Accidental landlords

A tormented real estate market has changed the paths of many people’s lives. For example, in the Condo Capitals of Canada – Vancouver, Victoria and Toronto – tens of thousands of Canadians who thought they’d be collecting profits from flipping properties will instead soon be collecting rent. Unfortunately, in almost all instances, it will not be enough to cover costs.

This article, from the New York Times, gives further insights into people who became accidental landlords or, in some cases, reluctant tenants. — Garth

The housing market morass has created a new class of real estate investors: the accidental landlords. Some, like Mr. Vallance, have moved into new homes and can’t sell their old ones — at least for the prices they want — while others, like Dr. Siqueira, chose to invest in the changing market. Then there are those for whom renting has become a way to forestall impending foreclosure.

No one knows the exact number of unintentional landlords, but a survey a year ago by found that nearly one out of five landlords did not plan to rent out a property when he or she bought it.

For many of these people, though, the option of renting out a home is a godsend, enabling them to cover some or even all of their carrying costs while they regroup financially or wait out the market.

Article continues here.


#1 Condobubblehead on 07.20.08 at 10:50 am

Ouch! Ouch! Ouch!

#2 Keith in Calgary on 07.20.08 at 11:07 am

Been offered my choice of two units a client of mine owns in this soon to be finished building (I am so not interested).

He is flipping RE on the side…..but now is stuck big time IMHO. There are about a dozen or so suites in this tower listed for sale right now (not including his)….and the building is not yet done.

Anyone here wanna pay $475K for a one bedroom, one bathroom 26th floor unit on the busiest street in the city, in a crappy looking new construction, and on the same block as a homeless shelter for crackheads ? (“The Alpha House”).

Heh…..he’ll have to take out a mortgage to take ownership (if he does go thru) and rent them out…….

#3 CC: Calgary on 07.20.08 at 12:37 pm

Where will all renters come from? – They aren’t for SALE easily.

#4 Stats on 07.20.08 at 1:12 pm

Average house prices (source: Toronto Real Estate Board)

Greater Toronto Area

March: $380,338
April: $398,687
May: $398,148
June: $395,866
First half of July: $379,072,

March: $404,361
April: $446,781
May: $434,271
June: $433,082
First half of July: $419,199

Prices are up over 2006, 2007 but recent trend is downward.

#5 jesse on 07.20.08 at 2:21 pm

“Wait out the market”? Get comfortable…

#6 deja vu on 07.20.08 at 2:51 pm

where have i seen this happening before?…oh yeah, the great housing meltdown in 1989-91 in the GTA when specu-flippers got caught with their pants down holding muliple condo units they couldn’t offload to greater fools.

#7 poorguy on 07.20.08 at 4:06 pm

I am seeing big jump in ads. for foreclosure properties
in GTA.Has any one noticed as well?

#8 nonplused on 07.20.08 at 5:14 pm

just because there are no renters and no buyers doesn’t mean the market is going down anytime soon. sellers will hold vacant properties until it is clear thier selling price is dropping faster than thier carrying costs. this won’t happen until we get some sort of a market trigger event like rising interest rates or unemployment or something. but if we do get a trigger things could move pretty fast since everyone already watched the US version and knows what comes next.

#9 JO on 07.20.08 at 7:22 pm

Hello all, first time on this site was yesterday and have reviewed several articles and comments. Have read Garth’s new book. On the whole, an accurate picture of what the situation is and might be over the next few years. While forecasting economic/financial events is fraught with risk and outlooks often wrong, what I appreciate about this site/the book and author is the fact this represents the minority/contrarian opinion. I work in retail financial services for a cooperative FI and my hobby is following the economy and markets closely. This does not make my opinion any better, but I have to say all signs (fundamental, technical, and more importantly psychologically) point to a once/twice a century decline in real estate and the economy to correct the sensational growth of credit worldwide. All credit inflations (not currency inflations) are designed to create an illusion of wealth among the populace and almost always end in a combination of deflation and inflation. What you can count on from government and central banks are attempts to devalue the currency (thereby impoverishing most citizens via inflation) and raise taxes (which usually lowers the amount of tax revenue for the government) that combined will further exacerbate the economic/financial problems. The sad outcome of a crisis of this scale (which will play out over the next 3-5 years) is that real lives are affected (more homeless people, and hungry kids, etc) and many people will see “retirement” plans destroyed. However difficult this “de-leveraging” will be, we must all remember that this experience (an economic detoxification if you will) is required in order to prepare society for sustainable growth 2015 onward. In the meantime, I think people ought to consider renting for the next 2-3 years, reducing debt, and focussing on the return of capital instead of the return on capital. Things that are not suppose to happen likely will. And tell your city politicians/MP/MPPs to think long and hard before raising taxes and in addition for MPs, to lobby hard against any potential bailouts or requested expansion of BofC powers. We are lucky to live in this country and our government is better prepared than most to go through this. Lets use our voice to help make the journey through this period more manageable.

#10 JO on 07.20.08 at 8:26 pm

Hi Garth,
I noticed in your The Mortgage Bomb article that the house finance committee has agreed to study the housing market thanks to your motion. What great news. The inescapable conclusion of the US experience, and eventually ours, is that well intended legislation/government rules usually do more long term damage to the economy. The fact is that the NHA should be replaced and, I’ll take this one step further, in a perfect world no insurance should be provided to banks/any FI if the customer does not deserve the loan. At the most fundamental level, the insurance provided by these entities allows for significantly higher risk taking and less prudence by both lenders and borrowers. I lent money (and trained new lenders) for over 6 years and worked in places that had good quality underwriting. Despite this, a banker’s old fashioned “gut” feeling on the creditwothiness of an applicant would sometimes be at odds with the data on the application. What was most frustrating was in some cases, other lenders manipulated application data, mainly the GDSR/TDSR to “get approved”. And as a side matter, while FI s have internal auditors, I never once recalled being audited by CMHC? I will say these application integrity issues are happening but not to the same degree as the US and they could happen in any FI as not all loan officers follow rules to the tee. I have never had anything but good interactions with the folks at these places but there needs to be better criteria (are condo fees still being factored in only at 50 % of actual cost ? I have not done underwriting in 2.5 years) What is surely the outcome of these underwriting practices is that there are more than 5 % “subprime” type apps in Canada. Who knows how many but the data may not be right. After all, apps are often categorized as A/B/C paper (A being best) or based on Beacon score (which is a whole other matter…talk about relying on a concept that is based on the assumption of past behaviour !) but as the US is showing, many apps that are sub-prime were actually booked as Alt A. So when the committee gets going, I know you will do an excellent job of trying to educate policymakers. If a borrower does not deserve to own a home, they shouldn’t. Of course, even the suggestion of getting away from insurance will draw a comical response from most and damage one’s credibility but at a minimum, the cost of the mortgage insurance has to be re-increased and then some. CMHC/other insurers, in addition to allowing 35 and 40 years and no DP, also lowered the cost of most insurance programs about 2-3 years ago. So while I see the practical need for insurance, the underwriting needs to be more stringent and cost of insurance priced to deter abuse by speculators / undeserving debtors. While they’re at it, maybe you can suggest they look at CDIC. Another example of well intended programs that may come to haunt the Canadian taxpayer over the next 5 years or so (designed only to handle rare, one off/small crises and useless in a systemic crisis although I feel our banks are much stronger than US FIs and should be OK no matter how bad things get). And lastly, I hope committee members understand there are always phases of mass optimism and pessimism that govern economic/financial markets and that no matter what policy is implemented, only time can deal with the mood of the public, not government action. That’s it Garth. My last post for a long time. Cheers.

#11 stone cold on 07.20.08 at 8:57 pm

The Toronto market is crashing. For the first time I have had real estate agents tell me that the real estate market has been falling apart in the last few weeks. I have witnessed houses selling for a lot less and prices are dropping fast. I am seeing alot of “REDUCED” and “NEW PRICE” sticker on For Sale signs. Last time I saw these in use was during the 90s Real Estate correction in the GTA. The panic has finally set it as all the Greater Fools have dried up.

#12 Anonymous on 07.20.08 at 11:20 pm

These retard-amature landlords are going to hurt a lot of renters when they can’t afford the payments and the banks take over their places.

I guess if you like the place, you can bid on it if the price is cheap enough.

#13 $fromaSia on 07.21.08 at 12:19 am

“These retard-amature landlords…”

How about the guy Flaherty.

The designer of 40 year Rent!

#14 patriotz on 07.21.08 at 10:25 am

“These retard-amature landlords are going to hurt a lot of renters when they can’t afford the payments and the banks take over their places.”

Change in ownership, including foreclosure, does not affect tenancy rights in Ontario, BC, and other Canadian provinces as far as I know.

The new owner assumes all rights and obligations of the previous owner. Tenants can only be evicted for specific causes and that does not include the owner wanting to sell the property.

#15 mike on 07.21.08 at 10:36 am

re GTA RE I previously posted that a realtor had to me the market was peachy in T.O. She had sold “3 properties in two weeks” When I remarked to her that her commish on that is enormous she corrected and indicated these were towns and condos and they were somewhat low cost units. Stuff is still selling but volume down and listings lingering although I do see less stuff new being listed and mls numbers seem less in certain areas

#16 smwhite on 07.21.08 at 12:24 pm

These “amateur” landlords ain’t going to hurt anyone renting, with the increase in vacancies and the realization of rent not even covering half of the costs of units purchased in the last 3 – 4 years, renters are first in line to be owners…

They only ones the new landlord is hurting is themselves, denying the fact the market is starting to recede and instead of selling, attempting to rent to continue pumping that badly needed money to cover their costs of their overpriced condos, continuing the charade of being a RE mogul/investor…

Anyone that is a sensible and successful landlord buys their property on the down cycles, a la 1995 – 2002.

More available “shelter” means more pressure on housing prices…

#17 Brian on 07.21.08 at 1:17 pm

This drives down the price of rental housing, further exasperating the problem for the flippers and further improving the financial picture for renters.

Go Bob Rennie go!

#18 Brian on 07.21.08 at 2:04 pm

“sellers will hold vacant properties until it is clear thier selling price is dropping faster than thier carrying costs. this won’t happen until we get some sort of a market trigger event like rising interest rates or unemployment or something.”

You mean a trigger like, say, the government suddenly outlawing the huge percent of mortgage applications that fraudulently misrepresent income?

Or, say, the government suddenly requiring an actual *down payment* to get a mortgage for the first time in years? That sort of a trigger? The selloff was already happening, by the way, but these triggers will still take a lot of the blame.

As for the “specuvestors” just “holding on” to their properties through a downturn, a lot of the flippers we have today don’t have the *option* of just keeping up with the payments for a few years until the market picks up. Because the carrying costs are so incredibly high.

You can’t “hold out” for 2 years on a $750k property that’s 95% leveraged. Depending on costs and rental status, that could mean losing your $5k+ (after tax dollars) in carrying costs every MONTH if the market FLATLINES.

If the market DROPS, your losses would be $5k a month PLUS $x00k in lost equity. Who the heck would “hold on” through 2 or 3 or 5 YEARS of that?

Make no mistake, the second the market even flattens out, (i.e. a couple of months ago,) most speculators are going to disappear like a bra on prom night and take the whole market down with them.


#19 Bobs you uncle on 07.21.08 at 2:11 pm

I can also say the GTA market has collapsed. Prices in alot of areas in Toronto are nowhere near where they were last year. Went to an open house yesterday and there was no one there. House was listed in North York at $599, then $549 then $529 and now $499. The agent was surprisingly honest. Told me last year listing it a $599 in this area would have resulted in multiple offers. Now in 2008, at $499 no one interested. He told me that sales much much lower and the inventory was really high. His advice, sell now (even at a $20k loss) and rent for a year.

#20 ed_p3t on 07.21.08 at 2:51 pm


i think you are correct; i would suspect looking in other types of financial distress could be an early sign

i’m in vancouver, and i have been thinking to buy a car, so i was looking around; in the last 6-9 mo. there have been a big increase in listings of repo vehicles offered for sale; so i considered waiting some more to see what is comming out, and the more i waited, the more selection became available…

could be a sign, not sure…

#21 The Other David on 07.21.08 at 3:46 pm

The real bidding has begun, I was talking to a couple of people, one sold and another is trying to sell.

The one that sold was forced to lower and take a 20K “hit”, because someone else was selling for that much less.

The one that is trying to sell is being “priced out” by others lowering their prices significantly on better units to get them sold.

#22 Edmonton Appraiser on 07.21.08 at 4:54 pm

Additional comment to #10. CMHC should have appraisals done on all sales. They currently don’t on any. Of course this is self serving but it is also prudent. I see homes going for higher than they should quite frequently and when the realtor is asked, they say no appraisal was done.

#23 kabloona on 07.21.08 at 5:55 pm

Hey, saw this on another blog…seems to agree with Garth’s pos’n re. the effect of cancelling the 0 down/40 year mortgages:

“Derek Holt, vice-president of economics at Scotia Capital, is one of the few economists who believe the Canadian housing market could be in for a rather rude awakening, thanks in part to the impeccable timing of the housing bureaucrats in Ottawa.

In their wisdom, Ottawa liberalized regulations to allow zero down payments and 40-year amortizations in 2006, further juicing a Canadian house party already in full swing. Then, just as the party began to fade, they decided to shorten the maximum amortization period to 35 years and require buyers to stump up 5% down payments.

Mr. Holt says that in the insured segment, 70% of mortgage originations were for longer than 25 years and half were in the 40-year segment.

“Obviously, the leveraging was a lot less in Canada, but if all the growth at the margin was in the newer products and suddenly there is increased risk aversion [due to renewed financial turmoil] and rule changes on top of it then … that points to a more rapid pace of cooling than economists were calling for,” he said.”

#24 dudee on 07.21.08 at 5:56 pm

could be a sign, not sure…

it sure is. first the toys go then the invetment property

#25 nonplused on 07.21.08 at 10:29 pm


I used to think along the same lines as you, but I seem to have been proven wrong by the market. I think eventually it will get to where you say it’s going, but it’s going to take a lot longer than anyone thought.

I have actually acted upon assumptions that the market was done. I wanted to move anyway, so I listed my house aggressively and negotiated once I finally got an offer (after 2 price reductions). Now I am renting a smashing $900,000 place for $2200 a month. The owner wants to sell but he thinks the prices will be better in the spring so he isn’t going to list it until then. All the owners are doing this where they can get renters, even at an operating loss, because they expect 10% to 30% up next spring. In the interim, they will not sell until they have to.

I am expecting that next spring after a few showings he’ll take it off the market again and wait for yet another spring when prices will improve. Many owners will do this for years before they admit defeat. And why not? Why sell at a 30% guaranteed loss when you can slowly bleed 5% or 10% per year in operating losses but have a faint hope clause that the market will come screaming back? That’s the way the human mind handles risk. The prospect of a 10% operating loss for 5 years seems much better than 30% in 1 year and it’s done, especially because the 30% loss doesn’t buy you another roll of the dice. So people will hold. RE owners in general are even less experienced trading than most retail stock purchasers.

Stock markets are a good example of the human mindset. After a trip from $120 to $1.00, then back to $20, then back to $2, then a 10-1 reverse split bringing the nominal stock price back up to $20 but cut your holdings to 1/10th, now it’s back to $2 and I bet there are still people holding their original Nortel shares, bought north of $90. This represents a complete loss for these people and they had many exit points on the way down. They would not sell. The reason is because human psychology does not incline people to sell at a loss. Professional traders spend most of their careers trying to overcome this shortcoming within themselves.

More interesting in RE is that people are so inexperienced that they cannot even recognize the difference between a notional loss and a real one. Even Garth appears to get the 2 types of wealth confused when he claims the changes to CMHC rules are going to destroy a lot of wealth. They aren’t. There is no real wealth there. 1 house = the economic equivalent of 1 house, always did and always will. If the value of the RE market fell 75% across the board it wouldn’t matter to most people. Instead of selling for $1,000,000 and buying for $1,000,000 they would sell for $250,000 and buy for $250,000. No biggie. Unless you took out a $750,000 mortgage to buy a Ferrari and a vacation property, of course, ha ha. And new home buyers were royally screwed by this whole messy fraud.

For example, try this one on your significant other or buddies at the pub: “Someone buys a house for $200,000. 10 years later the house is appraised at $1,000,000. The owner decides to sell, but the best offer they receive after 3 months is $800,000. If the owner accepts the offer of $800,000, what is their total loss/profit?” You’d be surprised how many people will think they are actually loosing $200,000 real money somehow by selling for $800,000. So they are going to carry the property until they go broke, and if they only paid $200,000 for it chances are that will be a long way off. Whereas there is no real loss on the house until the owner has to sell for less than $200,000. The other $800,000 is always notional until the asset is liquidated. (Inflation aside.)

Thus, until something forces people to sell on mass, I say nothing much happens besides what’s happening now. Reduced sales and some discounting on distressed units. Snooze.

Now if we get a recession…..

Just my opinion.

#26 David on 07.21.08 at 10:41 pm

It is hard to believe so many people will be stuck with overpriced negative cap rate properties. The truth is that those days are soon to be upon us.

#27 ian on 07.21.08 at 11:41 pm

Had to share my excitement! Just got an offer accepted at 18% lower than what he had it on market for last winter!!! Can you say chaching!! Think he was a speculater… i even him to pay all closing costs. Not to mention its 5 minutes commute to the plant (i didn’t mention that part, i may not have got the last 5 thou out of him)

#28 Booya on 07.22.08 at 2:43 am

nonplused – great post. It always bothered me that it’s considered a bad thing when gas, food, and clothing costs go up, but somehow a price gain in a nonproductive asset (RE) is cause for celebration. In fact it’s a terrible thing, because it hasn’t “produced” anything in that time – it’s the same house as it was when it was bought, just a little older. That has the effect of enriching people (owners) with nothing produced to show for it – while diverting capital away from productive assets like stocks, bonds, small businesses, etc.

But people are too blinded by the false wealth effect of inflation and short-term bubble price gains to accept the fact that real estate doesn’t appreciate at all in real terms. Which is why the coming collapse will surprise none of the people who read these blogs, but shock the 99% of the rest of the population who don’t.

#29 islander on 07.22.08 at 3:51 am

For the first time in five years, I have listings that are generating zero calls. Zero.
The last two people who called about listing their property with me, I flat-out told them “No thanks. Not at that those prices.”
Listings are death right now.

#30 PBrasseur on 07.22.08 at 8:42 am

Market is slowing in greater Montreal according to the local news.

Sales in the first 6 months of 2008 are down 7% compared to previous year. Median price is up 6% (at $225,000) from last year.

Garth, how does this compare to other areas such as Toronto and Ottawa?

According to some “analyst” prices are not going down because houses are already much cheaper in Montreal than say Toronto, Vancouver or Calgary. I’m not sure I believe that, in my area (far suburb) I noticed more and more properties that have been on the market for quite a while now, ther’re still asking for hefty price but they are not selling… Also residential contruction seems to have almost stopped, it was booming just a year ago. The markey is slowing, no question about that, the question is: what to expect with prices?

#31 dekethegeek on 07.22.08 at 8:17 pm

Garth, What da ya figure. 18 months to 36 months before us “lesser fools” start sniffing around the real estate market again?
I figure after a nice cold winter of high fuel bills, a US election that may or may not cause the beginning of a disasterous recession, high food prices, rising interest rates, foreclosures , inflation, bank failures, layoffs, etc. (Vulture, do you have a positive spin on any of this doom and gloom scenario?) it might be worth while to start sniffing around in a year or two or three.
( Vultures feed off carrion don’t they?)
I remember the early 80’s in Vancouver when Jimmy Pattison told his executives, ” Gentlemen, sell your Cadillacs and pay off your debts! Its going to get worse before it gets better.”
History repeating its self. But which history? 1979 or 1929 ? Ugly.
Pay your bills folks ! You dont want debt these days.

#32 Peter on 07.23.08 at 12:25 am

There is LOADS of for sale listing in MLS within the GTA area waiting to consume, remember, the more it has listed, the more scary and heavy weighted the market is and once the it hits a turning point, something will HIT THE FAN very very hard and it causes homes going down in value very fast…Today, an automaker has already on the news to put a sudden brake on their new car production in Oakville…and this will cause a chain reaction in some manufacturing plant in Aurora, Scarborough, Markham, Concord also..Although, they should be covered by EI if something smells bad but I dont think they will get back their full pay and this week, 2 chinese restaurant (they were busy all the times)has suddenly closed off and has been complaining for EXCESSIVE rent (10K -> 18K – 20K per month) , HIGH utilities (water ->$ 5000 per month) and FOOD costs. For this, appox. 50 part time (mainly cash jobs) people were put OUT of work in the service industry immediately…Do they and their FAMILY FEELS the PAIN ? YES !!! DOES THEIR HOME FEELS THE PAIN ?? NO !!!

#33 Peter on 07.23.08 at 12:27 am

REMEMBER, if these CASH based paying jobs also decreasing and hits the fan, these people are not in EI books, they wont get their EI into their bank accont and this wont reflect it until these people went into debt and mortgage problems which is very serious.

#34 neutral on 07.23.08 at 2:56 am

He-he. There are two teams on this blog: recent buyers who wish to believe the prices will go up or at least stay and prospective buyers who rip the hairs on theirs asses, as they did not buy 3-5 years ago and all the way being in expectations for prices to come down. Second team is in major here, as Garth’s info accords to theirs wishes. But this team is not a winner yet. Will see. I’m neutral, as I bought 5 years ago. Either way is good to me, in terms of switching to another property (which I plan): if I sell for less – will buy for less – there is nothing to loose in my case. Garth’s universal suggestion does not work for me. Keep fighting…

#35 Donald James on 09.08.08 at 12:08 am

Too young, too hard, too fast. I’m reminded of Jerry White’s speech in wpg December 2004. He held the newspaper’s front page up showing a zero percent savings rate for Kanadians (soon to become Amerikans). We were too busy buying Kiyosaki’s “doodads” on our line of credits. I have always had a 20% “pay your self first” routine, and as a diligent landlord pay my rentals off in 16 years instead of the standard 25 year amort. I live in unsexy Abbotsford and saw no value in the real estate pricing in sexy Vcr during 2005-2007. Always have a large cash position to buy when there is blood in the streets. You make money when you buy low. Pay down the mortgage. Don’t borrow against yourself. Prepare for the worst always. Folks…when China slows down in April 2009, it’s gonna be a real rough ride.

#36 pulunco on 09.11.08 at 1:55 pm

I’m sorry I just don’t see the sky falling in all of Canada. I live in Grande Prairie Alberta and we have solid fundamentals.

We have a steady influx of young canadians comming to this town (maybe because Ontario and other provinces have no good paying jobs) fresh out of school making over $100,000/year.

My neighbor manages a trucking company and he is 120 people short; there are many good paying jobs here. Lots of new business and lots of activity.

Lots of oil and gas activity already this summer and lots more to come this winter. Even if oil sinks to $100 a barrel the oil companies are still making good money and visibly investing in this area. And lets face it oil will go up and stay up for a long time as long as people want to drive cars and live in warm houses.

One may say “well the cost of living is too high in alberta” well yes it is higher in places like Calgary but in Grande Prairie you can still buy a nice brand new 1700 sq/ft house for $365,000 and a nice new starter home for $210,000. Figure out the affordability index for yourself when any yahoo can make $80,000 per year here.

One can keep living in places like ontario and wait for the house prices to bottom out, while renting some peice of crap and making $40 000 a year. Or you can move somewhere with strong fundamentals own a nice place and have spending cash at the end of the day. All you doom and gloomers keep renting if you want makes no difference to me.