You will find many, many articles on how to invest in real estate. What most articles don’t tell you, however, are some of the horrors of being a landlord. Read on for the first part of a series on how to invest in real estate in Canada.
I was a landlord for about 7 years before cashing out. I will likely be a landlord again at some point in my life, but the property market is currently too hot where I live and it’s hard to make cash flow. I also have a few scars that need to heal.
Being prepared, as they say, is the best way to deal with all eventualities. I’m hoping by sharing some of my experiences, some of you are better prepared for what can go wrong!
The Tenant From Hell
I was in the hospital and my wife had hired a real estate agent to find us a tenant for an empty unit. You somewhat expect a real estate agent to do a bit of pre-screening before you see the tenant. It seems as if the real estate agent pretty much just sent the first interested tenant.
My wife had background checked them in terms of the previous landlord, employment, etc. At the time, we didn’t do credit checks as they were impossible to do as an individual landlord. Luckily services like Naborly have now appeared to plug that gap.
Literally, on getting out of the hospital, I hopped in my truck and drove out to meet the tenant.
The first clue I had that something may be wrong was the appearance of the tenants. It’s hard to put in words the subtle signs, but my Spidey-sense had been tripped. The second clue was that they were supposed to bring a bank draft for their last month’s rent with them. When I asked for it, the husband said “do you really need that?”. I despatched them off to the bank and was surprised when he came back with $2000 in cash.
Non-payment of rent
After the first month of moving in, we began to have issues collecting rent. Not only that, the wife was aggressive in dealing with my wife on the matter (my wife tended to deal with the tenants on “customer service” matters; I did the renovation and maintenance).
One party moved out without telling us
Within a couple of months of moving in, the wife and kids mysteriously disappeared. We’re not 100% sure when or where they went, but it was alarming.
Luckily, we wrote our lease to be “collectively and severably responsible”, which meant that we could hold her accountable if we found her and hold the remaining husband accountable for her half of the rent otherwise.
After the wife and kids moved out, we started to get vibes that there was drug use going on in the unit. A neighbour mentioned this to me.
Hiding from us
On several occasions, my wife or I went around to the property. Bear in mind I lived an hour away, so I couldn’t just pop around. We were sure that someone was home and hiding. Unfortunately, we couldn’t just enter as the law states we had to provide written notice 24-hours previously – and we weren’t even 100% sure there was anyone there to receive it.
Eventually, we decided to pursue eviction. In our jurisdiction, eviction generally takes three months or so and actually involves the landlord (and possibly the tenant) appearing in court.
We delivered the notice of attending court to the property and that must have been enough to scare the tenant to leave. When I went back after having appeared in court and won an eviction order, it was clear that there was nobody living there. I let myself in and had the shock of my life.
On entering the property I was presented with:-
- Dog poop everywhere
- Drug use residue
- A huge amount of belongings including two couches, a bed, chairs, dinette table, toys, books and magazines, a full kitchen
With respect to the dog poop, I can only presume that their poor dog had been left alone in the house alone for some time.
Along with the general mess, there was physical damage to the property beyond just cleaning and painting. The kitchen ceiling had caved in because a leak had sprung in the back roof. Because they weren’t paying their rent, they had apparently decided not to tell us, and eventually, the drywall came down. This meant replacing an 8-foot by 4-foot piece of fire code drywall, texturing it to match the rest of the ceiling, and painting it.
In the basement, there was also drywall damage from a toilet leaking in the powder room above. Proof that even a small leak, over time, can do serious damage, and again the tenant never told us because they weren’t paying their rent.
All in all, this ordeal lasted about six months. It probably cost us around $10,000 including lost rent from the tenant, repairs, and lost rent while we did the repairs.
The Repair From Hell
We had a unit in a Victorian house that spanned the first floor and the basement. The basement was a finished living space. Shortly after a new tenant moved in, and after we assured them the basement was dry, they reported a small amount of water had appeared on the floor.
Given the age of the house, we assumed it was a foundation leak of some sort. It was a stone foundation that had never had any sort of waterproofing treatment.
To complicate matters, most of the exterior of the house around the foundation had asphalt pathways and were in close proximity to the next door properties. This meant that traditional exterior foundation waterproofing was out of the question.
We interviewed a couple of companies and selected one who could waterproof from the inside rather than outside.
Waterproofing the basement from the inside requires breaking open the concrete slab that forms the basement floor. They then have to carry outside every piece of the broken slab by hand. This is messy, messy work.
To compound matters, the tenant had a lot of furnishings and belongings in the basement. We literally built a “tent” out of polythene, complete with zippers for doors, to contain the construction whilst protecting the tenant’s belongings.
Immediately the tenant’s started freaking out about their lost space, the potential mess, and general disruption to their lives. Of course, in some respects, they were entitled to be. We had arranged for all the work (dig up the concrete slab, lay trench for waterproofing, refinish slab, refinish affected drywall and tile) to happen in two consecutive days. This required a lot of coordination.
We ended up getting into a legal tussle with them over compensation. We’d offered them approximately half a month’s rent as compensation, which we felt was fair. They wanted more. Eventually, we even had to engage our real estate lawyer who politely explained to them that no court would likely award them any more than that and that it was a generous and fair settlement. Poor us: the legal fees outweighed what it would likely have cost just to make them happy in the first place
In the end, whilst they were digging trenches for waterproofing, they found the leak was from the junction between a waste pipe and the ground and not from outside the foundation. $12k of repairs and angry tenants only to find this out and a $20 rubber boot to fix the real issue. I could have cried. Not only because of the large financial expense but because it’s very emotionally tiring having to deal with an aggressive tenant.
So, being a landlord is not all roses. It was definitely very hard work, although we learned a lot (the hard way) along the way. We never really made money from cash flow along the way, but we did do well on selling all four of the properties.
Now that you’re forewarned of some of the possible nightmares, read about ten tips to get you started here with how to invest in real estate in Canada.