Program helps mom-and-pop real estate investors struggling to collect rent, pay their mortgages

If there’s one misconception about landlords, it’s that they’re rich. While many do eventually make the ascension from mortal and mogul, most real estate investors own, or are still paying off, a relatively small assemblage of residential properties. With cap rates shrinking across the country, many of these investors are grateful to reach month-end without an unforeseen maintenance emergency wiping out the few hundred dollars in cash flow they rely on to make their investments worthwhile.

Since the onset of the COVID-19 pandemic, Canadian landlords have been dealing with a problem far more disruptive than a flooded basement: months and months of unpaid rent. For investors who depend on rent for their mortgage payments, a one-month gap can be horrifying enough. But six or seven months? Even with mortgage deferrals alleviating the immediate pressure bearing down on landlords, that amount of missed rent is going to be hard for any tenant to get caught up on – if they feel like it.

“The challenges that small landlords are facing are significant right now,” says Zac Killam, CEO of the Landlord Credit Bureau. “Many tenants have been financially impacted by COVID, so there’s those legitimate cases where tenants need to go on a payment plan, which then reduces the amount that they can pay on a monthly basis, which of course impacts the smaller landlords’ ability to pay their mortgage, their property taxes, their utilities, etc.”

But during the pandemic, Killam says the “real threat” to landlords’ stability has been tenants who have taken advantage of COVID-19 eviction moratoriums to simply stop paying rent, even though their incomes have remained intact.

It’s a trend Kayla Andrade at Ontario Landlords Watch has seen firsthand.

“The negative results from these unprecedented times have only compounded the difficulty of collecting rent from the tenants who know how to abuse the system,” she says. “All together, this has increased the lengthy delays for landlords seeking justice for unpaid rents.”

The result has been a rise in real estate investors saying they no longer want to endure the hassle of landlording. Killam says he is hearing “on a weekly basis” from members who are taking their secondary suites off the market or selling the condos they had purchased as rental properties.

“And they’re not doing this because of tenants who are legitimately impacted by COVID,” he says. “They’re doing this as a result of the intentionally delinquent tenants who are just taking advantage of the situation.”

As small landlords, defined as those with five properties or less, provide more than half of the rental units in Canada, Killam worries that widespread disenchantment with fighting over rent with tenants could lead to a drop in rental supply.

“It’s such a critical segment of the rental housing industry for providing and supplying the rental housing that we so desperately need,” he says.

A solution?

With the country’s landlord-tenant board tribunals proving largely ineffective at holding malicious renters accountable, Killam proposes his outfit as a possible alternative.

Once landlords have signed up with the Landlord Credit Bureau and registered their tenants, they report each one’s rent performance – paid, paid late, didn’t pay – on a monthly basis. This reporting becomes a permanent record that future landlords and, most notably, credit reporting agency Equifax have access to. Renters who make their payments on time are given positive reports, which can then be used to bolster their credit scores, while those who refuse or fail to pay rent will see their scores damaged.

Renters can even receive positive reports if they pay partial rent, so long as they adhere to the alternative payment agreements signed with their landlords.

“We want to encourage everybody to work together and come up with reasonable plans that work for the landlord and the tenant, and attach material long-term benefits to that relationship,” Killam says.

Andrade calls the LCB a “game-changer for the rental housing industry.”

“It protects good landlords, benefits good tenants and prevents bad tenants from abusing the system,” she says. “Tenants who want to improve or build their credit will love it. Tenants who abuse the system or have poor rent payment histories can work with their landlords or resolve issues with the current LTB system. But they know it will be reported to Landlord Credit Bureau.”

Representatives from InTouch Mortgage Solutions, Equitable Bank, and Premiere Mortgage have all gone on record with MBN praising the LCB’s potential benefits for tenants who make their payments on time. But where there’s a carrot, there usually needs to be a stick. Penalizing renters for skipping their rent payments and ensuring that those penalties have a bite may be the only avenue open to increasingly desperate mom-and-pop landlords who have lost faith in their province’s landlord-tenant paradigm.

“Most of these people have big mortgages,” Killam says. “They’re dependent on receiving that rental income.”