Derek Petridis, a 39-year-old chief financial officer at Shikatani Lacroix Design Inc. in Toronto, has loaded up on seven condominium rental properties over the past decade.

It may seem like he’s got an extreme bet on the housing sector, but a new survey shows he is far from alone, with about one in 20 Canadian households owning some type of rental property.

The study from Altus Group, which relies on research from the Financial Industry Research Monitor, considered highly accurate on a national basis, shows that among households earning more than $100,000, the rate on rental property ownership is about 10%.

Rental property ownership tends to be higher for households with residents under age 50, which the study’s authors think may be driven by basement apartments and flats that homeowners are using to pay down their mortgages.

Home ownership rates in Canada are among the highest in the world with the 2011 census from Statistics Canada showing the trend to own continuing to climb and reaching 69%.

The other strength of the market has been people like Mr. Petridis, who have seen the benefit of owning investment properties. A Canada Mortgage and Housing report? last year of the Toronto and Vancouver markets found about 17% of condominium owners were investors.

“I fretted over the first purchase for weeks, but then I just started going from there. Once you are over the first one you fall in love with the cash flow, the model,” said Mr. Petridis, who has cooled his heels on the sector a bit and not purchased a new unit since 2011.

Peter Norman, chief economist with Altus Group, said the quarterly FIRM survey didn’t break down rental property ownership versus people simply renting out a piece of their principal residence, but there is some older data from Statistics Canada that addresses both aspects.

Renting out secondary suites or basement apartments seem to grow in tough times, as people use them as a way to cover their home ownership costs. “When times are tough, more renters choose that [way to live] because it’s cheaper and more homeowners find they need to supplement their income,” Mr. Norman said. “It does come and go and acts like a pressure valve in the housing market.”

Lately the valve has been left open as the number of secondary suites grows slightly. The census found there were 330,000 in 1996, 310,000 in 2001, 370,000 in 2006 and 390,000 in 2011. Builders have even been constructing new homes with roughed-in apartment suites with separate entrances and kitchens, Mr. Norman said.

Don Campbell, a real estate expert and author, said he started by renting out a basement apartment so he could buy a larger home than he might have otherwise been able to afford, and eventually moved on to larger real estate investments that didn’t involve his principal residence.

“Once they figure they can get a yield on their investment, they do,” said Mr. Campbell, adding Canadians are looking to get better income than they might achieve elsewhere like the stock market.

He thinks the basement suites are probably a large driver of the trend toward owning rental property. “That just might be the only way some people can afford to live in the neighborhood they want to,” said Mr. Campbell.

Source: Garry Marr, Financial Post

You don’t have to believe in superstition for it to hex your house, if the results of a forthcoming Canadian study are any indication.

Reporting in the journal Economic Inquiry, researchers uncover enormous costs associated with “magical thinking” in real estate transactions in neighbourhoods with a high concentration of Chinese residents. The good news, however, is that they also identify payoffs — on average, around five figures — when superstitions run in a seller’s favour.

“We do find premiums and penalties associated with numbers that are thought to be lucky or unlucky in the Chinese culture,” said lead author Nicole Fortin, a professor at the University of British Columbia’s Vancouver School of Economics. “And these are really sizable transactions.”

Analyzing nearly 117,000 home sales between 2000 and 2005, researchers discovered that in areas whose share of Chinese residents exceeded the metro average, houses with address numbers ending in ‘4’ were sold at a 2.2-per-cent discount while those with numbers ending in ‘8’ were sold at a 2.5-per-cent premium. Four is associated with death in Chinese culture, and eight with prosperity.

Given the average house price of $400,000 during the study period, Fortin said superstition ultimately meant the difference between an $8,000 loss or a $10,000 gain in comparison to houses with addresses ending with any other digit.

“Real estate agents are very aware of this, and they exploit it,” Fortin said.

In one Vancouver ad, for example, she found eight of 20 homes aimed at buyers from mainland China ended in ‘8,’ as did the asking price of 11 of the homes. Similarly, a 2012 analysis by Trulia.com found that in Asian-majority neighbourhoods, the last non-zero digit of an asking price ended with ‘8’ in 20 per cent of listings — and 37 per cent of those priced at a million or higher — versus just four per cent for other areas.

Fortin cites important public policy repercussions, noting that some people will petition to change their addresses — often by subdividing or via another legal loophole — to make their properties “luckier.” One of her own neighbours, in fact, had the last number of his home altered from a four to a six.

“I wondered why he didn’t get an ‘8.’ He probably tried,” Fortin said. “But should municipalities allow people to change their address just because they don’t like the number?”

In Canada, where people of Chinese descent account for five per cent of the population, Fortin said the implication is that something as seemingly innocuous as a home address could affect whether a property flourishes or is left to deteriorate.

To wit, study co-author Andrew Hill emphasized that disbelief in such superstitions doesn’t inoculate against them.

“If everyone knows that these belief premiums and penalties are going to persist — even if they don’t believe in (the same thing) — it can have an effect,” said Hill, assistant professor of economics at the University of South Carolina. “As a property investor, it just makes no sense to have a house number that could lose you money.”

Importantly, however, Edmonton real estate agent Taylor Hack said emotion can overcome reason in almost any purchase of a principal residence, regardless of cultural background.

“We have to take that into consideration when working with anyone,” said Hack, of Remax River City. “Everybody has their own level of superstition. If some people were aware that a traumatic incident happened in the home, they’d have trouble with it.”

Source: Misty Harris, PostMedia

In Metro Vancouver – where the average price for a typical single-family home tops $923,700 — the prospect of having some form of secondary suite to rent out to help with the mortgage is downright seductive.

Especially when the region’s apartment vacancy rate, as measured by Canada Mortgage and Housing Corp. (CMHC), is at an extremely low 1.8 per cent and renters are often scrambling for options.

Most B.C. landlords are fortunate enough not to encounter major issues when renting out their basement suites. But a small number of landlords have horror stories to tell.

Recently, one landlord temporarily, and unknowingly, rented out her basement suite at Shawnigan Lake to a meth addict and couldn’t immediately evict him. Others have had tenants skip out on the rent, change the locks on the house without permission, or rented to tenants who felt they had a say in household operations.

Other issues include tenants who smoke marijuana or cigarettes in a non-smoking home, or sneak in pets. The biggest issue recently appears to be the use of drum kits in basement suites.

While renting out a basement suite sounds like an easy process, adding landlord to the title of homeowner comes with considerable legal obligations, not to mention raising the financial risks if a rental falls through.

Canada Mortgage and Housing Corp. estimated that in 2012 there were 39,307 secondary suites in Metro Vancouver homes.

In Vancouver proper, a 2009 city estimate found there were at least 25,000 homes in single-family zones containing some form of secondary suite.

On the side of financial benefits, depending on what bank you are dealing with, a would-be homeowner can count up to 90 per cent of a suite’s rent against the income they need to qualify for a mortgage, said Ryan McKinnley, mortgage development manager at Vancity credit union.

That, he added, is a big factor in moving a couple with a modest income from being unable to afford a home to being able to buy the house they want.

He used a set example to demonstrate how much of a difference a rental suite can make:

If a couple was looking at an $800,000 home, with a 20-per-cent down payment, they would need an annual family income of $122,000 to qualify for the $640,000 mortgage on a fixed five-year term at the current 3.69-per-cent rate.

However, if the house in question had a basement suite that could be rented for $1,500 a month, the $1,350 in monthly rental income that the couple could apply to their mortgage application would reduce the required family income to $72,000 a year.

To stretch the example even farther, if the couple was willing to live in the basement suite themselves and rent out the rest of the house at $2,500 per month, the $2,250 they could apply to the mortgage means the $800,000 property would be in reach with a family income of $45,000.

“It’s very common – and it’s often that one piece that actually allows (a homebuyer) to purchase the house that they want,” McKinnley said.

However, McKinnley said homeowners need to have a plan going into the process, with contingencies covering off all the “what-if” scenarios. Such “what ifs” include being able to cover the full mortgage cost if the suite is vacant for a month or two, as well as the cost of repairs and proper insurance.

Setting aside a couple of months rent in a savings account — as a cushion against an unforeseen vacancy — allows a homeowner to take time to find a good tenant rather than rushing to rent it out. That contingency “will give you peace of mind,” McKinnley added.

“Whenever you’re dependent on income that could potentially not be there for a month or two, it’s important to look at that,” McKinnley said.

Then there is the issue of whether a suite is legal.

Discouraged for decades as a nuisance, most Metro Vancouver municipalities now do allow secondary suites. Only Burnaby restricts suites to relatives of a homeowner or in-home caregivers.

The City of Vancouver, for instance, passed a bylaw legalizing secondary suites in all single-family zoned areas of the city, and in 2009 estimated that 25,000 houses in these zones did have a suite.

However, to be legal, secondary suites have to pass building inspections — which means renovations to bring suites up to building codes — and meet specific requirements. In most municipalities, suites are subject to certain fees, which vary from jurisdiction to jurisdiction.

Surrey, for instance, allows each single-family home to have one suite that meets B.C.’s building codes and passes inspection. Fees, ranging from a secondary-suite services fee to additional charges for garbage, water and sewer usage, add up to $1,288 a year for suites in un-metered homes. For metered homes, fees are based on water consumption.

In Vancouver, suite owners require a business license, which is $62 per year with a one-time $50 new-applicant fee at the start. One-time fees for building inspections and permits add up to $1,194 or more. Annual fees — on top of the business licence — total $330.

The Real Estate Board of Greater Vancouver maintains a list on its website of which municipalities allow secondary suites, and outlines most requirements that homeowners must follow.

The least risky situation is to have a secondary suite registered in order to have certainty over matters that involve insurance or financing, said Larry Buttress, deputy executive officer for the Real Estate Council of B.C. However, Buttress added there is a risk in registration in that a suite might not be approved.

“So it’s a little bit of a Catch-22,” Buttress said.

For financing, McKinley said buyers with only the minimum down payment who need CMHC mortgage insurance have to make sure suites are legally registered to qualify.

Otherwise, banks and financial institutions have other ways to test income-generating potential of suites, such as a rent report conducted by an appraiser or examination of the rental income claimed by previous owners on tax returns.

Matters of financing and registration come before perhaps the toughest part of renting out your suite: the ongoing legal obligation of being a landlord.

“Renting a basement or secondary suite is a business, and business owners need to understand the rules,” said Spencer.

To start with, Spencer said homeowners have to understand their operations are governed by the Residential Tenancy Act, which sets out their responsibilities to their buildings and the rights of tenants.

Landlords have to make sure their suites meet health, safety and housing standards; they have to provide emergency repairs; and they need to understand what is meant by emergency (that the tenant’s health and safety is in danger).

“Education is the key,” Spencer said, adding she recommends homeowners join a professional association to get the backing of a larger group, particularly when it comes to acquiring legally enforceable rental application forms and rental agreements.

“Almost everything about being a landlord is regulated, from how you enter into a tenancy, how much you can charge for security and pet deposits, how you deal with rent increases, nonpayment of rent, and evictions,” Spencer said.

And landlords need to understand their obligations for repairs and maintenance, how they are allowed to access the suite, dealing with sublets, and what constitutes discrimination, she added.

For all of these reasons, Spencer said, landlords need those specific and legally enforceable forms.

TIPS FOR LANDLORDS

1) PROPER RENTAL DOCUMENTS

Having a successful tenancy requires good, clear, concise definitions of everybody’s responsibilities and rights.

• Rental application form

This document is probably the most important, which comes as a surprise to many new landlords. A good rental application will require information on: the applicant’s job, their supervisor, their income, current address, landlord references, friends, government ID, next of kin, and extended family members.

This information will help landlords gain a better understanding of the tenant’s characteristics. More importantly, however, it gives the landlord some good contacts to track down the tenant if they should disappear.

• Move-in inspection report

Most provinces require a landlord and tenant to complete a move-in report upon onset of a tenancy. This quantifies and documents the condition of a property so that, when the tenant leaves, any damage caused is clear. A thorough and concise move-in report card is a sure-fire way of avoiding significant disputes over tenant-related damage.

• Residential tenancy agreement

As the name suggests, this document will establish the terms of the relationship between the tenant and landlord. The more detail it provides the better, and sourcing a free online agreement is not sufficient to cover a landlord’s interests.

• Addendum to residential tenancy agreement

This can be a small side document that forms part of the agreement and sets out additional rules for items such as pets, smoking in the unit, or penalties for late rental payments. These documents are harder to enforce, but establish good guidelines for the day-to-day operations of a rental property.

2) WHAT TO LOOK FOR WHEN SHOWING RENTAL PROPERTY

Some careful observations by the landlord can be extremely useful when considering the tenant’s application.

• Did the tenants arrive on time?

Tenants who are respectful of their landlord’s time are good tenants to have. Tenants who do not arrive on time for a showing are not likely to pay their rent on time, either.

• Are the children well behaved?

Tenants who want something — in this case, to move into your rental property — are likely to be on their best behaviour. Kids, on the other hand, can be cautioned numerous times to behave but have shorter attention spans. If the tenant’s kids are behaving poorly during the showing, expect the property to be returned to you with obvious damage.

• Did tenants take off their shoes?

If a landlord has to ask the tenant to remove their shoes, this is a good indication they are not in the habit of doing so. Tenants who remove their shoes are likely to cause less stress on the flooring of a rental property.

• What does the back seat of the tenant’s car look like?

This is a tried-and-true technique for learning whether the prospective renter will keep the rental property clean, or let clutter, dirt and debris build up. Avoid tenants with garbage in their car.

3) VERIFYING INFORMATION IN A RENTAL APPLICATION

The rental application contains the most comprehensive set of information about the prospective renters and should take the most time to review and confirm. Renters are extremely unlikely to include information in their application that they know will hinder their chance of having it approved. Ask the following questions:

• Does the tenant’s stated income seem unreasonably high?

Look for ways to confirm income, such as a letter of employment from a reputable business. If the income is from self-employment, ask for a recent tax return to confirm it. Remember: the more intrusive the questioning, the less likelihood of a disaster.

• Is the employer reputable?

A quick Google search to confirm the existence of the company or place of work provided by the tenant should be sufficient. If it does not exist or is extremely difficult to find online, then it is likely to have been made up. If it cannot be confirmed, decline the tenant’s application.

• Are there gaps in the tenant’s rental history?

If a tenant’s application lacks previous landlord information for a period of time (typically six or 12 months), they may be trying to hide a less-than-positive past tenancy. If they refuse to provide comprehensive chronological information for the past two years, ask where they lived during the missing time. A backpacking trip overseas or living with parents are acceptable responses; disclosure of a problematic tenancy followed by court eviction is not an acceptable response.

Source: Derrick Penner and Kelly Sinoski, Vancouver Sun; Shamon Kureshi, Canadian Real Estate Wealth Magazine