Complete Guide to Rental Guarantees (RG) - Truman Homes Edition
NOTE: This guide applies to RGs offered by Truman Homes only. Each RG program is different and the specific details related to your purchase will be included in your contract. Rental Guarantee = RG
Q. How does the RG program work?
The RG is essentially a leaseback program from the developer - this means that after closing, the developer rents the unit back from you. The developer then subleases the unit to an actual tenant who is going to move in. This guarantees that you get paid every single month, and makes the management of the unit completely hassle free.
Q. What is included in the RG program?
Complete rental and management services are included:
a) Renting the Unit: The property will be expertly advertised and shown to prospective tenants.
b) Tenant Screening: Tenants are professionally screened, ensuring units are rented to only AAA tenants..
c) Paperwork: All required Tenancy Agreements, forms and paperwork will be completed, including leases, renewals, security deposits, etc.
d) Communication: Communicate and deal with the tenant as required, including formal notices and documentation as required.
e) Compliance: Ensure all rules and regulations are being followed according to the Alberta Residential Tenancies Act and City of Calgary.
f) Maintenance: Carry out physical inspections and supervise all repairs, maintenance and upkeep relating to the unit as necessary.
Q. Why are RGs being offered?
The RG is a purchase incentive offered to give buyers confidence in their investment. RGs were commonly offered 3 to 4 years ago in Calgary, but nowadays Truman Homes is nearly the only developer still offering them. This is because the Calgary market is so hot, that developers no longer need to offer this incentive. Truman is still offering it because they know it is a very valuable incentive and gives buyers peace of mind.
Q. Are RGs offered for all pre-construction properties?
No, RGs are not commonly offered and they are only available for specific projects, so always confirm the incentive package in your contract.
Q. When does the RG Start?
The RG starts on your closing date. If it is in the middle of the month, you will receive a partial RG payment that is prorated based on the number of days in that month and will last for the duration of the term specified in your contract.
Q. How long does the RG last?
Your contract will outline the term of the RG (i.e. how many years the RG lasts) and is typically from 2-3 years but this does vary for each project, and can even change depending on the amount of deposit you put down.
Q. When do I get paid the RG?
You will receive the RG payment on the last day of each month.
Q. How do I get paid the RG?
All RG payments are paid by direct deposit, directly into your account from the developer.
Q. How much do I get paid?
The RG amount is set in your contract - this can be a flat fee based on a model type, or a percentage of the purchase price. The Property Management company can also deduct any expenses from the RG amount that they incur while managing the property (example: changing locks, plumbing repairs, etc.).
Q. Do RG rates increase as market rents go up?
The rate you get from the RG is specified in your contract at the time of purchase and will not adjust based on market conditions. Many RGs offer rates below market rents at the time of purchase, so contact me to evaluate the current market conditions.
Q. What if the rent paid by the tenant is higher than the RG amount?
If the unit rents for more than the RG amount, the developer gets to keep the difference - you still receive the RG amount specified in your contract. Keep in mind that you are guaranteed to have no vacancy, you get free property management and rental services included which have significant tangible benefits, even if the market rate is above the RG amount.
Q. What if the rent from the tenant is lower than the RG rate?
You still get the RG amount specified in your contract - this is the biggest benefit of the RG program, you don't have to worry about what the market rates are because you know exactly how much rent you are going to get every month.
Q. How much rent do I get if the unit is empty?
If there is no tenant in the property and the unit is vacant, you still get paid the RG amount every month. This is very handy because at closing you should expect that the property will be empty for 30 to 60 days while the property is advertised for rent and all of the units in the complex are being absorbed by the marketplace - this is a major benefit of the RG program for investors.
Q. Who will manage the unit?
The property management company responsible for the management of all of the properties taking part in the RG is Empire81, a subsidiary of Truman Homes. Truman homes has a significant purpose-built rental portfolio in Calgary and Empire81 manages all of their properties and has extensive experience in the Calgary marketplace.
Q. Will I get good tenants?
Yes! Empire81 is a professional company and appropriate screening of tenants will take place. If there are any issues with the tenants, it is Truman and the Empire81 that will be responsible for dealing with them and addressing the situation - owners always still get the RG regardless if the tenant is actually paying the rent or not.
Q. When is the unit rented out?
Units are often rented out as soon as they are inhabitable which is typically before you close on the property (I’ve seen 6 months+ in advance before). The developer gets to keep the rent during this time - your RG only starts on the day of your closing.
Q. What do I have to pay for during the RG?
You are responsible for paying for all expenses related to the property, including mortgage payments, property taxes, condo fees, landlord insurance and the utilities of the unit which typically includes electricity. You are also still responsible for all of the maintenance and upkeep of the property, including repairs.
Q. Do I get to approve the tenants?
Under the RG program you have no input into the tenants that are being put into the property. The developer is taking on the risk associated with finding and placing tenants and if the tenant is not paying rent for any reason, the developer still has to pay you the RG amount every month so you can be assured only AAA tenants will be put into units.
Q. Can I get out the RG program?
You can always opt out of the RG at any time, even after it starts, however there is typically a penalty of 2 months of the RG amount to opt out before 90 days before closing and 3 months afterwards (confirm in your contract). For example: if the RG amount was $2,000 a month, the penalty to break the RG could be anywhere from $4,000 to $8,000 - always check your contract and opt out early!
If the unit is tenanted, you must assume the tenant and carry out the remainder of the lease.
Q. Should I opt out of the RG program?
There's no correct answer for everyone. If you want a completely hassle-free experience then stay in the RG program. If you want to maximize the profit from the property, then it might be a good idea to opt out.
Here are the top items to consider for opting out:
Market rent is significantly above the RG rate
You want complete control over the tenant placed in your property
You are considering selling the property within the first two years of closing
You plan on living in the property
You think rents will continue to go up over the next 1 to 2 years (there is no rent control in Calgary and rents can be adjusted every 12 months to reflect market conditions)
If you are considering opting out of the RG program, contact me to do an evaluation to determine if it makes sense based on your situation.
Q. How will I find tenants if I opt out of the RG?
The vast majority of properties in Calgary are rented by property management companies, not real estate agents like in Ontario and BC. These are accredited, licensed, professional companies and you will receive the same level of service as you would expect from a real estate agent, but at a fraction of the cost. These companies will post the listing for you (most often on rentfaster.ca in Alberta) and they will do the showings and screen your tenants. Companies also provide day-to-day management of the unit, including dealing with any service requests, doing walkthroughs of the property, managing your tenant, renewing the lease, coordinating any repairs, and more.
I have negotiated special discounted rates with top property management companies for my clients, so contact me if you need help.
Q. What happens if the tenant damages the property?
You are not indemnified from any damages that the tenant may cause. This means that if a repair is required, the property management company will coordinate the repair, communicate with the tenant, and provide access to the property but you will still be responsible for paying for that repair. For example if a drain is clogged, then the tenant would call the Property Manager who would call a plumber, coordinate with the tenant to get access to the property, providing them with appropriate notice, and make sure the repair was done in a timely and efficient manner. You as the property owner are still responsible for paying for that repair.
Q. Can I sell the property while I have the RG?
Yes, you can sell the property even if the RG is ongoing but you will be required to pay a penalty (typically 2 to 4 months of the RG amount).
Q. Can the developer cancel the RG program?
Yes, the developer typically has the right to cancel the RG program at any time but must compensate owners (typically 2 months of the RG amount) - check your purchase agreement.
Q. What happens after the RG is over?
If the current tenant wishes to stay, then they will be transitioned to the owners. It is not possible to continue with Empire81, so you will need to find your own property management company if you want them to rent the unit or manage it for you. I have negotiated fantastic deals with top property management companies in Calgary so contact me for more information.
Q. Do RGs help me qualify for a mortgage?
Most lenders do not consider RGs because they are temporary. Instead, lenders will use the actual market rents for qualification purposes and offsetting debts for debt service ratios. In some cases, lenders have categorized these as "rental-pool investments" and have required clients to opt out before committing to a mortgage so be sure to check with your lender to determine how they will handle this.
Q. Will I Qualify for the GST Rebate if I take the RG?
One of the requirements of the GST New Residential Rental Property Rebate is to provide a lease. Since the RG is a leaseback program from the developer, you don’t have a lease and likely will not qualify for the GST rebate - consult the CRA or an accountant to confirm.
Q. Can the RG be transferred to another buyer?
Typically the RG is an incentive for the initial buyer only and cannot be transferred but consult the developer to confirm.
Q. Can I live in the property and collect the RG?
No, if you live in the property you cannot participate in the RG program
Q. Can I leave the unit empty and collect the RG?
No, if you take part in the RG, the developer is renting the unit from you and will actively attempt to rent the unit out. This does not guarantee a tenant will be placed and the unit may be vacant, but you do not have the ability to choose.
Final Thoughts?
Think of a rental guarantee like an insurance policy - be happy that you have it, but be glad if you don’t have to use it!
