Board Insanity Stories #98457892374 – Only Allowing Rentals to “Families”

I’m not sure I want to even start with guessing what the definition of a family is – blood relationships, marriage, are adopted children ok, how about a two person same sex union, or one lady and seventy-two cats?

Thankfully a condominium corporation has been able to figure that out for me! Carleton Condominium Corporation No. 24 of Ottawa, Ontario, has been able to clarify that challenging definition:

unit owners can only rent to single families, which includes parents and children, married couples or people in a ‘conjugal relationship,’ two or more persons intending to live together permanently, two or more persons who own the unit, or someone who is a caregiver for someone else.

Caregiver? Really – an assisted living support nurse can be family? The intention to live together permanently (really, how can that ever be challenged or proven) is a definition of family – so Felix and Oscar, or Bert and Ernie, those lovable non-gay roommates, would count?

What’s up is Carleton Condominiums attempting to remove student renters from their condos, whom occupy about 20% of the units. The board claims these student rentals are rooming houses renting by the room, with upwards of 8 people per unit. The condominium is close to transportation and popular with students.

I’m pretty sure this will be appealed to either a court or the Human Rights Tribunal of Ontario.

As to that definition of family, I love the idea of “conjugal relationship” – does that mean if each of the eight students commit to some sort of regular orgy that they classify as family? Right on – I knew university is supposed to be an awesome experience!

Toronto and Singapore Experience the Shoebox Condo

Some trends cover the world, but the underlying reasons may be different. For example, Singapore and Toronto both are experiencing a surge in shoebox condos (500 sqf or less) but for significantly different reasons.

With Singapore, prices on condominiums are averaging $1185USD/sqf – putting the price of anything lager than shoebox well outside the financial means of most local residents.

In Toronto, price is not nearly as sensitive (running about $630USD/sqf), but tax legislation is pushing units to list at $390k or less or suffer, and one bedroom condominiums now make up almost 60% of new construction. This forces smaller shoebox units to be built in order help create consumer choice in a market that prefers one bedroom condominiums.

In both cases though – Singapore and Toronto are both seeing massive preconstruction sales to investors and foreign buyers. This is likely a strong incentive to build shoebox condominiums, as they become more “affordable investments” and require smaller capital down. If that’s the case, shoebox condominiums are creating a new form of downtown transient population – encouraging renters to populate the cores of each city.

I live in an 1150 sqf 2 bedroom condo – with wife and 2 cats. At 500 sqf, one of those would have to go! (I love you hunny!)

Owners Throw Hissy Fit Regarding Tenants with Mental Illness

There is an awesome line I once heard – “if you have to spend time explaining what you aren’t, you likely are”. Hence the snicker I had when I read the statement from Michael McMahon of the Admiral Dewey House condominium, in Framingham Massachusetts:

None of us want to come across as ignorant, or superstitious, or prejudiced, but…

Ah, then of course you’re not coming across that way.

The residents of the Admiral Dewey House are upset that two of the units in the building (of 20) have been bought by Cascap Inc – a non-profit that owns and manages properties for state contracts they have. The issue arises that Cascap bought the properties to meet a contract from the Department of Mental Health – to house people with mental illness.

The situation seems pretty clear cut – the units were bought by a corporation, and as such Cascap Inc are not live in owners. The people there will be classified as tenants. Cascap Inc. tenants will have all the same rights, responsibilities and requirements of any other tenant renting a unit from another owner. The corporation and the owners have no extended rights to violate the privacy of these or any other tenants. Neither can they deny the rights to rent, or to inhabit, based on those silly things like race, gender, disability or sexual orientation.

As to the specific issue of these two units being rented by Cascap Inc under contract with the Department of Mental Health – well Mr. McMahon has this to say:

If you think that somebody who is purchasing a unit doesn’t take that into [Cascap Inc’s] acquisition decision, their purchase of a property, then you’re crazy.

Nicely chosen words there Mr. McMahon. Of course you aren’t ignorant, or superstitious, or prejudiced.

How Much Can I Rent My Condo For

The easy answer is “whatever a tenant is willing to pay.” That answer though makes it difficult as an owner to predict the average rent that can be charged over a period of 5 or 10 years, and thereby determine if it is economically feasible to rent their unit, or if they should simply sell.

It’s an important decision – because margins on rentals can be very thin if the unit is highly mortgaged.

Certainly part of the process is to check what similar units are renting for, near where your unit exists. Maybe it also includes looking at some historical rental data. But good planning usually involves a bit of a formula.

There are two formulas – one on average income, and one on the unit price.

Average Income

As an owner, look at the average income your tenant may have. When we rented our unit – a two bedroom – we assumed a young single male with either a female or male roommate. In Canada for 2009 A non-elderly male (average) and a non-elderly female (average) make 40,600 and 35,800 respectively. Combined they would have 76,400 in income (both before tax).

The maximum a person should effectively pay in rent (including utilities) is 30% pre-tax. Because our condominium includes water, waste and electricity in the condominium fee, we don’t have to factor those into the 30%. So from an average income perspective, we should be able to charge about 1910/month. This turned out to be well over what the local market turned out to be – probably because other units don’t include electric, and maybe we are thinking that one or both might be students, which might reduce the (average to non-earner) income. If we change the female to non-earner, her income goes to 18,100 – or now a total income of 58700. 30% of that number is $1467.50/month, and if you subtract utilities (to be competitive with the market) then you get about $1387.50/month expected rent.

Unit Price

There is a rule of thumb that indicates if the cost of the unit is 15x or less the rental cost (yearly basis), then people will migrate from renting to buying. If the unit is 16x or more the rental cost people will continue renting. The smaller the percentage of the unit they pay per year, the better the odds of renting the unit. The sweet spot seems to be 16x or higher cost:rental makes better economic sense.

Assuming that we want to charge the highest rent, but still have it make worthwhile sense to a renter, we want to charge a rent that is 1/16 the cost of the unit. If we were desperate to rent the unit, we might charge 1/17 or even 1/21 of the cost – both being much more attractive to a renter. The city of Calgary places our Fair Market Value at $248,000. So our maximized rent would be 248,000 / 12 (months) / 16 (our ratio) = $1291. If we subtract utilities, we would be renting at $1211/month.

Which Formula Works

We are successfully renting our unit at $1200/month. It’s in line with the other local rents, and is competitive for both the city and the rental market (which changes as rental occupancy goes up and down). From a personal perspective, the Unit Price approach seems to be easy and very close to the actual rental amount. We should be aware though that if the rental market softens, we could expect to see rental rates at lower then 1/16 – if it was at 1/19, then the market would likely only support $1007 rent (or 17% cheaper), something we should be aware of.

The income ratio tells us the type of people we are likely going to be interviewing – with a pre-tax income of rent X 12 / .3 or in our case (at $1200) about $48,000 before tax.

Canada Is Advanced When It Comes To HOA and Condo Fee Collection

It is always easy to assume that what you experience is universal. With condominium legislation, that is most definitely not the case. Canada is dramatically different than the US as a whole, and we are well in advance with legislation that protects the viability of the corporation.

In Alberta (and most provinces has similar rules) we require a managed and adequate reserve fund for the replacement and upkeep of common property and the building envelope. The number of states that require such a reserve (I believe) can be counted on two hands.

In Alberta, condominiums can get orders to direct rental tenants to pay their rent to the corporation to pay off owners who are deadbeats on their monthly condominium contributions and any special assessments.

So it comes as a surprise (but an interesting point that the best way to grant condominiums the protection they need in the US is a massive economic collapse and the creation of what seems to be an unlimited number of deadbeat owners) that Florida is only now legislating the rights for corporations to collect from renters the debts of the owners (through the collection of the rent).

As well, most bylaws I know of disallow a delinquent owner to vote at annual general meetings. This also is only now being legislatively supported in Florida.

While all this seems a little late (and I would hope it spreads to other states), I’m glad it is happening. A corporation needs the ability to ensure the funds required to maintain their ongoing viability.