As a real estate investor and blogger, I have recently realized that sharing my story and numbers is an integral part of the process. The more transparent I am, hopefully, the less taboo money becomes.
But it’s also important to note that real estate investing isn’t for everyone. It is far from passive. And unlike common belief, real estate doesn’t always go up (either does the stock market, for that matter).
Although real estate did appreciate in specific Canadian markets, there is no true “Canadian real estate market.” Just because properties increase (or decrease) in value in one major center doesn’t mean they will everywhere. Canada is very vast and so is their real estate.
Real estate investing is also not always what you imagine or see on social media or HGTV. No, I’m not constantly going out to fix plugged toilets. But I’m also not renovating million-dollar homes.
So in an effort to be transparent and give you a glimpse behind the curtain, here is the truth about real estate investing in a pandemic; the good, the bad, and the ugly.
There were a lot of positives that came out of our real estate portfolio last year. For one, all of our properties are still intact and none of our tenants contracted Covid.
We have always prided ourselves on building good relationships with our tenants and these proved invaluable throughout the pandemic.
Relationship building is one of the reasons why we choose to self-manage our properties. We like to know who is living there and working with them to provide a safe and beautiful home for them and their family.
We reached out to all of our tenants as soon as things started to escalate and businesses began to close. We let them know that we were there to help and work with them as needed. And we made them aware of the new government stimulus programs that were just starting to roll out.
These open communication lines helped build trust so that our tenants felt comfortable reaching out if they needed help. It also showed them that we cared about them as people. And that we weren’t just some big corporation only concerned with the bottom line.
No Vacancy (Almost)
Somehow throughout everything that was going on in the world, we managed to keep most of our properties occupied throughout the pandemic. We aren’t out of the woods yet. But the rental market seems to be turning around slightly, so hopefully, that continues to work in our favour.
We did, unfortunately, have one month of vacancy (out of 9 properties, that ain’t bad), but more on that later in the Ugly section.
I have zero tolerance for vacancy.
Whenever we know that someone is moving out, we get on it right away. We keep good showing pictures and well-written ads always at the ready. We advertise our places immediately, and if we eventually have to decrease rents slightly, we will. Slightly lower rent is better than a month of vacancy.
No Mortgage Deferrals
In the spring of 2020, the Government of Canada announced that banks were offering mortgage deferrals for up to 6 months. The concept of a mortgage deferral isn’t new, as most lenders will let you defer one month throughout the mortgage term. The length of the possible deferrals is what was part of the stimulus announcements.
With a mortgage deferral, that “payment” just gets tacked to the end of the term. So although it may solve a short-term cash problem, all it does is kick the issue down the road.
Because our goal has always been to eventually pay off our rentals (and possibly live off the rents when this happens), mortgage deferrals don’t appeal to us.
We keep a large cash cushion in our real estate account that acts as a buffer should we need it. And yes, we needed that cash buffer this past year, but not to the point that we needed a mortgage deferral.
We are still on track to pay off all our mortgages within their original terms.
One of the benefits of real estate investing (as opposed to investing in the markets) is leverage. We put 20% down on all of our rental properties, and part of the rent payments covers the mortgage payments.
This isn’t a huge deal when you have one property, but when you multiply it by 9, the annual mortgage pay down can really add up.
Overall in 2020, we had over $66,500 of mortgage paydown thanks to our tenants. This was a silver lining to everything else that happened. Sometimes it is easy to forget about mortgage paydown. But this mortgage paydown directly increased our net worth.
It’s now time to talk about some of the negatives of real estate investing in a pandemic. Because it wasn’t all sunshine and roses.
We had never had a year before in which 5 of our properties turned over tenants in one year. For the most part, we have good relationships with our tenants, so we are always sorry to see them go.
Of the five tenant turnovers, two of them went on to buy their own properties, and one of them moved to a different city. The other 2 were regular tenant turnovers that happen every year.
It’s always good to know that tenants are moving out because they are moving on, not because of something we did as landlords.
We have heard our fair share of lousy landlord stories and try never to become one. Although, like anything, you can’t please everyone. I’m sure that there are past tenants out there that don’t have anything good to say about us.
We decreased rents in 2 of our properties for several months to help the tenants get by. I don’t regret this decision, but it did impact our bottom line.
With 9 properties, things could have been a lot worse. But one of the things we consider when renting out a property is how many income streams the tenants have. A solo tenant is riskier than two tenants who are each employed. That doesn’t mean we never rent to solo tenants, just that we want to make sure they can comfortably afford the rent.
This is as much for our benefit as theirs.
Our base costs also increased this past year, like they do every year. We did not increase anyone’s rent to compensate for this, so overall it felt like a bit of a rental decrease. Sometimes it’s better to keep good tenants in the property rather than try and nickel and dime them and have to re-rent it.
Ideally, the rental market eventually rebounds, and we can increase rents again in the future. For now, it feels like we are just trying to hang on and get through this. But maybe that’s how everyone feels, whether they are involved in real estate investing or not.
5 Major Appliances Repaired or Replaced
One of our strategies to help control repair and maintenance costs is to buy new or newer properties. This style of property also has the double benefit of being easier to rent. In our experience, given a choice, tenants will often choose a newer property than an older one in the same neighbourhood.
But like anything, appliances are not designed to last forever. And often, appliances in rental properties do not last as long as they would in your home. There is more wear and tear on them, especially if you have tenants who do not take pride in their homes.
This past year we had to repair 2 fridges and replace 2 dryers and a washing machine. When we had just one property and no little one, it was easier to go and fix something when it broke down. Now with 9 properties and a toddler in tow, things are a bit more complicated.
We often do a quick cost analysis to see if it’s worth our time or the cost of a repair person to try and fix it or not. This past year, it often came down to better use of our time and money to just replace the appliance. This also made the tenants happy because they have more confidence in a brand new machine.
Whenever it came time to replace something, I still shopped around and negotiated the best deal that I could.
The following is a list of things that happened that had the most significant impact on our real estate portfolio during the pandemic. These are things that we do our best to avoid (or prepare for), but a pandemic isn’t always predictable. Thankfully, although these all impacted our portfolio, we could roll with the punches and tried to offset the Ugly with the Good listed above.
An Abandoned Property
This was a new experience for us.
In all our time being landlords, which admittedly isn’t that long, we had never had a tenant just up and abandon a property before. Well, that changed during the pandemic.
Thankfully our spidey-senses were up with this tenant, and we caught the abandonment close to went it happened. She had left the property unlocked, the power turned off, and it was October. Things could have turned out much worse than they did.
But she also left a ton of stuff and garbage behind for us to deal with. It was a lot of work and cost us a lot of money to get the property back up to rental shape. During this time, we, unfortunately, had one month of vacancy while we dealt with everything in the property.
Thankfully we were able to get it rented the following month, albeit for reduced rent, just to get us out of a tough spot.
We eventually took the previous tenant to landlord-tenant court and won our case. Now we are just trying to collect for damages, something that is not always easy.
-$10,000 Annual Cashflow
All of the major appliance replacements, dealing with the abandonment, and decreased rents meant that real estate investing in a pandemic resulted in approximately -$10,000 cashflow overall. This was by far our worst year as we usually are in the positive for cash flow. And always recommend that people invest in real estate for the cash flow.
Thankfully this trend should not continue into future years. And once we can collect from our previous tenant for the abandonment, our numbers will improve overall.
It’s also important to note, that although this year was negative overall throughout the lifetime of our real estate investment portfolio it has been positive.
This is just another reason why it is essential to have cash reserves when investing in real estate. You cannot afford to invest in real estate if you can’t afford to keep a cash cushion in your bank account. And as much as I hate having so much cash sitting there not earning anything, I am grateful for it in the off times that we need it.
-$105,000 Property Values
One way we account for our rental properties in our net worth is to assign them a value. For this value, we use their tax-assessed value. Is this the most accurate way? Maybe? Maybe not? But for us, the most important thing is that we are consistent.
By using the tax assessed value, we are also taking emotion out of it. We are not using a property value that we think it should be because we are not experts at assessing property values.
And even if the assessed value isn’t 100% the same as the market value, it doesn’t matter because we aren’t intending on selling anytime soon. The taxed assessed value is more of a placeholder.
So using the taxed assessed values for all of our properties, our portfolio lost $105,000 of value last year during the pandemic. As you can see, property values aren’t increasing everywhere in Canada.
And although I hate seeing that number decrease because we aren’t looking to sell, it is just a vanity number. It’s like holding a stock that goes down. If you don’t sell that stock at a lower price, you don’t realize the loss.
Well, there you have it, the truth about real estate investing in a pandemic; the good, the bad, and the ugly.
Not every year is like this.
But it’s still important to take note of these bad years. So many times, people talk about real estate as only having this massive upside. But that’s because people like to brag about their wins and keep quiet about their losses.
I don’t think the year was a loss for us. A lot of good things still came out of our real estate portfolio. And we are continually learning how to manage things better and become more efficient with our time and money. I’m not ready to liquidate the portfolio yet.
However, there were times last year when I wanted to sell a property or two.
If you’re a property owner, leave a comment below about how real estate investing in a pandemic went for you last year.