Barrie Buzz - Real Estate, Community and Other Stuff: 2011

Tuesday, December 27, 2011

Cashflow 101 Game Night in Barrie - Join Us!

This was a photo taken from last months game night! A great time was had and we are hosting another tomorrow night! That's Wednesday, December 28th.
Join us at 152 Bayfield Street, Barrie Ontario. Come in the front door reception and join us in the coffee room! Look forward to meeting new players or players of any and all levels!

Dealing with Ontario tenant problems

Before making up your mind about becoming a real estate investor/landlord or, if you are one, here's some great insight from a fellow property Manager. Here's a Guest Blog Written by Barbara Krauss

As a property management firm, it is our job to deal with tenant problems as they arise. After all, one of the biggest benefits for an owner in hiring a property management firm is to no longer have to deal with late rent, noisy parties, or tenant bickering.

The following article will deal with landlord and tenant relations as well as with due process and procedures as they apply in the province of Ontario under the Residential Tenancies Act and the Landlord and Tenant Board, where disputes that fall under the Act are resolved.

Before looking at the complexities of the Landlord and Tenant Board, let’s take a look at how to avoid ending up before the Board in the first place.

Tenants provide us with the revenue stream that, at the end of the day, makes real estate investments profitable. We as landlords provide tenants with a home. This simple statement is often at the root of disputes since what is being protected by the one is of little consequence to the other and vice versa. As landlords, it can be helpful to bear in mind where tenants are coming from when things do not go as we hope or as we feel they should. It may not change the outcome, but it might change the way in which we get there.
Being open to what tenants are telling you, writing them a simple letter asking that an issue be addressed or corrected, and making yourself available to them if they wish to talk or show you something can be useful tools in resolving conflicts without going before a legal instance.

In Ontario, the Residential Tenancies Act provides our industry with clear rules on what is permitted, what is not, and the circumstances under which the rules apply. As landlords, we may not always agree with those rules, but we certainly should be very familiar with them and keep our actions or inactions within those bounds. Once familiar with the rules, we should be mindful to apply them consistently.

When tenants approach us with individual requests, we all too often make up our minds based on the story that come with them: do we like the tenants, do we sympathize with their story, were they polite when they approached us? These are legitimate questions that we ask ourselves as human beings, but as landlords, we do not serve the property or the tenancy well by making exceptions and special cases. Why should one tenant have their rent increase waived and not the other?

Why should one tenant get a new fridge and the other not? When these decisions are made consistently and based on facts rather than personal stories, we avoid disputes and ill feelings towards the landlord. If your policy is to freeze the rent if it exceeds $ 1 000 for a particular type of unit, for example, then freeze it for everyone in that category.
Do not freeze the rent only for the tenants you feel sorry for. If your policy is to repair appliances rather than replace them, then do so for everyone with a defective appliance.

Do not provide the tenant you like with a new fridge and leave the tenant you do not like with an old fridge. If your policy is to send late reminders to every tenant in arrears on the 5th of a month, then do so for all that are in arrears, not only for those that have not contacted you to tell you their story. There is never a good answer when a landlord refuses a tenant something and they ask: but then why did you agree to it for so-and-so?

Make sure your tenants know what the building’s policies are, make sure that all policies are within the rules that govern landlord and tenant matters in your province, and apply your policies consistently.
Not all problems, unfortunately, can be avoided or resolved through proactive policies and their consistent implementation.

In our experience, the three most common types of disputes from a landlord’s perspective are non-payment of rent, persistent late payment of rent, and unruly behaviour or damages.

In Ontario, the Landlord and Tenant Board provides a series of forms that are categorized as follows: N-forms are Notices that landlords may use to advise tenants of their intention to pursue a matter at the Board if not immediately rectified.

N4 forms, for example, are used for non-payment of rent; N8 forms for persistent late payment of rent; and N5 forms for damages or behavioural disturbances. L-forms are Landlord applications to the Board to have a matter heard. T-forms are Tenant applications to the Board to have a matter heard.

There appears to be an urban myth out there that the bodies governing landlord and tenant disputes have a pro-tenant bias.
Our experience has been that while adjudicators may appear to display some degree of pro-tenant bias, it is not anchored in the concept of right and wrong, but rather in the concept that a tenant is an individual who in all likelihood has never stood before a Tribunal and that the landlord is a professional who stands before a Tribunal regularly.

Therefore, it sometimes feels like there is a bigger onus on the landlord to know and follow procedures correctly and more leeway for the tenant who may not be fully aware of these procedures. In actual fact, we know that the opposite can also be true: some tenants are seasoned visitors to the Board and know exactly how to apply the processes, and some landlords have very limited experience – if any – with bringing an application before the Board.
Generally speaking, however, the Board provides good opportunity for both a landlord and a tenant to be heard and a fair ruling to be arrived at.

The key for landlords, especially given the Board’s assumption that we do this type of thing on a regular basis, is to ensure that the paperwork required is accurate, complete, and properly filed.
“What are the most common mistakes that landlords make when filing an application?” Cathy Corsetti, President of Corsetti Paralegal and Chair of the Paralegal Standing Committee, and I came up with a Top Ten list of procedures and pitfalls for landlords to be aware of:
Procedure: on an N4, the termination date must be no earlier than 14 days after the Notice has been served.

Pitfall: the 14 days start from the day the tenant is served, not the day the documents are prepared. If the Notice was served to the tenant by mail, 5 extra days must be added to the calculation to allow for the delivery period.

Procedure: an N4 may not include anything other than rent.
Pitfall: There may be other charges such as NSF fees or maintenance back-charges on a tenant’s ledger card. While these are legitimate charges and may appear on a ledger card, the amounts may not be included in the N4 or the subsequent L1 application.

Procedure: the amount the landlord is claiming for must be correct and the dates on the forms must be correct.
Pitfall: we can all make a mistake adding up the numbers or a typographical error when filling in the dates. Double check the Notice and the Application for accuracy.

Procedure: an application can be withdrawn if the matter has been resolved prior to the hearing date.
Pitfall: do not withdraw the application on the promise of tenants to pay. Wait until the funds have been received and cleared before withdrawing an application. Make an attempt to obtain certified funds. If the tenants break their promise and do not pay, the whole process will have to be started over: a new N4 must be issued, 14 days must past, and L1 application must be filed, and a hearing date must be set.

Procedure: the Certificate of Service should be filed with the Board prior to the hearing. If it is not, it must be presented at the hearing.
Pitfall: if this procedure is incomplete, your matter will not be heard. Having your paperwork in order and a copy of the Certificate of Service at the top of the pile will allow you to proceed efficiently. Your claim may end up under additional scrutiny if you look disorganized to the adjudicator.

Procedure: information on N5 or N8 notices must be precise so that tenants know exactly the case they have to meet.
Pitfall: saying “loud partying every night” is not specific, nor is saying “the rent is always late”. Exact dates and incidences are important. Tenants must be able to defend specific allegations.

Procedure: when the first N5 is served, the tenant has 7 days to correct the issue at hand. If the issue is corrected but repeated within 6 months of the first N5, a second N5 can be filed with no provision for correction for the tenant.
Pitfall: these time periods must be very closely monitored and documented. If the N5 has been served by mail, the 5 extra days must again be added and the monitoring therefore starts 5 days after mailing. If the tenant does not correct the issue within the requisite 7 days, file for termination immediately, not several weeks later. If the tenant corrects the issue but repeats it within 6 months, serve the second N5 immediately, not at the second or third repetition of the issue.

Procedure: the onus is on the plaintiff to provide proof in a matter.
Pitfall: when in the grey area of behavioral issues such as defining what is loud music or what is late noise-making, it is important to bring witnesses to the hearing. This can be your superintendent or other tenants whose reasonable enjoyment of the premises has been compromised by the defendant’s behaviour. Not having witnesses to bear out the case can lead to a case being dismissed for lack of evidence.

Procedure: you must provide tenants with 24-hour notice that you or a person contracted by you will be entering the tenant’s unit.
Pitfall: even if you have a waiver through your maintenance work order or a verbal agreement to enter from the tenant, always provide proper 24-hour notice in writing in conflict situations so that the tenant cannot claim illegal entry before the Board.

Procedure: if you have filed a Sheriff’s Order to have a tenant physically removed from the premises, you must confirm the necessity for the Sheriff to attend prior to the actual eviction date. You will be provided with a call-in date and time to do so.
Pitfall: do not miss the call-in date with the Sheriff’s office. In Toronto, this is a 2-hour window on a given day. If you miss it, the Sheriff’s Order ($ 250 in Ontario) must be re-filed.

If you are unsure of any of these procedures, it can be helpful to contact a licensed paralegal for advice or to take over your case. If you need to find a licensed paralegal in Ontario, the law society’s website: www.lsuc.on.ca provides a paralegal directory.

Property manager Barbara Krauss takes up the myriad issues between tenant and landlord that too often end in bickering and, ultimately, before the board. There is a way to avoid most, if not all of that argy-bargy, says the property expert.

Fire & Safety - Are you a Responsible Landlord?

Fire Safety - it's no joke! Don't get a "fly by night" property manager or hire a real estate professional simply to rent out your unit to a tenant. If the person you hire to do tenant placement is not going to take ALL measures to inform you, well, this is a huge liability to you and not the right person for the job...PERIOD. Going to manage the property yourself? BE INFORMED and know all legalities that come with it. Not just about zoning but also fire and safety. Be a responsible owner, it's so much more than just cashing cheques every month. Read the following for more information because ignorance is not an excuse and you'll be fined heavily...

Rental Property Owner Information

Do you own a rental property of ANY kind? Make sure you’re familiar with your responsibilities as outlined under the Ontario Fire Code.

“Unless otherwise specified, the OWNER shall be responsible for carrying out the provisions of this Code”.

The bottom line for building owners is:

There are requirements for ALL buildings. (Yes, even single family dwellings)

Ignorance of the law is NO excuse, you ARE responsible.

Fire Inspectors WILL ask to see your records of maintenance and testing.

Failure to comply with any of the requirements of the Fire Code including to keep and produce records is an offense under the Fire Protection and Prevention Act punishable by a fine of up to $50,000 or imprisonment for a term of up to 1 year or both. (For corporations, the fines are up to $100,000). (Note: or the death or injury to your tenant which will be on your conscience!)

Why are the penalties so harsh? The requirements of the current Ontario Fire Code have come about as a result of past fires that resulted in the tragic loss of life and property. The Fire Code is a minimum standard that’s sole purpose is to save lives and property. While it may not necessarily be on the best sellers list, the Ontario Fire Code is essential reading (the relevant sections) for property owners. If you don’t know what it says, how do you know if your building is compliant? Fortunately, there are lots of ways to obtain the information you need:

Purchase a copy of the Ontario Fire Code.

Reference a copy of the Ontario Fire Code on the “The Office of the Ontario Fire Marshal” website www.ofm.gov.on.ca.Contact a private consultant experienced with the Ontario Fire Code.

Contact the Barrie Fire and Emergency Service.

Remember, when it comes to smoke alarms in residential dwelling units, YOU must install them, YOU must maintain them, and YOU must provide the tenant with a copy of the manufacturer’s instructions. It is strongly recommended that you complete the maintenance log with the tenants and have them sign as well for your records. Do this when they move in and annually after that. How else will you prove you have installed and maintained the smoke alarm as per the Fire Code should a discrepancy arise?

Second Suites - Do you own one? Is it LEGAL or ILLEGAL? Regardless, owners of houses containing two self-contained residential units (dwelling units) are now required to bring their buildings into compliance with the new fire safety regulation adopted under the Ontario Fire Code. Tenants in these buildings are entitled to ask their landlords to make sure that the fire regulations are met.

WHAT ARE THE REQUIREMENTS?

In general, the regulation contained in the Ontario Fire Code addresses four fire safety issues:

fire separation for each dwelling unit

means of escape from each dwelling unit

smoke alarms

electrical safety

The owner has three options for compliance with the fire separation for dwelling units. Four options are provided for compliance with the means of escape from each dwelling unit.

Depending on the option selected for fire separation and means of escape, it may be necessary to install electrically wired, interconnected smoke alarms throughout the house. Interconnected smoke alarms are designed to sound simultaneously when any one smoke alarm is activated, providing early warning to all occupants of the house at the same time.

Where interconnected smoke alarms are not installed, every dwelling unit must be equipped with a battery operated or electrically wired smoke alarm on every floor level that contains a bedroom or sleeping area.

All smoke alarms must be maintained in working condition, and they must be audible in the bedrooms when the bedroom door is closed.

The owner must also arrange for the house to be inspected by Ontario Hydro and to correct all fire safety hazards identified through this inspection.

Owners should be aware that bringing existing houses into compliance with the new regulation may require repairs or alterations for which a building permit is needed under the Building Code Act.

This text is for INFORMATION purposes only. For more information on compliance, contact the City of Barrie Fire & Emergency Service Headquarters the the contact information below. Downloads are also available for you as well.

Remember, it's YOUR responsibility regardless if you have a Property Manager or not. Make sure you follow up and have WRITTEN confirmation at all times.

Barrie Fire & Emergency
Service HeadquartersPhone: (705) 728-3199155 Dunlop Street West

Downloads

Fire Drill Checklist
Nonfixed Seating Requirements
Fire Safety Plan - 2 Stage
Fire Safety Plan - No Fire Alarm System
Fire Safety Plan - Single Stage
Winter Safety

Wednesday, November 30, 2011

RRSP vs. Tax-free savings Which is best? In an excerpt from The Wealthy Barber Returns author David Chilton looks at which tax-sheltered vehicle is best- your RRSP or tax-free savings account.

RRSP vs. Tax-free savings Which is best?

In an excerpt from The Wealthy Barber Returns author David Chilton looks at which tax-sheltered vehicle is best- your RRSP or tax-free savings account.

In this excerpt from The Wealthy Barber Returns, called the Battle of the Abbreviations, author David Chilton looks at the pros and cons of saving in your RRSP or a tax-free savings account.

Remember when life was simple? You needed to save and invest for retirement, so you opened an RRSP and contributed as much as you could each year.

Sure, the saving part was tough. And, of course, investing always had its challenges. But at least we all knew that an RRSP was the way to go.

Everybody said so. The woman on TV. Your advisor. The Wealthy Barber guy. Even your know-nothin’ cousin.

Then in 2009, along came the TFSA — totally fantastic savings account (or tax-free savings account).

Hmm. Suddenly, a second option to house our retirement dollars. What to do?

Many counsel us to put the maximum allowable amount into both our RRSPs and our TFSAs. For big-income, childless people living rent-free in their parents’ basements, that’s unquestionably solid advice.

The rest of us are probably going to have to prioritize. We need to figure out which vehicle to focus on first.

When you make an RRSP contribution, you get to deduct that amount from your taxable income. The investments inside your RRSP grow free of tax while they stay in the plan. Down the road, however, when money is withdrawn directly from the RRSP or from the registered retirement income fund (RRIF) or annuity to which the RRSP has been converted, it will be taxable.

I’m alarmed by how many Canadians still don’t fully grasp that last point. Over and over again, I see net-worth statements where the full value of an individual’s RRSP is listed on the Assets side, but no corresponding eventual-tax-owing amount is recorded on the Liabilities side.

You may have a $110,000 RRSP but you also have a partner — the government — waiting patiently for its share. Annoying, but true.

In essence, a TFSA is the mirror image of an RRSP. You contribute after-tax dollars. In other words, you don’t get a deduction for your contribution. But once the money is in the plan, it not only grows free of tax, but also comes out free of tax. No tax ever! Fantastico!

If you don’t love TFSAs, sorry, you’re nuts. But that doesn’t necessarily mean you should love them more than RRSPs.

When the federal government introduced TFSAs, it created a chart similar to this one:

I’ve spent almost two full books trying to avoid number-laden charts, but this simple, little table is quite illuminating. It neatly shows how a TFSA contribution is made with after-tax dollars, while withdrawals are tax-free. And an RRSP contribution is made with pre-tax dollars, while withdrawals are taxable. Yes, I’ve already explained that, but I thought it best to repeat.

The chart also demonstrates that if your marginal tax rate at the time of the RRSP contribution is the same as at the time of the withdrawal, TFSAs and RRSPs work out equally well.

Even the numerically challenged can understand that if the marginal tax rate is lower at the time of withdrawal than at the time of contribution, the RRSP will win. Conversely, if the marginal tax rate is higher at the time of withdrawal than at the time of contribution, the TFSA will win.

Easy, right? You just need to guess your marginal tax rate at the time of potential withdrawal and base your decision on that.

I’m so disappointed that it’s not that simple, darn it. I love simple. But sadly, the real world is more complicated than the chart world. Quite a bit more complicated.

In the last chapter, we saw that many of us, if not most of us, contribute to RRSPs with after-tax savings and then spend the refund. I hope the previous chapter changes that, but for right now, that’s the way it is. Heck, having some fun with our refund cheque is like playing this year’s first golf game or gardening on May 24th — it’s an annual Canadian tradition. A rite of spring.

Let’s look at a new chart that reflects that reality:

Holy smokes, the TFSA is kickin’ butt!

“That’s not fair,” you might argue. “You forgot to include the $400 tax refund that the RRSP contribution generates!”

No, I didn’t. It’s a chair now. Or half an iPad. Or a flight to Vegas.

And that’s fine. I’m not saying it was squandered — chairs are important, especially when you’re sitting. But it does mean the $400 won’t help your retirement and, therefore, in this scenario, from a financial-planning perspective, the TFSA is a clear winner.

Even when we assume you’ll follow the first chart’s lead and contribute to an RRSP the pre-tax equivalent of the TFSA contribution ($1,000 to $600), the comparison is still trickier than it first seemed.

Why?

When you withdraw money from your RRSP or RRIF (or receive an income from an annuity to which your RRSP was converted), not only do you have to pay taxes on it, but your increased income could also lead to higher clawbacks of your Old Age Security pension, Guaranteed Income Supplement and other means-tested government benefits.

Yikes, the math here is more complex than the RRSP versus RESP debate. Way more. I don’t even drink and I want a beer.

And talk about assumptions! Oh my. Go ahead: Take your best guess at what your taxable income will be 10, 20 and 30 years down the road. What about future tax rates? Will clawback rules be altered? In retirement, will you be able to income split with your spouse or will your spouse already have split with some of your income?

Wow. Maybe I should make that beer a scotch.

I’ve checked out a dozen analyses on the Internet and all that did was reinforce how challenging this comparison is. For example, very few factored in the effect an RRSP contribution can make on the amount of the Canada Child Tax Benefit (CCTB) parents receive. Also, almost all of the researchers assumed every dollar withdrawn from an RRSP or RRIF will be taxed at the marginal tax rate. Think about that — it’s not always the case. If I have $10,000 in government-pension income and receive a RRIF payment of $53,000, it’s not all going to be taxed at the marginal rate. In some cases, it would be more appropriate to use the average rate of tax on the withdrawal in the calculations.

That’s not nitpicky — points like the last one can’t be ignored. They’re vital parts of the evaluation. Unfortunately.

Wake up! I’m almost done.

Based on the various assumption sets I used, the TFSA won a surprising percentage of the time (though usually not by a wide margin). In fact, for most low-income earners, it was the victor under the majority of scenarios.

That said, I frankly have no idea which way you should go. At the risk of being branded The Wishy-Washy Barber, I think it would be irresponsible to give a definitive “do this.” Sit down with your advisor — he or she will at least have the advantage of being able to customize the assumptions to your situation. Plus, I’m sure there will soon be software or an app developed to help you figure this out. Try to curb your enthusiasm.

My final thought here is important (no, really!). TFSAs are very flexible. You can take money out of one at any time and then put it back in future years. That’s being trumpeted as a huge positive by many financial writers, but it scares the heck out of me.

I’m worried that many Canadians who are using TFSAs as retirement-savings vehicles are going to have trouble avoiding the temptation to raid their plans. Many will rationalize, “I’ll just dip in now to help pay for our trip, but I’ll replace it next year.” Will they? It’s tough enough to save the new contributions each year. Also setting aside the replacement money? Colour me skeptical. The reason I always sound so distrustful of people’s fiscal discipline is that after decades of studying financial plans, I am always distrustful of people’s fiscal discipline. And even if I’m proven wrong and the money is recontributed, what about the sacrificed growth while the money was out of the TFSA? Gone forever.

Reminders: (1) If you go the RRSP route, don’t spend your refund; (2) If you go the TFSA route, don’t spend your TFSA; (3) Whatever route you go, save more!

Excerpted from The Wealthy Barber Returns: Significantly Older and Marginally Wiser, Dave Chilton Offers His Unique Perspectives on the World of Money By David Chilton. Copyright © 2011 by David Barr Chilton.

Friday, November 25, 2011