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Housing affordability and rental rates are constantly dominating the headlines with concerns about the average Canadian’s ability to afford a place to live. We are living in a time where average market rents have risen and mortgage rates are slowly climbing. However, this is not a worst-case scenario.
In Canada, the current market rent rate is nearly 20% higher than it was two years ago. So, many Canadians who are hunting for housing are likely to rush towards a good deal the moment it hits the market to avoid feeling the full impact of this trend. This is where you have room to get competitive by charging lower rents than traditional market rent housing.
Of course, if you want to succeed in charging below market rent for your property, you need to make sure that you can afford to do so while making the profit you need in order to maintain the property and your lifestyle.
That is why we want to offer you a free strategy call to discuss your investment goals and ensure that you are getting the financing you need to make your investment dreams into a reality. All you need to do is click the link below to book your call today and get started.
What is Fair Market Rent?
For some quick context, fair market rent – often shortened to simply ‘market rent’ – is a measure of the average rental rates in a particular region.
This measurement can be a general statistic such as the average fair market rent of approximately $2000 for housing in Canada, or a specific number based on the location and property type, such as the average $1600 for a two-bedroom apartment in Windsor, Ontario.
The Benefit of Below Market Rents
It may not feel intuitive, but there are many serious advantages to setting your rent prices below the rest of the market. While top rents will yield the greatest returns, they also run the greatest risk of vacancies and long turnover periods.
Meanwhile, lower rents can be incredibly helpful when you are looking to build a steady, reliable portfolio. After all, renters will usually be less inclined to move out and find new housing if they are getting a good price that they cannot find somewhere else.
Balancing Short-Term and Long-Term Success When Setting The Rent
Whether or not you should use lower rents to market your rentals varies on your goals. Short-term and long-term profits can be key drivers in how you choose your investment strategy.
This means if you are looking for short-term profits and high cash flow, you may not want to undercut market rents and instead focus on setting a price that earns what you need.
On the other hand, if you want to build equity and invest in something that will churn a respectable cash flow in the meantime, this is when you may want to go lower.
Be Aware of Rent Control Guidelines
One of the key drawbacks to setting below market prices for your rent is the fact that depending on where you are investing and when the property was constructed, you will have certain guidelines that limit your ability to raise the rent if you decide you need to raise prices.
For example, in Ontario, you can typically only raise rents by approximately 2% on tenanted properties built and occupied for residential purposes before November 15, 2018. For 2023, the limit on rent increases is 2.2%.
That being said, if you do need to raise the rent further on a tenanted property built before the specified date, you can apply to the Landlord and Tenant Board to receive approval to raise the rent.
However, most of the time, you will only be able to make large rent adjustments when the property is vacant, so you need to make sure that you are confident in your pricing being sustainable when you set the rent.
Getting Strategic Financing to Set Competitive Rental Rates
Naturally, you cannot succeed with below fair market rents unless your property expenses are low enough to support the amount you are undercutting the market. So, it is important that you take the time to sit down with a mortgage broker and find the best available financing with the most affordable payments and the most favourable terms when you decide to buy, renew or refinance.
That is why we want to offer you a free strategy call with our mortgage team at LendCity, so that we can assess your financial position, investment goals, and mortgage options to ensure that the funds you receive are going to deliver the results you want.
To get started today, all you need to do is click the link below and book your time.