Rising Rental Rates

Welcome to Canada's Property Management podcast, your number one resource for investing, managing, and maximizing the value of your real estate assets. And now, here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.

Adrian Schulz (00:20):

I'm reminded of the sky is falling, the sky is falling. It's some children's  book that I read to the kids, but it's like rates are rising, rates are rising in inflation, in mortgage rates, and fuel prices, and in rental rates. They're rising like crazy, especially in the family friendly, the single house, and the ones at balcony, et cetera. Speaking about rising rental rates, what are you experiencing in your local market in Saskatchewan?

Carla Browne (00:57):

In Saskatchewan, definitely the single family home is going up, up, and up. And I've been having our office do a little bit of, almost testing of the market a little bit to see where we can not push rents because I'm not trying to take advantage of tenants, and that's really what the media is getting at, but if we can get them back where they were. Because I think we forget that from March 2020 rates went down, down, down, down, down in most products, and then they started going up. And now, as they're going up, the media's really concentrating on that piece so much, and then forgetting that... I think it's rentals.ca or one of those publications that comes out every month. And they said that in June 2022, the average... Now, I don't like averages. I think we've talked about that a few times on the... Because we're not average, right, Adrian?

Adrian Schulz (01:49):

No, not at work and rainbows.

Carla Browne (01:52):

I don't know why I said that, but that's the average rental rate across Canada.

Adrian Schulz (01:57):

Just one moment, please. Let me move over to make more room on the screen for Carla's ego. She's more than average, a statement that I would like to make at home.

Carla Browne (02:09):

Yeah. What does Darren Hardy say? Be the exception. Anyways, average rental rates across Canada in June 2022 are almost where they were in June 2019, which most people aren't really seeing, but we have seen quite an increase when it comes to the single family home because there is so much demand there, but it's really, what I can see is there's a lot of emotion that's happening because there's this fear from investors that they're not going to be able to recoup their costs because their mortgages are renewing and their interest rates are going to be going up, and the power and gas has gone up in some of the multiplexes. They're really feeling that. Taxes are going up on properties, and it's emotional, and they're trying to recoup their costs. So the rising rental rates, I wish the media would simmer down a little bit on it and just allow us to let the property management experts adjust accordingly. So I think we're being very fair to 10 and send investors.

Adrian Schulz (03:15):

Just had lunch with an accountant today, and we were speaking about how he has clients who are selling their homes and moving into rentals that are in the 16 to $1,900 a month range. And I said, "Well, that's weird. Why aren't they buying a condo or a small bungalow at the edge of town area in the three to $400,000 range'" and he looked at me and he said, "You are the mortgage broker. You should know." And the answer is there really aren't very many homes left in the three to $400,000 range, which is forcing many first time home buyers. These are average people like you and I with normal jobs, they can't qualify for more, so they are forced to rent. And I firmly believe that in Canada, I think we're on the cusp of an entire generation becoming a tenant or a renter generation due to home ownership simply being out-priced at the moment, unless you've got inherited wealth or legacy family wealth for your transferring equity from your parents or grandparents homes as down payment into your home. But our parents, they lived in $100,000 homes, whatever they were, and your parents probably much less, but mine in the $100,000 range.

Carla Browne (04:54):

Ha, ha. Our listener's going to catch that one.

Adrian Schulz (04:55):

I don't know. I don't know.

Carla Browne (04:56):

Yes, I am older than Adrian.

Adrian Schulz (05:00):

Yes, but apparently I now have white whiskers on me, so it's all good. No, but the point being is that I think the first time home buyer is being forced to rent for another cycle. Now another cycle, I think that's a two to three, maybe five year cycle. And then the question is, does the government come in and incentivize developers to build what I call normal people housing again? That could be single family, that could be town home, like attached row housings, I think is the most practical because you still get a yard, or outright multi-family. So, rising rental rates, yes, most definitely, but for very good reason. And I think there's nothing but opportunity right now. If you own a single family home, you can really... I mean, hey, I wish for the first time home buyer you would sell it, but keep it and rent it out and provide a fairly priced single family home to a family. Right?

Carla Browne (05:59):

Yeah. It's a really interesting concept because I think we saw people coming into the rental market before, especially on the single family because they didn't want the commitment of a house. It wasn't always because they couldn't afford it. It was normally because it was just a choice to rent, and that was a big thing with a certain demographic. And now that still could be the case for many, but it's changed, and it's like, "Actually, I can't afford to get the mortgage, but I can still afford to make this payment." So they can't qualify per se under what the qualifications are with the mortgage, but they can actually pay a good dollar and they're willing to pay a good dollar for a really good single family home.

Adrian Schulz (06:41):

I think renting is a great deal. When you consider all of the costs of home ownership, it's not just the mortgage payment. You should never... There's another third on top of that, if not more. You've got property tax, insurance, the maintenance that's associated with home ownership. I mean, my goodness, every time I turn around in my own house, I have to replace $1,000 appliance, and I never know if it's my fault, or the nanny's fault, or Alana's fault, but that's another discussion for another podcast that's going to be called, do I have to replace that?

Carla Browne (07:13):

I think all fingers would point to you.

Adrian Schulz (07:16):

No doubt. No doubt.

Carla Browne (07:18):

Anyways, I think it's really interesting, but the reason why I thought we should do this podcast is because the reality is the rental rates are going up. But the other part of that reality is that we've seen rental rates, in a lot of cases, very similar to where they are right now. And the market is slowly adjusting in all different ways. We're seeing the real estate market is slowing a little bit. So that's going to bring more people back into the more product onto the rental market, which once the supply goes up, then we know that the demand isn't there so the prices will adjust. So this is just a vicious circle that we go through. But from a property management perspective, I think we have to look at it from, how do I maximize the investment for my investor? That has to be my number one. And then my number two is, what is fair for the tenant? What's happening in the market? What are we competing against? And how do I bring a tenant in and make sure that this is a great home for them to reside in?

Adrian Schulz (08:13):

Yeah. And I think a fair market rent is going to benefit the investor and the tenant. At the end of the day, the tenant has to be able to afford the rent in order to stay. And as property investors, we want our tenants to stay as long as humanly possible, which means we are going to try our very best to be as reasonable and fair as possible, bearing in mind, as property investors, we also have our costs increasing significantly because property taxes are based on market or on assessed value. Property insurance is going to be based on assessed value. And of course, we've got increases in almost all utilities as well. If you're a tenant, when your landlord is increasing the rent, it is not by any means of the word going straight to their pocket. It's going into a pocket with a very large hole in it at the moment.

Carla Browne (09:11):

Yes. Thank you for bringing that up. There's two parts of that. The extra money that we're asking for from the tenant is really just to offset some of those increase in costs, but what I don't like to see is I don't like investors coming to me and saying, "Now I'm really nervous about having this investment and maybe I should just sell it." You are still having an investment that somebody is paying off for you. As an investor, we have to realize there's going to be some ebbs and flows as we go along. And if you want us to increase the rent, I'm definitely all for that, but I will always very careful how much we're going to rent it because you don't want to push a good tenant out the door. That's what you were alluding to, is that you don't want to do that. Then your property's going to be vacant for 30 days or 60 days. So how much did you really win? Nothing.

Adrian Schulz (09:56):

Nothing, no.

Carla Browne (09:57):

Do the math. You lost. You lost

Adrian Schulz (09:59):

One vacant month takes the wind out of your cash flow statement, such a common mistake by first time investors thinking, "I'll up my rent. Oh, shoot. I was empty for a month." Well, the increase didn't even pay for the month of lost rent.

Carla Browne (10:12):

Yeah. I think if you're self managed, don't just give your tenant an increase. And please remember that you have regulations in both provinces as to how much you can increase or what the timeframe is to increase, so please abide by those. But the second part is just don't hand them the increase. Talk to them about the increase, make sure that they-

Adrian Schulz (10:30):

The relationship.

Carla Browne (10:31):

Yes, make sure that they understand why because if you just hand them the increase, they're going to feel very devalued and they're going to be looking elsewhere, and then you've lost them.

Adrian Schulz (10:41):

Yeah. Now that's real property management.

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