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David Cinelli, a sales representative with Royal LePage Signature Realty, is photographed outside 122 Howard Park Ave., on April 23, 2020. Due to the coronavirus pandemic, the rental market has dipped as fewer people are looking to rent.Fred Lum/The Globe and Mail

When businesses began temporarily closing amid the COVID-19 pandemic, several tenants in David Cinelli’s two rental properties lost income.

The Toronto-based realtor and landlord reached out to his tenants, offering rent deferrals or partial payments to those who were struggling financially. And although Mr. Cinelli says he can sustain a rent reduction in the short term, he needs that money to pay the mortgages on his properties.

As a real estate agent with a wife who is also self-employed, Mr. Cinelli is juggling reduced income from two sides: his career and his rental units.

“April is fine, but we don’t know what will happen in May,” Mr. Cinelli says. “Things are changing every day, but I do have a backup plan and a good line of credit. A few months won’t do anything, but if we’re looking at six months of this then there might be trouble.”

Although large property owners often come to mind first, small landlords across Canada can be millennials struggling to cobble together mortgage payments, and older Canadians depending on rental income to live out their retirement. In the midst of an economy devastated by coronavirus, landlords such as these might not qualify for government assistance and are scrambling to figure out how to accommodate rent reductions while making their mortgage payments.

Investment properties have surged in popularity in recent years, with 26 per cent of Canadian homeowners owning or planning to own income units, according to a 2018 survey by Canadian Imperial Bank of Commerce. Millennials are the most likely demographic to rent an income suite or investment property to help them afford a mortgage.

As property values have skyrocketed over the past decade, investors turned away from low yield savings products to lucrative real estate, says Ron Butler, founder of Butler Mortgage Inc.

But some small landlords, those with four or fewer properties, are finding themselves in tough positions, he says. “Could you ever have imagined that renters would sign a lease and then just not move in? Or that you own rental property and suddenly tenants notify you that they paid their April rent and there’s eight months left on their lease, but they’re leaving?”

Since the big banks announced mortgage deferrals for home owners of up to six months, nearly half a million have been approved for the program, according to the Canadian Bankers Association.

The banks said that they are working with clients on a case-by-case basis, and Bank of Nova Scotia’s website says that an owner’s principal residence and up to three non-principal residences may be eligible for deferrals.

But unclear eligibility requirements and capitalized interest – meaning that interest will be added to the outstanding mortgage balance, increasing the total cost of borrowing – have left landlords uncertain about whether they qualify for a mortgage deferral, Mr. Butler says.

“There’s no consistency in this treatment, but we know of a number of clients who have received a two month deferral on their own home mortgage and their rental properties. But it’s random.”

Some banks and lenders already offered options for clients to skip a mortgage payment before the pandemic. While these options tend to be more limited than the mortgage deferral program in response to COVID-19, landlords should read their mortgage contracts or speak with their financial institution to find other opportunities to soften the burden, says Jackie Porter, a financial planner with Carte Wealth Management Inc.

“Enlist the help of a real estate lawyer or mortgage broker who can help you read the contract. But first get in front of it and speak to your lender.”

Most landlords do not have an emergency fund to cover rental losses, says Rachelle Berube, president of property management company Landlord Rescue, which manages several rental properties on behalf of landlords.

To support tenants and landlords facing hardship, the British Columbia government introduced a rental supplement of $500 a month. Other provinces, including Ontario and Alberta, have banned evictions during the pandemic, but Ms. Berube said that this will only encourage landlords to file for eviction on tenants who fall into arrears – or overdue rent payments – if the current situation stretches beyond a few months.

While more than 90 per cent of tenants at the properties she manages have paid their rent for April, many were a week late as they waited to receive the new Canada Emergency Response Benefit. In cases where tenants said that they are unable to make payments or are paying only a portion of their rent, several landlords have already started filing the eviction paperwork in anticipation of collecting arrears amid a backlog of disputes, Ms. Berube said.

Liz Schieck, a certified financial planner at The New School of Finance, says landlords who rely on income suites, such as basement units, to pay the mortgage need to have a look at their expenses and household budget.

After discussing a sustainable reduced rental payment with their tenants, they can try to cut monthly costs such as gym memberships and subscriptions or withdraw money from savings, investments and lines of credit to make up for the shortfall – but only enough for a “controlled burn,” Ms. Schieck says.

“A lot of people in Toronto, Vancouver and other expensive cities where the cost of living is so high, the income that people earn is not commensurate with what life costs and it’s common that people don’t have enough of an emergency fund,” she says.

“You should top yourself up just by the amount that you’re short every month so that you have enough income to pay for all your needs, but you don’t go down a slippery slope.”

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