Rental Market Realizations | Toronto Realty Blog
I did something really odd the other day.
I turned down not one, but two offers to lease on a rental listing where the tenants were both offering all twelve months of rent up front!
Wait, back up.
I did something really odd the other day.
I took part in this fad called “working from home.”
Wait, back up.
I did something really odd the other day.
I had a “day off” and yet I found myself talking to sixty people, reviewing nine offers to lease, and working through two offers on a freehold listing for sale.
Wait, back up.
How can I sum all this up succinctly and have it make sense?
I’m hurting here, folks. I really am. It’s not COVID because, trust me, I’ve tested three times. But it’s something fierce and it’s absolutely knocked me on my ass.
A run-of-the-mill cold? The flu? Or some cool, sexy, new virus that nobody knows about yet? #FIRST!
Nah, I’ve seen this movie before. It starts with a lump in your throat, then congestion, then culminates with that one brutal night where you wake up in a cold sweat, body on fire, shivering, and when you strip off your sweaty clothes and then jump back under the covers with your teeth chattering, it feels like a feat saved for the Olympic Games.
It’s kind of funny, because on Monday night, I was texting with a friend about how I wasn’t feeling 100% and I said, “I just need a day.”
She wrote back, “That’s great, you’re going to take a day off? Wow, amazing!”
I responded, “Um, hold on a moment there professor. I said ‘I need a day,’ as in I need one day to get better. I’m not taking a day off.”
She asked, “What’s wrong with taking a day off when you’re sick, to get better?”
I simply said, “I’m too busy.”
On Tuesday morning, I could barely move. I couldn’t get out of bed. And that’s despite two children jumping on the bed like a trampoline, dancing to “Single Ladies,” which amazingly, they were able to put on the TV, and even with one of the kids placing their bare-butt in my face, I still only mustered up the strength to roll over and put my head under a pillow.
But there’s no rest for the wicked.
Wicked. It’s wicked.
Maybe this is a conversation for a therapist, but despite being sick, the show called “real estate” must simply go on, and there’s nothing I can do about that.
To that end, we have a lease, er, had a lease listing which seemed to be all the rage this week.
For those who don’t know, or didn’t read Tuesday’s blog, or both, the rental market in downtown Toronto is as hot as it’s ever been, and I’m tempted to say that it’s the craziest market I’ve ever seen.
On Tuesday, I wrote about a few “stories from the trenches,” which stemmed from a rental listing I had last week. But this week’s experience was something altogether different.
As I said at the onset, I turned down two offers to lease where the tenants were offering all twelve months of rent up front, and that’s because, obviously, we accepted a third offer where the tenant was providing the same.
This transaction provided many memorable moments, and since a lot of these, um, incidents, can be turned into “learnings” for those who could use a pointer here or there, I figured I’d regale you with these stories in the form of “Rental Realizations.”
Rental Realization #1: Toronto is different
I’m sure there are other hot rental markets around the country, and around the world.
I would not be surprised to hear from a would-be tenant in Toronto who has previously lived in a place where their system was tough, or the market was thin, or prices were high.
However, there’s just nothing like the Toronto rental market in the summer. I don’t care how tough it was to find a place for you and your cousin in Manhattan last year; that’s about price. In Toronto, it’s about availability, and then it’s about competition.
As I showed you in last week’s blog, “How Is The Downtown Rental Market?“, the absorption rate in July of 2021 was a comical 111%, and I suspect it’ll be higher this summer.
So when prospective tenants show up here looking for rentals, they need to realize right off the bat just how hard the search is going to be.
Not only that, agents need to know this, and more importantly, they need to convey this to their clients.
Rental Realization #2: There is no “special”
Consider Jimmy, who just finished university and has a job with Bell Canada, making a whopping $122,500 per annum. Not too shabby for your first job out of school, right?
But a landlord might see Jimmy’s age, or the fact that he’s never lived on his own – let alone in a big city, and look past his lofty income. And what if Jimmy starts his job in August, and he’s applying to rent a condo in July? Technically, he’s unemployed.
For every Jimmy, there’s a Johnny, and there’s a Jack.
On just about every rental listing downtown right now, there’s 5, 6, or 26 offers to lease.
None of these tenants are special, and even the ones offering twelve months of rent up front are going to be challenged by another prospective tenant who is also offering twelve months of rent up front.
Then again, consider the candidate offering twelve months of rent up front who is actually a poor option, on account of the fact that he’s between jobs, has poor credit, and his social media shows him in an unfavourable light. Sure, maybe he’s got access to cash and can provide $2,200 x 12, but that’s not all landlords are looking for.
Every landlord has a different set of criteria, and many tenants think that they’re special because of reasons A, B, or C.
And the sad part is: they should be special because of those reasons! But there’s so much competition in this market that those reasons often render them average.
Why is it so hard for two 26-year old women, with 6-figure salaries, to find a 2-bed, 2-bath condo to rent in the downtown core?
It’s beyond unfortunate; it’s sad.
But that’s the way it is, and prospective tenants need to understand this in advance, or they’re going to have a tough go.
Rental Realization #3: Even winning feels like losing
I called the ‘winning’ agent on Tuesday to tell him that my landlord was going to select his tenant, amid a group of nine prospective candidates, and the response wasn’t what you’d expect.
It was a sigh that sounded like defeat.
But that’s what winning feels like in this market; it feels like losing.
Because even though you just secured a lease, whether ‘you’ are the tenant or the agent, you can’t help but feel beat down by the six other lease offers that were rejected.
My daughter asked me last week, “Why do people sometimes cry when they’re actually happy?”
How do you explain this to a child? Try it, seriously. The words won’t make sense to a 5-year-old.
By the same token, how do you feel so defeated when you finally “win” in competition for a lease?
It’s a very odd experience, but one that many tenants and agents are starting to understand.
Rental Realization #4: Avoid using “here’s the thing”
I alluded to this in Tuesday’s blog, in that any time there’s a long-winded explanation needed on behalf of the tenants’ agent, there’s usually a reason why you don’t want to rent to these people.
On Tuesday, I told a story whereby I changed the names to the cast of Pulp Fiction to preserve the anonymity of those involved (and kudos to the readers for picking up on that!), which was so convoluted that it had to be part of a movie, or, it had to be true. Because who could possibly come up with something like that?
In the nine offers I reviewed on Tuesday, three of them had some sort of explanation.
“David, the client’s credit might show as 642, I mean, technically, but here’s the thing…”
Ah, yes, the thing. There’s always a thing. Always an explanation.
And sometimes, “the thing” makes sense, but you can’t help but still turn that applicant away.
“David, the tenant shows $48,000 per year in income from his day job, but here’s the thing: she bartends on weekends and she pulls in, like, a thousand bucks combined on Friday and Saturday, every week!”
I don’t doubt it, but that’s not verifiable income, and that’s not income that’s used in the calculation of GDS rations (more on those later!).
I mean, if we were in a soft rental market and I had a listing languishing on the market, I suppose we could ask for bank records to show the deposit of $1,000 every Monday, to verify this income, and consider renting to this tenant. But when there are eight other offers, this one is never going to win.
Long-winded explanations are reasons why you’re not going to be successful in this market.
And I’m not telling these agents “Don’t try,” but rather I’m telling these agents that when there are already eight offers on a condo lease, and you’re the one providing an explanation with “here’s the thing,” then why bother being the ninth offer? Go find a listing that’s been sitting on the market, and try your hand there.
On Tuesday, I said “I have no sympathy for these agents,” and I stand by that, I’m sorry. You can’t want what everybody else wants and expect to get it. It just doesn’t work that way.
Rental Realization #5: There’s no such thing as an “irrevocable date” on a lease offer
Let’s say there’s a house for sale for $1,000,000 and it’s been on the market for 28 days.
A buyer makes an offer for $950,000 and says, “This is our best offer, take it or leave it, don’t sign back or we walk.”
This buyer submits the offer at 5:30pm and the irrevocable date is 8:30pm.
That makes sense, right?
Irrevocable dates have a purpose when it comes to sales.
But with leases, they don’t. We almost don’t need to bother with irrevocable dates anymore.
With sales, you don’t care who buys your house, but rather you care about the price, deposit, closing, terms, and conditions.
With leases, you do care who is renting your property. In fact, that’s often more important than the price.
So when it comes to leasing your property, you’re not going to be affected by a “deadline.” You’re going to take your time, do your due diligence, call the tenants references, check their employment, verify their identity, and if that takes longer than the irrevocable date, then so be it! The offer will expire.
Is the tenant going to walk away? “You didn’t accept my offer within the irrevocable, so I’m out!”
No, they’re not. But if they did, you often have two, five, or ten other candidates to choose from.
An agent called me early on Monday night when we had only one registered offer, looking to submit an offer of her own.
She asked me, “What’s the irrevocable on the offer you have?”
I told her quite honestly, “I don’t know, I didn’t check.”
There was a long pause and I realized perhaps she thought I was kidding, or playing games, and so I filled in the blanks: “An irrevocable date really doesn’t matter in this market, does it?”
She said, “Well if it’s tonight, aren’t you obligated to respond?”
“No, I’m not,” I told her, as I’m not legally obligated nor morally, ethically, or rationally obligated. In fact, it would be in my client’s best interest, if this offer did expire that night, to not respond.
The process of leasing versus buying/selling is very different, and many agents and tenants fail to realize this. Look no further than the above situation of an example how.
Rental Realization #6: There’s only room for one person in the driver’s seat
Here’s where I sound pompous, but if the shoe fits…
I received an offer to lease from an agent on Tuesday morning, which sat in a rather crowded inbox, and she called me to follow up. Twice.
I was hurting, badly. Drinking tea, spraying Dristan, eating Tylenol like they were Runts.
Sometimes, I like to get a feel for another agent by seeing how they conduct themselves, ie. their medium of communication, their frequency, etc.
In this case, she called three times inside of ten minutes, and then I called her back.
She told me that she has submitted an offer to lease and I said, “I’ll have a look shortly.”
She said, “Well, don’t wait too long, it’s only irrevocable for one hour.”
Can you imagine the range of emotions I was now experiencing?
Running at half-brain power, I was still able to provide her with a deliberate and dramatic pause, inducing a classic, “Ummmmm…..hello?”
“I’m here,” I said. “I’m just processing this one-hour irrevocable,” I told her.
“Well, it’s a great offer,” she said, “It’s full-list price, three months’ deposit, triple-A tenant…”
She rambled on about what a great person her tenant was, and provided a bit of a “….so here’s the thing” explanation, and not wanting to pick a fight at this point, I simply said, “I’ll do my best to get to this in the next fifty-eight minutes.”
Then I just moved on.
Her offer was one of nine, and was not one of the three that provided 12 months’ rent up front, nor was it one with a tenant who stood out in with a high income, high credit score, lengthy employment history, or all of the above.
Maybe this agent had already lost so many times, she figured, “What have I got to lose?” And maybe she took a shot in the dark.
But unlikely. Extremely unlikely.
Once again, it simply demonstrates a lack of experience, understanding, common sense, and shows an overwhelming sense of entitlement and naivety.
Rental Realization #7: The bus doesn’t stop and wait for you to get on
I went to bed on Tuesday night at about 8:45pm, and even hanging on that long took effort.
Before I went to bed, I received this page from my 24-hour call centre:
I know, it looks like a redacted CIA document, but you know I have to do that.
So what happened here?
Well, an agent wanted to present an offer!
But this agent didn’t know how to do that.
This agent had me paged through our 24-hour call centre, asking for me to send “instructions by email” to him so that he could send me an offer.
Was Google broken?
You can find any agent’s cell phone and/or email address on TRREB, let alone on many places across the Internet.
I’m always amazed at agents who say, “What’s your email address?” rather than simply going onto TRREB and looking me up by name.
This agent, rather than calling my cell phone – which is everywhere online, or finding my email address, though to page me through our call centre, asking for “instructions.”
Oh, and this was about four hours after we had accepted one of the nine offers.
The rental market is hot.
The rental market is competitive.
You have to be living on the moon not to know this, so if you see a listing that looks great, and you have a client who wants to make an offer, then move quickly!
This agent emailed me the offer on Wednesday afternoon, a full 12 hours after he or she sent that page, and about 24 hours after the property was leased.
The offer was for under list, with a co-signor, but that’s an aside.
I spent a lot of time here on TRB early in 2022 lamenting the lack of experience of today’s agents, so much so, in fact, that I think many of the readers tired of it. But in cases like this, you have to ask, “Is there any solution?”
Once again, I just feel bad for the tenant…
Rental Realization #8: Sometimes, you’ve lost before you’ve begun
I’m not providing mixed signals here, am I, folks?
On Tuesday, I talked about agents not trying and how much that bothered me.
And yet here, I’m about to explain when and why an agent should not try.
But rather than coming off as hypocritical, I think for the person who really reads, absorbs, and understands what I’m saying, this can come off as insightful.
One of the offers submitted was for an individual currently employed and making a salary of $49,000 per year.
The rental price was $2,300 per month.
A classic GDS ratio for evaluating tenants is simply looking at the gross rent as a percentage of the gross salary, in this case, $27,600 divided by $49,000, which gives us 56.3%.
Historically, we liked to see GDS ratios between 32-36%, although in some cities, and in some occasions in the market (like a tough rental market), we’d accept 36-39%.
I don’t think I’ve ever seen a landlord rent to somebody with a GDS ratio over 40%.
This isn’t judgment here, but rather this is business. This is math. This is common sense.
A person making $49,000 per year, cannot afford to rent a condo for $2,300 per month.
What does that person take home after taxes? About $38,000?
You can’t spend $27,600 of your $38,000 on rent. It’s impossible.
And while I will simply email this individual’s agent and say, “Thank you so much for your offer, but the landlord has signed a lease with a different candidate,” part of me wants to explain to this agent that he or she isn’t doing this tenant any favours by making these offers to lease.
Even if this person was able to secure a rental in this market, which I don’t think they’d have a hope in hell of doing, this person is setting him or herself up for financial ruin. And I know, some of you will say, “The tenant could have family money, they could have savings, you never know,” I think that’s wishful thinking, and I think if that were the case, it would have been communicated by that agent.
Some people just can’t afford what they want in this city, and that either makes Toronto an awful, nasty place to live, or it makes today’s tenants’ look entitled, or somewhere in between.
Okay, so how was that?
Considering I’ve had four Tylenol, six Nyquil Cold & Flu, seven sprays of Dristan, three Camomille teas, six cough-drops, two Campbell’s soup, and one lengthy and non-healthy licky-kiss with my dog, I’d say this blog post turned out A-o-kay, all things considered!
If the tone in the preceding was too negative for your liking, blame my cloudy and angry brain. I mean, you should blame the real estate agents in my stories, but if you like to cheer for the underdog, then it’s my fault, on account of being sick, and taking it out in my blog stories.
I mean nothing else newsworthy happened in the world of real estate, economics, and monetary policy today, right?
See you Monday, folks!