As a landlord, there are lots of things you wish you could find out about your tenants, but the answers aren’t always easy to find.
It’s important to screen tenants carefully and do proper due diligence, because once you sign a lease, you’ll both be bound by its terms.
“That (property) is an investment of hundreds of thousands of dollars, so why not take care of it?,” said Andrea Roach, a realtor with Roach Family Real Estate who also owns investment properties.
“Get the application, get the credit report, follow up on references and use your gut.”
In provinces like Ontario, which have standardized the rental process, there are also many rules about what you can and cannot do. If you’re unsure where to start, here’s a breakdown of the top things landlords need to know.
You can’t get too personal
Tenants can be asked about their income, employment history, rental history, credit report and references. These are all things that would help a landlord figure out if the tenants will be able to afford the rent and can be expected to pay on time. They can’t, however, apply any kind of rent-to-income ratio based on that income information, noted Ian Dantzer, a senior lawyer with Red Tail Law in London, Ont. “If (the tenants) want to rent an apartment that’s $1,000 a month and they make $1,500 a month, that shouldn’t matter as long as they’re credit worthy and they paid it. That’s a personal decision, not a landlord’s decision about whether you can afford it or not,” he said. Landlords are also not allowed to get into questions about lifestyle, marital status, hobbies or anything else that would lead them to make a decision based on fit or discriminate against a tenant in any way.
You need to actually read the credit report
Novice landlords will often ask for a credit report but not really understand how to read it or what they’re looking for. The key information in the report is the prospective tenant’s credit rating – a numerical score that reflects responsible credit use. As you borrow money and pay it back, your credit file is updated, and that data is used to calculate your credit rating or credit score. It can tell a landlord how someone uses credit and when they make payments and can be a useful tool to figure out future behaviour. Roach says he looks for a credit score of 700 – or as close to that as he can get: “If they have a hard time paying off their credit cards on time, they’re probably going to have a similar problem paying you every now and again,” he said.
You have to watch the tax implications
The number of properties you own will impact how you report the rental income you get from those properties come tax time. Once you have five “doors,” or units, you’ll be considered a business, not an individual, and that will change how you file and what you can declare as expenses. It’s important to speak with an accountant if you go above that threshold.
You can’t just increase the rent if you need more money
Increasing the rent to cover unexpected expenses may seem like an easy out, but in most states and provinces, tenants are protected by rent controls that limit how much rent can increase year-over-year. In Ontario, for instance, landlords can increase the rent only once every 12 months, using proper documentation and only if they give at least 90 days’ notice. There are guidelines that determine how much you can increase the rent on any given year, and landlords can only go above those guidelines in specific cases and with permission from regulatory bodies like the Landlord and Tenant Board. If municipal property taxes go down by more than 2.49 per cent, landlords actually have to decrease the rent.
You can’t force a tenant to get insurance
In most places the law does not require a tenant to have tenant insurance, but if the renter freely agrees to get it as part of the lease agreement and then doesn’t, the landlord could file an eviction application with the Landlord Tenant Board to force the tenant out.
You can’t prohibit pets
One of the most disputed areas of lease agreements is whether people are allowed to have pets. In Ontario, people can’t be prohibited from having a pet, although the pet can be evicted for bad behavior or if it poses a danger to the other tenants. Landlords also can’t stop renters from having guests over or prevent them from having a roommate.
They also can’t collect more than one month’s rent at the time, and must pay the tenant interest on the initial (one month) rent deposit every 12 months. Tenants can, however, choose to hand over post-dated cheques or set up direct deposit or another payment method if they wish. Landlords also can’t prohibit smoking, although you can have a smoke free apartment or home, or restrict smoking to certain areas.