Property Rights! Why Rent Controls Should be Illegal In Canada The Story of Kelvin Edmondson The Landlord sleeping on Realtor’s couch – August 16, 2022,
I remember reading the book Rich Dad Poor Dad for the first time and learning something I had never known before; the difference between an asset and a liability. What I got from the book rich dad poor dad was an easy-to-understand comprehension of the difference between an asset and a liability; understanding this one concept helped me to retire early.
What came as a shocker to me when I spoke to other people who read rich dad poor dad was that they imagined they should invest in real estate. In the book, Rich Dad Poor Dad, the author Robert T. Kiyosaki obviously wanting to be authentic, explained to his readers that he retried early using real estate, but when I read the book, I used his example as illustrative to convey to the audience that anyone can become rich if they understand the difference between an asset and liability.
If you’ve ever played the cashflow board game on or offline, you’d quickly realize that you’d better get creative if you want to get out of the Rat Race the fastest. In the cash flow game, one roll of the dice could equate to all of your properties being taken from you because of an interest rate hike, you can also lose money when tenants refuse to pay.
The game does this to remind you that, unlike the Monopoly game in which your cash-flowing properties are basically yours into perpetuity unless you volunteer to sell, the cashflow game is a reminder of the RISKS of investing in real estate. One of the reasons I prefer REITS over investment properties IN CANADA is because of the existing Federal, Provincial and Municipal laws governing real estate.
In Ontario, because Doug Ford is a “Progressive Conservative”, the media is doing everything in their power to blame the housing shortage on Doug Ford, who by the way, has been doing everything in his power to get rid of silly laws like Rent Controls. The problem with abolishing all of the laws that are causing home shortages in Ontario is THE FEDERAL GOVERNMENT!
Dating back to Pierre Trudeau, the FEDERAL government wanting to present itself as the savior for all Canadians, began this stupid initiative to turn Renters into homeowners; why? Because of the Socialist disease that still dominates Canadian thought, FOUGHT HARD for the Residential Tenancies Act, which in a nutshell, creates a culture of ENTITLEMENT!
Kelvin Edmondson is a Canadian landlord who as of the date of this post, is sleeping on his realtor’s couch; why? Because allowed a tenant from hell to move into his property. Now, when people like myself read this story, why laugh? Because this is why we look at real estate investing in Canada as something the suckers do.
Don’t get me wrong, I buy a lot of Canadian REITs and other cash flow-producinG investments that pay me a monthly income, but with the regulatory environment in Ontario, no way in hell would I EVER rent a home I own to ANYONE for ANY REASON because the laws favor the TENANTS!
Why CMHC needs to be abolished, and Why The Federal Government Needs to Get out of the Housing Market
Most people in Canada are financially ILLITERATE; if you think this is only a Liberal or Leftist problem, you’re WRONG; there are still a lot of Conservatives in Canada who have an archaic view of the world and want to EXPAND the Canada Mortgage and Housing Corporation(CMHC) assuming that this is the fix to the Canadian real estate market.
The CMHC has accelerated the housing shortage problems in Canada and also hid from most Canadians the STUPIDITY of rent controls. This rent control debate, as well as these Residential tenancies, Acts that favor tenants over landlords would have been more easily exposed and better debated had the CMHC not gotten involved in the mortgage-backed security and mortgage business.
In Ontario, there are a lot of empty condos; why? Because who in their right mind would want to build rental purposed housing with The current Residential Tenancy Acts? If the housing market in Canada is ever allowed to crash, I guarantee you that it will revolve MOSTLY around the condo market because most condo owners in Ontario buy with the SOLE intention of flipping the property at a later date.
No condo owner in their right mind is going to buy a condo to rent it out to a low-income person; why? Because of The Residential Tenancy Acts! I know people who own UPPERCLASS condos that rent their condos to RICH people for $5000-$20,000 per month. But lower-income people usually know the important parts of The Residential Tenancy Acts like the back of their hand because their backup plan, if they lose their job, or quite frankly just don’t feel like paying rent anymore is to LEGALLY live rent-free off of the “rich” landlord.
I grew up around poor people, and their minds are wired in a completely different way. In their minds, if you own property, or if you own a small business, you’re RICH! Now, as we all know, most real estate investors are POORER than their tenants, but the tenant FROM HELL is not only entitled and selfish, they’re also GREEDY!
The tenant from hell, after getting used to abusing existing tenant-landlord laws, will become emboldened and, knowing that their luck will run out eventually, will become increasingly more DESTRUCTIVE of the landlord’s property. The CMHC was created because it imagined tenants from hell, which are VERY FEW, but yield tremendous power, assumed that these tenants would gladly become homeowners and learn the pride of ownership if only the FEDERAL government made it less expensive for them.
But you see, ignored in all of this is CREDIT history; you can’t qualify for a NO MONEY DOWN MORTGAGE without a credit history, so the CMHC failed almost IMMEDIATELY; making matters worse are the financially intelligent people who saw CMHC as a means to make a lot of money FLIPPING properties. CMHC, similar to rental controls, creates an artificially high FLOOR in PRICES. In order for the CMHC to be solvent, housing prices in Canada can not CRASH!
CMHC offers MORTGAGE insurance, meaning that if a homeowner is dependent on CMHC to get a mortgage default, CMHC will pay off their mortgage. Personally don’t have a problem with PRIVATE sector mortgage insurance, but CMHC is a State-owned enterprise, meaning that if the housing market in Canada crashes, it’s very likely the CMHC via the taxpayer will get a BAILOUT!
How is this relevant to Kelvin Edmondson? Well, this is why most investors REFUSE to build rental purposed housing. Most landlords in apartment buildings have SYSTEMS in place to deal with tenants from hell because they have or have had PLENTY of them! One of the reasons rent prices in Ontario are so high is, yes, shortages, but also because Landlords have to PRICE “tenants from hell” into their liabilities and expenses column.
If you’re a Kelvin Edmondson, you don’t have the type of budget that allows you to price in THEFT and damages into your real estate business. If you’re a Kelvin Edmondson real estate investor, you’re gambling that everything IN YOUR REAL ESTATE business works out PERFECT!
I should also point out that there are systems and guidelines that small mom-and-pop real estate investors follow prior to allowing a tenant to move into their property, but these systems aren’t PERFECT, and if your property is located in Tillsonburg, Ontario, and a town with only 16,000 people, you might find yourself DESPERATE to find a tenant to pay off a mortgage you otherwise can’t afford.
Just like owning a convenience store, a real estate business is indeed a business; the convenience store merely has more ways to be cash flow positive. In the book rich dad poor dad, the author explains that your house is NOT an Asset the author goes on to explain that what makes your real estate an asset is that it gives you income every month.
Now, in regards to real estate vs., say, a convenience store, the convenience store owner, the convenience store owner has to be physically in the store for it to be cashflow positive, whereas Real Estate investing is passive income, in that once the property is built, the real estate owner merely has to maintain the property, however, the with real estate investing, the government steps in, to give in to the DEMANDS of the voters and completely alters the trajectory of housing.
Via The Residential Tenancy Acts, passive income could potentially become a passive liability and an expense. So although the Convenience store owner may have to wake up early and go home late and have to worry about theft and other things, the convenience store owner might end up retiring faster than the real estate investor.
But you see, if got involved in Real Estate not understanding the rules of the game, you could end up like Kelvin Edmondson, a homeowner sleeping on the couch of his realtor while his tenants enjoy the spoils of his investment property. The school of hard knocks is a much better teacher than BIG GOVERNMENT. I’m sure when CMHC was repurposed for mortgage insurance, the designers assumed the best, but it’s become a huge disaster, and this could get worse if the Canadian economy declines.
When austerity measures inevitably happens to Canada AGAIN, I think CMHC should be sold off first!
Interesting times ahead!