What extras to offer as part of your rental property

One may believe that more services attracts more renters. I use to believe that. To me, I thought it would be more cost effective if I manage the Internet and cable for my renters since I knew how to get the best deal. Then, I could increase the rent because I was providing Internet and Cable TV.

I was right in that I knew how to get the best deal, but I was wrong in that it was more cost effective.

Cable and Internet is not an expense that is tax deductible! The Ontario provincial government does not allow you to claim this expense because they do not believe a rental property needs Cable and Internet. Hence, although I pay taxes on the rent income, I was not able to claim the expense of the Internet and Cable that my renter was using.

So what is the strategy?

Now, if you are living with your tenant, you could offer free Internet because really, my renters seem to find Internet as a necessary part of life. (In fact, they claim immediately when the Internet is down. And I must fix it fast.) The other option is to split the Internet and Cable bill as part of different expense, which is not part of the rent.

I chose to just offer the Internet for free because it was just easier to maintain. However, when I moved out of the house, I did not provide them with the Internet or Cable service. They were on their own. Choosing to split the cable and Internet bill was just an additional maintenance that I didn't care to waste my time on.

Depending on how open you want your target client to be, offering free Internet and Cable would appeal to short term Tenants. Offering Cable and Internet does not appeal to long-term tenants because if they have intentions to stay there for a longer period, then they wouldn't mind making the effort to get the services that fit their needs.

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The real purpose of a rental contract

Many people believe the purpose of a rental contract is to ensure each party commits to their part of the deal and to find a way to sue each other if the other party fails.

That is NOT the purpose a rental contract. Although contracts are designed for this purpose, but not rental contracts. The law in Canada is designed such that petty cash lawsuits are discouraged. Often times, you will spend more on the lawsuit than getting the rewards from the lawsuit.

Ensuring each party commits to their part of the deal should have been done during the tenant screening. The landlord should be carefully screening the tenant to make sure the property is a good fit and that the tenant is reliable and responsible enough to pay for the rent. As well, the renter would have also screened the landlord and property to make sure the landlord is a decent person and the property suits the renter.

The true purpose of the rental contract is to clearly communicate to each other what is expected of each other. Only during times (and this is especially rare) that the tenant completely destroys the house, would the landlord sue the renter. And during those times, the renter wouldn't even be able to afford to pay the landlord back anyways!

What I mean by clear communication is that the renter will need to know when to move in, when to pay the rent, with what method of payment, what services are included and how long the lease agreement is. There are additional clauses the landlord may also throw in.

A rental contract is especially important when it comes to rental property that doesn't apply to provincial regulations. This is often the case in room for rent where the landlord shares the same kitchen or bathroom. Since the provincial regulations do not apply, then the rental contract will set the official standard as to what is appropriate and inappropriate behaviour within the rental premises.

At RentBin.ca, I provide you with a sample rental contract. Further RentBin.ca also allows you to automatically generate a rental contract when you post a rental ad.

The other thing you will want from the tenant, which is not in the rental contract is some form of identification such as driver's license and an emergency contact. To sue someone, you have to identify him or her and locate him or her.If you do want to chose the lawsuit path, you also have to make sure the person has valuable assets. In Canada, you simply can't sue someone who has no money.

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Simple tips for the Landlord that Works

1. In Canada, the law supports the Tenants. The law protects the tenants because they are the poor ones and the landlords are the rich ones.

2. The most important thing to do is find an honest, ethical tenant. Do not be too anxious to rent out to anyone in order to get the rent money fast. Often times will results in finding a poor tenant and your home gets destroyed. You may believe you can sue the Tenant, but if the tenant has no money, then there is nothing to sue. You are better off find good tenants than spending your time on lawsuits.

3. Older mature tenants are better than younger ones. Rich tenants are better than poor ones. Working professionals are better than low end job tenants. This is just a generalization. Treat everyone the same and give everyone a chance. As long as the renter is honest and ethical, you should be OK.

4. Be a good landlord. Fix what is broken and care about your tenants well being.

5. A Property Manager is a better name than a Landlord.

6. Make sure the renter is employed and verify employment. People who don't work CANNOT pay you.

7. Make sure your house is safe. If you tenant ever gets injured in your house, you will be liable.

8. Always have a Rental Contract. It clears communication and makes sure your tenants understand your expectations. You may want give an orientation to go through the contract to ensure your tenant knows what is expected of them.

9. You do not have to be nice when meeting a renter for the first time. You have to be firm, fair and observant. Being too nice may cause them to take advantage of you once they move in.

10. Be careful of rental scams. Protect yourself by not giving any personal information away and you have done your research on the Renters.

11. If you do end up making money, give something back in return.

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How to keep good tenants

I must be really good at keeping my tenants because my tenants have been with me for many years and the tenants I don't want, have often left within less than four months.

So the advice I am about to offer must have some merit.

First and foremost, I care about my tenants. I care about my tenants because they put their trust in me and accept me as their property manager. I go the extra mile to make sure my tenants are happy with where they are staying and compromise with their needs.

However, one may believe, with being too nice, the property manager could be taken advantage of. Rightly so, the property manager can. So, as a property manager, I make sure I establish a strong understanding in my tenant's personality. By doing so, I will understand what it would take for them to appreciate my efforts. If they are the type of person that would never appreciate anything I do for them and they would always look for things to take advantage of, then I would not want them as my tenant. However, if they are the type of person that I can understand the value of my effort, then I can begin the process of a healthy business relationship.

In fact, many of my tenants have become my friends where we actually go out and eat dinner.

One may wonder how do I know the difference between the renters that will appreciate my efforts and those who will ignore them and see it as my obligation.

First, experience renters are more likely to value my effort than inexperience renters. Experience renters know what landlords are like. So when I go the extra mile, they will appreciate it. Inexperience renters will believe my effort is an obligation because they have never had anyone to compare with.

Second, I never offer anything on paper or verbally. My actions represent my effort. Offering verbal and written commitment will come to the renter as expectations and they will not appreciate it. When meeting my renters for the first time, my first impression is never to represent that I am a hard working property manager. My first impression is always to be cautious and concerned about whether the renter can pay the rent. That is, I never represent myself as being a friendly, nice guy during the first meeting. By doing so, the renter will have come to have certain expectations based on the first impression.

Third, I never always agree to everything. If the renter has request, there has to be some compromise. The renter must realize that I am human just like anyone else and cannot do everything. I normally communicate my obstacles hoping to come to some sort of middle ground. If the renter's request appears unfair, I would question the renter's perception of this business relationship. If I cannot change the renter's perception, then I may aim to end the relationship. Being a property manager is not always about the money.

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How to Evict Bad Tenants

Sadly, as a new landlord and even experience landlord, the likelyhood of you running into a bad tenant is high. In Canada, unlike the United States, the process to evicting a tenant is not as easy as throwing their items out.

First, before you consider evicting the tenant, look at your own behavior and agreement as a landlord. Make sure you have done everything fairly and you are not being unreasonable. To make sure of this, ask around including the Tenant Association in your province. If you know your tenant is at fault and you have given the renter every opportunity correct him or herself, then you can begin the process of figuring out how to evict your tenant.

The best way to remove the tenant is to somehow let the tenant conjure up that idea for him or herself. Removing the tenant by force often lead to more problems. After all, the tenant is living in your house.

Some ways to do that may include, reduce your services within the limits of the rental agreement. Give hints that you would like the tenant to move. Maybe even resort to making the rental property distasteful enough for the tenant to move out.

And if that doesn't work, that you will have no choice, but to resort to eviction by law.

For example, in Ontario, if you and your tenant are NOT sharing the same washroom and kitchen, then you must let the Ontario Rental Tribunal take care of the eviction process. Ontario has already provided you a form that you can use to terminate your relationship with your tenant. You must have a valid reason to evict your tenant. Valid reason includes someone else is moving in, the house is being sold or the tenant have done something that violates the rental contract.

In Ontario, if you and your tenant are sharing the same washroom and kitchen, the Ontario Rental Tribunal does not apply. Only Social Law applies and Social law is much more vague. This means you can evict your tenant anyway you want that makes most sense. You can even resort to locking the room and moving their items out. But whatever you do, make sure the renter has agreed to it in the rental contract. This agreement will protect you.

Check with your own province, what the procss to eviction is. Make sure you have a  rental contract that includes eviction agreement, which your tenant has signed and agreed to.

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The biggest problem with room rentals

The biggest problem with room rentals is that tenants have the tendency to steal.

Many times, tenants see that you own a house and is collecting (their) money, they feel a self-righteous attitude that you owe them something. So the moment the tenant sees something they like in the house, they justify to themselves that it is ok to accidently take an item since they are the customers and the customers is always right. 

And there is very little you can do because in Canada, stealing isn't really a big deal. In theory, it is a crime, but in practise, the cops have more important things to attend to.

Secondly, the moment you rent to an uncooperative tenant, you have a devil that is in your home leaving you vulnerable and an easy target for stealing, damages and violations.

This devil knows where you live. You can hide, but you can't run.

Getting a tenant out of a room rental where the landlord lives in the same house is acutally much easier than evicting a tenant in a separate location, but during the time the tenant is there, it could caues the landlord more havoc.

I have heard of cases of damages, stolen items and wreckless unaceptable behaviour. Just because they rent, they think they are Gods and deserve to be treated like one. Sometimes, these tenants don't even pay the rent. Further, since the landlord is conveniently close by, the tenant may have the tendency to bother the landlord for every little detail.

If you have a family or precious valuable items in your house, you do not want it stolen, so only rent out to people you know and trust.

Generally, as a home owner, you make more and have more money than the tenant. The tenant becomes envious when he/she sees all these nice items in the kitchen and living room that can be touched and taken so conveniently.

It becomes difficult to yell and evict the tenant which could cause the tenent to retaliate since the tenant knows where you, the landlord, lives! Some tenants have nothing to lose while the landlord has the house and may be a family to worry about, leaving you, the landlord, at the tenants mercy.

Room rentals where the landlord shared entrance or kitchen is not regulated or supported by the Ontario Renter's Tribunal. Social Law applies and this may or may not be a good thing depending on how experience you are with working with this law. Inexperience landlords often fail miserably causing them to lose a lot more than what it is worth.

Best ways to rent out rooms

Inexperience Property mangers often rent out rooms in the same way they rent out houses. This is actually a terrible model to follow because of the shared area such as kitchen and living room.

The best way to rent out rooms is equivalent to following the same model as renting out a hotel suite!

If you are living in the same house sharing entrance or kitchen, you do not need to follow the Ontario Renter's Tribunal and can actually regulate anything you want so as long as it is in writing and agreed upon.

Thus, by renting out rooms like renting a hotel suite, you can safe guard the common area and charge fees for excessive damage or dirtiness. Etiquettely speaking, common areas need to be as clean as they were before the tenant used it.

To safe guard such issues, you, the landlord, need to collect their Credit Card just like hotel manager. When damages, excessive cleaning or use of items that isn't theirs, you are entitled to charge them.

If they do not have a credit card, do not rent to them.

Secondly, make sure you do not rent to cheap tenants. Some tenants, like customers, believe they are Gods because they pay the rent. But, obviously, they are not and the rent really is not that much. One thing to prevent cheap tenants is to check their payment method. Do they pay in cash or cheque? If they pay in cash it is becuase they are too cheap to buy cheques.

Third, make sure you get 12 post dated cheques. If they can't do that, then they are too anal and will be a pain to deal with when a real issue occurs.

Fourth, only accept tenants that are fair and reasonable. It is not worth your time to have tenants that are demanding and sneaky. Some tenants, like customers, will try to get away with as much as possible. If they see they could get items for free or abuse items such as hydro and utilities, they will be difficult to address real issues and are too self-absorbed to have a mutually benefitting business relationship.

Fifth, better to wait for the right tenant, then to settle for less. Sometimes, landlords see that having the rental unit empty cost them a month's rent, so landlords want to quickly rent out. But, trust me, getting a wrong tenant could cost you more than month's rent and may be a lifetime of psychological therapy.

If you are going to rent out rooms, better to wait for good tenants, the deal with bad tenants living in your house next to your own bedroom!

How to prevent getting capital gains tax when renting out rooms

The Canadian government is very clever in building a a tax system that helps the poor and tax the rich. In the art of calculating your taxes, the Canadian government one home per person as their personal or more appropriately named principle resident. Their principal residents does not get tax when you sell it because, well, classified as being your personal property and not meant for investments. It is until you buy a second house that one of the houses that the second house gets taxed on. In particular, capital gains tax.

So the government encourages you to buy one house to keep you living off the streets, but really discourages you from buying a second house.

Now, one would then believe buying one house and renting out rooms on their principal resident would fix the tax problem because the government does allow you to own one house. Once again, the government has this scenario covered as well. In order for the house to be considered a principal resident, you must claim at least 50% to 65% personal use or else it is deemed as an investment property and you will once again be tax on capital gains. So what this means is that all your expenses such as mortgage interest, utility, hydro, condo fee is taxable only taxable at most 50%, at safest, 35%.

To keep it simple, let's say, to maintain your property, it cost you $100. 35% of that would be $35. So you can only claim $35 in expenses while you still have to claim 100% of your rental revenue. in order to prevent getting capital gains tax on your principal property.