You’ve found an awesome property that checks all your boxes, and you're ready to sign on the dotted line. Great! But what happens if the place has renters living in it? We talked to Marc Ronne, Sales Representative, who commonly works with investors. He says the answer depends on what you're planning to do with the property: live there yourself or rent it out.
If you plan to make it your home (or you’re buying it for your kids, parents or other family members), start by asking where the current tenants are in their lease. If they’re on a one-year lease, the earliest you or the seller can ask them to vacate is 60 days before the end of that first one-year term. If, however, they’ve lived there for more than a year, 60 days’ notice is sufficient.
It's best to get the seller to serve notice once the sale has gone through to avoid having to pay the tenant one month’s rent or offering an acceptable replacement unit (this is the “termination for personal use by owner” rule). The 60 days usually falls into a normal closing period; your agent will ensure that gets factored into your offer.
If your intention is to buy the condo as an investment property, that’s where things get a little more complicated. If the renters want to stay, you can't pretend you’re buying the place for yourself or your family, then turn around and start an Airbnb or rent it out to someone else at a higher rate. You could end up paying huge fines.
“I’ve definitely heard of investors who get tenants to vacate by saying they’re buying it for their family, then rent it out for a way higher amount,” says Ronne. “But if you’re thinking about doing that, you could end up being fined up to $50,000. There are laws in place to protect tenants from that situation.”
So what about raising the current tenants’ rent? Well, there are rules around that as well. Rent can’t go up by more than the yearly rent increase guideline mandated by the Ontario government (2.2% for 2020). It also can only be done once per year, and written notice of a rent increase must be provided at least 90 days before it takes effect. The only way you can raise rent by more than that is if you’re renting to new people or you get an exception from the LTB (Landlord & Tenant Board). So if the rent the current tenants are paying isn’t enough to make your investment worthwhile, it may be in your best interest to keep looking for another property.
If you're happy to keep the current tenants, however, your agent will ask them for a copy of their lease to ensure the terms are favorable for both sides. One thing to remember: “inheriting” tenants in a purchase means you can't vet them the way you would with people applying to rent a vacant unit. Their only reference comes from the seller.
Also: it’s VERY hard to evict people right now.
Keep in mind that even if you are planning to live in the unit yourself, and are 100% within your rights to ask tenants to vacate, they may refuse. Because of the ban on evictions during COVID (which was recently lifted) there is a 6 to 12 month backlog on eviction hearings: if you buy now, it could take a very long time to get uncooperative tenants to leave.
So with all that to worry about, why would you even consider a unit with tenants in it?
There is one very big upside: keeping great people. Finding good tenants takes time and can be a giant hassle. If a property has proven tenants with a good track record of paying rent and treating the home with care, it can be worth keeping them, even if their rent is a little lower than what you would charge otherwise. Really, if you add up the cost of having the unit sit empty while you find tenants, the time and money to find good candidates, plus the potential cost of damages incurred by less-than-ideal renters, it could end up balancing out.
Thinking about investing in a condo or buying a place for yourself? While the current market for houses is super-hot, the condo market is actually the most accessible it’s been in a long time. The number of available properties is way up and prices have come down, so it’s a great time to buy. Contact a Condo Pro to start your search.
About Marc Ronne
Being a former business owner of a Graphic Design consulting firm has given Marc an eye for detail and a creative edge. Looking to exceed client expectations with fierce negotiation skills, VIP client service, and in-depth local knowledge, Marc makes for an exceptional real estate agent when buying or selling. He always goes the extra mile for his clients and is one of the Top Producers in the brokerage. He is a condo pro for the West End and Downtown Core, servicing areas like Mimico, High Park, King and Queen West / Liberty Village, and Yorkville.