Have you ever busted your ass, gave it all your sweat, blood and tears, worked insane hours all in the hopes of getting some recognition from your company in the form of a promotion with a big pay raise?
Or at the very least a big bonus as a reward for all your hard work, for all the personal sacrifices you had to make, for all your kids baseball games and dance recitals that you missed because you were at the office working to meet a deadline, which was then followed by an endless string of even more deadlines?
But instead of that promotion or big fat bonus you were expecting, all you got was a “thank you for all your hard work this year”, if even that, as your boss addressed not you, but the entire company at your holiday party and no bonus to speak of.
You see, whether the company may have made massive profits last year or whether the company executives made some very poor decisions that caused the company to lose a ton of money, the executives of your company have instead decided to initiate a new run cost cutting and even staff layoffs to:
– Cut costs
– Stay competitive
– Or in a last ditch effort, to prevent the company from going belly up
– Or (fill in the blank the corporate B.S. reason you were given)!
But not to worry, they had enough money to still pay themselves multi-million dollar bonuses even if you did not get one!
In fact, not so long ago, this was exactly my life on my journey climbing the corporate world.
I had felt the frustration before, I had been deceived in believing my boss who used to tell me that all my hard work and efforts would be generously rewarded.
Yet I only got rewarded with broken promises and many months of my personal life lost and years of quality time with those I loved that I would never get back again.
I busted my ass working 12-16 hour days,sometimes even 7 days a week, and although I frequently did receive a bonus, it paled in comparison to what I truly felt I deserved and worked so hard for throughout the year.
So I left the corporate world for good.
Now I get my bonus every single year, but that’s not the best part.
You see, I get that bonus even if I barely do anything at all. Indeed, there have been years that I did nearly nothing other than to send a request to receive my bonus.
What is this mythical world of which I speak, where you simply only have to ask for a bonus to receive one, where I am legally entitled to get one and mostly do very little work to earn one?
Welcome to the world of real estate investing. Specifically, investing in cash flow positive rental properties.
Go on and Ask Your Tenants for A Raise!
You see, as a landlord in Ontario I am legally entitled to increase the rent my tenants pay once every 12 months.
Now once a new tenant moves into one of my properties, generally as a landlord I must follow a rent control guideline that The Ontario Ministry of Municipal Affairs and Housing sets out every year. Generally the guideline limits how much I can increase my tenants rent in any given year, but that’s not such a bad thing.
You see, in Ontario, the rent increase guideline is based on Ontario CPI Index. This means that, unlike an employees wages, salary or bonus the rent I charge my tenants is inflation adjusted.
How cool is that?
For example: in 2016, the limit was 2.0% and in 2017, the limit is 1.5%.
You should also note that Ontario, the Landlord and Tenant Board (LTB) might even approve any increases above this percentage. For example, the LTB might approve a higher increase if you as a landlord have made large repairs to your property.
When can you ask your tenant for any raise you want? Yes, yes you can, if…
There is good reason why I referred to the rental increase guidelines “generally”.
You see most tenants and even many landlords don’t know about a loophole that renders these rules meaningless and irrelevant.
To determine whether you as a landlord are eligible for the loophole all you need to do is ask yourself: When was my rental property built or first occupied for residential use?
This exception in rental law basically says that if a rental property was built or first occupied after November 1, 1991, then the rent increase rules and guidelines simply don’t apply, which means the landlord of such a building can legally increase rent annually by whatever amount they want. Yes, any amount whatsoever!
Remember, the rent control guidelines only apply to building built before November 1, 1991.
Of course, if a landlord asks for an increase to rent that is way above market rates they risk the chance of the tenant finding a less expensive property closer to actual market rental rates.
Whether the rent increase guidelines apply or not, you as a landlord you can only increase your rent once every 12 months and must still provide a minimum 90 days written notice to your tenants before the increase.
New tenant? No problem! Go on and you can ask your tenant for any raise you want!
Better still, even if your property was built prior to November 1, 1991 and have to abide by the rental increase guidelines or whether those guidelines don’t apply to you, each time your old tenant leaves, you have the right to increase your rent to whatever amount you feel like.
That’s right. There is no maximum amount of rent that you as a landlord can charge a new tenant, with the exception of some social, non-profit and student housing.
Since market rental rates typically rise at a higher rate than Ontario CPI, this means that you can increase your income substantially every time you fill your property with a new tenant.
This is why I do not exclusively focus on properties built after November 1, 1991. Instead I focus on buying great cash flow positive properties, regardless of when they were built, because I know that I will get to raise the rent that I charge to market rates every time a new tenant moves in.
So go on and make sure to ask your tenant for your raise every year.