they spending it on, and how quickly?  How would they pay their rent if they had no income coming in?

How do you evaluate credit for people with no credit history?  In some cases, we merely evaluate candidates by their FICO score.  This person is 810, they’re great.  This person is 680, so it doesn’t matter what a nice guy he is, or how much money he makes – he’s a bad credit risk.  So what do you do with candidates with zero credit?

What good is a guarantor if they’re overseas?  If these tenants couldn’t pay their rent, and they’re here, on the ground, in Toronto, then how would you seek payment from a guarantor who is in a place you’ve never heard of, can’t pronounce, and is actually written in a completely different logographic writing system?

These are all valid questions, and every landlord out there will eventually have to address them.

Students need a place to live, that’s the bottom line.  Not all of them can live on campus, and let’s be honest – many overseas students come here and get taken advantage of by people in their own community, who take their $2,000 per month and give them a bedroom in a crappy, run-down house, with a lock on both sides of the door.  So when one of them has the financial means and the knowledge to avoid that, are there condo owners downtown who will rent to them?

The word “student” cannot automatically result in a rejection of a candidate, so how can, or should a landlord go about qualifying these people?

No income, no credit, no guarantor or co-signer here in the city.

Don’t shoot the messenger here, but I’ve seen some of these students offer twelve month’s rent up front, and this has been successful.

Again, not every student can afford this, and this should not be a pre-requisite.  But it’s a solution for those landlords who are otherwise without a clue, and as I said at the onset, these discussion points are present today because they’re becoming more and more frequent.

What would you do if a prospective tenant had no job, no income, and no roots on this side of the planet?

Okay, so nothing has changed in the world since I started writing this.  Phew!

Fingers crossed for a ‘normal’ Monday morning, whatever that means…

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