Rent-control confusion limits returns

“Most people think that the vast majority of rental units, many of which are newer-build condos, are subject to rent control, when, in fact, they aren’t,” says Kevin Somers of Royal LePage. “I think that’s probably artificially keeping our rents a little bit lower than they could be.”

While rent-control increases for 2013 are set to be capped at 2.5% for Ontario and 3.8% for B.C., newer-build condominiums in the former are largely exempt from those limits, something not all investors know.

“I think part of the challenge is that a lot of current smaller investor-owners aren’t aware of the permutations of the Residential Tenancies Act in terms of the latitude they have to increase rents beyond rent control,” says Somers.

That ignorance comes at a cost to the bottom-line of many investors, increasingly dependent on rental increases to meet cash flow expectations.

“We’re getting to a point right now where a lot of these small investors are counting on the financing costs of carrying their units being offset, if not almost entirely, by the rents they can command,” says Somers. “The market, overall, given rent control, is getting close in some places where that might not be feasible, especially as mortgage rates increase.

“So, some of these small investors are potentially getting caught in a bit of a squeeze.”

It may fall to their real estate professionals to keep them out of that crucible, says Somers.

“Brokers should be engaging in an active dialogue with their clients around what is and isn’t acceptable from a Residential Tenancies Act point of view,” he says, “We’re always trying to act in our clients’ best interest relative to commanding what the market will bear for them as a return on their investment.”

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