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July 9, 2020 | ‘Can’t Pay, Won’t Pay”

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Peter and Janey bought an investment condo, pre-con, three years ago. “For capital gains, of course,” the suburban blog dog says, “but also for some steady retirement income. Three more years, and I’m done with the grind. The monthly cash flow is a big piece of our plan.”

Or not. Covid happened. Who knew what that would mean?

The tenant, a young female social worker, stopped paying rent in April when the local health authority curtailed its operations. She’s back working now, but decided to continue withholding the monthly. Because the province passed a law banning evictions during the pandemic and the Landlord/Tenant board is AWOL, Pete’s SOL. No income. Five hundred grand tied up with zero steady return. Condo fees, property taxes and insurance totaling over $800 a month. And he’s told it could be two years before he can legally boot her freeloading butt out the front door, given the bureaucratic backlog.

“You know I am so disgusted that I’d like to sell,” he says, “and in this market I could make money. But I can’t even find a buyer b/c of a tenant who refuses to budge. The people saying landlords are lazy, greedy, rent-collecting leeches should stand in my shoes. Every day I lose money.”

In Ontario the Ford admin is close to formalizing a law (Bill 184) that would allow landlords to bypass the Landlord and Tenant Board through a negotiation process. Tenants could be directly offered a rent repayment plan, without one being mandated by the government after an obligatory hearing. If they don’t accept an expulsion could be forced. An eviction later deemed to have been unfair could result in a penalty/reward equal to a year’s rent. Says the government: “When rent is overdue, we want to encourage landlords and tenants to work together to come up with repayment agreements, making it easier to resolve disputes — rather than resorting to evictions.” Common sense. Radical.

Of course, a lot of tenants (now living for free) want nothing to do with this, insisting every case must go into the long queue snaking its way through the system. Hundreds of them rallied before the legislature this week. Then they went and stormed the condo building where the mayor of Toronto lives. They climbed on walls and chanted, “Can’t pay, won’t pay!” and  “John Tory eleven floor, you can’t hide for class war!” plus “Hands off our homes!”. The cops pushed back. Ugliness ensued. The protestors claimed police brutality and pepper spray. The fuzz said no way.

Well, this is just the start of fundamental changes to cities, condos and the sad future of amateur landlording.

The virus has crashed Airbnb, for example, unleashing thousands of new units onto the rental market, as well as starting to swell listings. In less than a month, for example, rentals have almost doubled in Toronto (from 4,000 to about 7,500). That’s giving renters more choice and forcing rents down – by about 10% since Covid started. Already, pre-pandemic, four in ten owners of ‘investment’ condos were in negative cash flow, so lower incomes just make t worse.



Meanwhile more than twenty thousand new condo units are coming to this one market, the result of a years-long construction boom triggered by Millennial house-horniness and a desire to be part of the downtown vibe.

But wait. The core’s now a ghost town. People have to mask up when they ride the streetcar, run to the store for avocados or get a new tat. Bars are empty. Patios, too. The office towers stand vacant, and social distancing means it takes ages to await a lift and get up to your concrete box on the 48th floor.

Finally, credit is tightening. Condo buyers can’t borrow money for down payments anymore, even if they’re not asking for mortgage insurance. Banks aren’t dumb. They know half the condos in urban areas have been purchased by specuvestors who seek to carry debt with rental income – and that now the formula’s not working. It’s too much risk.

So, this is the reality for Pete and Jane. They have a non-performing asset which cost them half a million bucks and now bleeds ten grand a year. They can’t collect the rent owning. They have an acrimonious war on their hands with the tenant. They can’t sell since they cannot offer vacant possession to a buyer. And they’re cast as social pariahs, rentiers, victimizing downtrodden working people. On top of that, the unit they own could well erode in value as the virus swells rental inventories, depopulates the urban centre and scares off citizens terrified of elevator cooties and sticky garbage room door handles.

Plus, if P&J do see their rental income resumed once they get rid of the squatter, every dollar will be added atop their retirement incomes and taxed at the marginal rate. No break, as with investment income which flows in the form of capital gains or dividends.

“This,” he says, “was the worst decision of our lives.”

But the social worker’s happy. And, unlike the landlord, she has a DB pension.

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July 9th, 2020

Posted In: The Greater Fool

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