Toronto renters are paying up to a year of rent in advance

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It took Karim and Joseph more than eight months to find a two-bedroom apartment to rent in downtown Toronto.

The high school friends, now 30 and 31 years old respectively, who did not want their last names published to avoid identifying their current landlord, started their search in July 2022. Joseph, the more experienced of the two, had already warned Karim of the “scope of how quick things happen.”

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“People were renting a place without even having a tour and scheduling a tour could have a detrimental effect for you,” Joseph said.

The pair sent in application after application matching the expected rate, only to get rejected every time. “It was consistently like that,” Joseph said. The offers “would get rejected out of the box.”

Their realtor suggested raising their offer over the asking price. They agreed. It was no use, according to Joseph — others were offering four months, six months, even up to a year of rent in advance.

The pair continued to up their offer, sometimes offering several months of rent upfront and up to $200 over the asking price. “Up to 10 apartments rejected us,” Joseph said. “We were pretty much giving up.”

Then, in a stroke of luck, a landlord, new to the market and unaware of ballooning rent bids, accepted their offer in March 2023 — 12 months of rent in advance at $200 over the asking price, a lump sum of $38,400.

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“The landlord was also pretty surprised,” Joseph said. “She hadn’t had an offer like that before and had a few questions for us as to why we were offering her that much.

“We explained what had been going on in the market.”

Several realtors and other Toronto tenants say offers like this are becoming increasingly common in a heated rental market, with a housing supply unable to keep up with an unprecedented immigration boom.

“At least in the Toronto market, it’s definitely because of the immigration boom,” said Kenneth Yim, a Toronto-based real estate agent. “At the end of the day, it’s a fundamental supply shortage.”

It’s illegal for landlords in Ontario to ask for more than a first- and last-month deposit, but it’s not illegal for them to accept a larger advance, if volunteered by a prospective tenant.

“I find that a lot of agents will offer that ahead of time … because they’ve been rejected in the past from other listings or other landlords or maybe because they’re from overseas, because they don’t have any credentials or any kind of guarantor,” Yim said.

Canadians struggle to find affordable rentals

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Last year, Canada recorded a new low in national vacancy rates at 1.5 per cent — the lowest recorded since 1988 — and a record-high increase in rental rates (eight per cent), according to a rental market report published by the Canadian Mortgage and Housing Corporation in January 2024.

The report touted the city as the second-most expensive to rent an apartment in, after Vancouver. Potential tenants now have to pay an average of $1,940 for a two-bedroom apartment in a purpose-built rental property, 8.7 per cent higher than 2022. “This was the largest increase since 2000 and was the result of stiff competition for fewer vacant units,” the report stated.

The average rent for a two-bedroom in a condo stood at $2,862, with a vacancy rate of just 0.7 per cent.

Maggie Mahoney, 28, and her partner started their search for a one-bedroom apartment in downtown Toronto in April 2023. “I heard it was competitive, but I didn’t know it was that bad,” she said.

Appointments to see prospective apartments would be cancelled because other renters were putting down offers without even seeing the place, she said. They had tried the same with a place they were interested in and put down an offer of three months upfront at $100 above asking price. Their offer was rejected because they were outbid, she said.

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When they found their current apartment, their realtor suggested they put an offer in as soon as possible and increase how much they were willing to offer upfront. Mahoney and her partner put down an offer of five months of rent at $50 above the asking price and were accepted. “They were actually offered similar offers. But I think they liked us,” she said.

The monthly rent for their apartment totalled $3,050, which meant the couple had to put down a lump sum of $15,250. While the couple were able to afford it together, Mahoney said she would not have been able to offer that much money upfront by herself. “If I wasn’t in a relationship, I wouldn’t be able to afford something like that in general. It’s just so competitive and expensive,” she said.

International migrants, students struggle to find rentals

The last quarter of 2023 saw a record-high 191,418 people immigrate to Ontario, according to the Toronto Real Estate Board.

Federal data shows about 240,000 permits granted to international students planning to come to the province in each of the last two years, although it’s unclear how many of those permits were accepted and used.

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Many of these students often rely on funding from families in their home countries to pay their rent and other costs of living. Without a local guarantor to back them, they have a harder time convincing landlords to accept their applications and, as a result, are more likely to offer several months in advance as a guarantee.

Ishita Parikh, 26, and her roommate said they had to offer six months of rent upfront for an apartment in 2019, to convince the landlord that they would be suitable tenants. “We had just graduated, both of us had jobs and when we found this apartment … terrific location, perfect everything — it was in the building we were already living in,” she said.

Despite recommendations from the building management and proof-of-employment letters, the landlord refused to offer them the place without an advance payment.

“Oh, you guys are new graduates, you might trash our house,” Parikh recalled the landlord said. “Not trustworthy, essentially.”

Parikh and her roommate paid the landlord the advance.

“Because we wanted the house so badly, right? Because it’s so hard to find a decent house and we just succumbed to it and gave it up,” she said. The monthly rent for the apartment was $2,500, which means Parikh and her roommate paid $15,000 to the landlord to secure the place.

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“We both have savings and my roommate was still in school, so her parents were subsidizing her rent,” Parikh said.

Amoli Kar, 28, and her flatmate shared a similar experience during their search for an apartment in 2023. Landlords, she said, were wary of the fact that Kar was unemployed at the time, despite proof of family support and that her flatmate, who had a secure job, was capable and willing to pay the entire rent.

“We were not getting accepted in any of the rental places,” she said.

a fundamental supply shortage

At first, the pair were adamant about not paying anything beyond a first and last month deposit. “We soon realized we won’t end up with a house if we don’t do that,” Kar said. “It became a matter of how much rent someone was willing to pay upfront.”

The search took a toll on Kar, who at one point suggested that her flatmate find a place to live separately since it was Kar’s lack of employment that was holding them back. “Maybe I’ll move in with a relative or go back (to India) for a while, while I look for a job,” Kar recalled telling her friend. “I had a proper breakdown because I (thought), this is just not happening.”

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After agreeing to pay six months of rent upfront, the two finally secured a place in August 2023.

Both Parikh and Kar said their stories are common and that they know friends who have experienced the same struggles with finding a place to rent in the city.

“It’s not surprising anymore,” Parikh said. “The first (or) second time you’ve heard it, you’re taken aback a little bit, but eventually, it’s so normalized now that it’s bound to happen.”

Rising housing costs

Since March 2022, interest rates have risen rapidly. As a result, many landlords who are mortgage holders are either facing higher payments or the risk of more expensive mortgages at renewal, as well as increases in other miscellaneous costs like condo maintenance fees, according to Marco Pedri, a Toronto real-estate broker.

“That’s what drives this,” he said. “Being overly cautious and risk mitigation.”

Landlords, he added, are frequently trying to mitigate the risks that they experience when approving tenant applications. “So, when you have five applicants and you’re looking at the documents, if there’s one individual offering more rent upfront, then risk, to some degree — I’m not saying it’s a foolproof plan — is mitigated,” he said.

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This especially comes into play when landlords are worried about tenant horror stories they’ve heard from others. “You hear, especially during the pandemic, that they had some non-paying tenants on the property for over 12 months at a time and it took so long to hear from the landlord and tenant board,” Pedri said.

“On the landlord’s side it trickles into the preference of a larger deposit because then at least the landlord knows they have some sort of funds to keep the property and help support the carrying cost and cash flow.

Yim generally cautions his landlord clients against accepting a payment advance in lieu of doing the necessary work to vet potential tenants — the cost of a bad tenant is higher than having no tenant at all, he said. But he acknowledged that “it does happen.”

“Because of the higher interest rates and higher carrying costs, they need every dollar they can get,” he said.

Landlord and tenant tensions

Tasneem Bhujwalla, a Toronto real estate broker, pointed to high tensions and distrust between landlords and tenants, exacerbated by a distorted market in which both tenants and landlords are struggling with rising costs.

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“What I’m seeing a lot are tenants who are being really shady because of the new rules and regulations,” Bhujwalla said.

With the number of rentals available during COVID-19, it used to be easy for her to close on a lease between a prospective tenant and landlord. However, incidents of tenants not paying the rent for months in the last two years have left landlords “very agitated and scared.”

“If you have a really good landlord and you screw that person and that person gets burned, now they’re scared … and they become paranoid,” she said.

Yim said he has experienced five tenants who skipped on paying rent and left. “If they don’t pay, it’s really hard to get them in front of the tenancy board,” he said. “And even if you do get the judgement, it’s really hard to collect.”

An ombudsman report released in May 2023 revealed the Ontario Landlord and Tenancy Board had a backlog of over 38,000 cases, with almost 90 per cent of complaints coming from landlords.

“Now landlords have a fear that, ‘Oh, if I give my unit to this person and they don’t pay, it’ll take eight months before I can kick them out’,” Bhujwalla said. “There’s a paranoia there.”

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In the case of Chrisa Berbatois, an unemployed single mother on CPP disability with a 15-year-old daughter, she and her landlord were both left in a bind in April 2022 when she was unable to find a place to stay after her five-month term was up.

She had paid him an advance of five months of rent — discounted from $2,000 a month to $1,800 — with an understanding that she and her daughter would move out after five months so their landlord could knock the property down. But by the end of five months, there was “nowhere to go,” she said.

“I tried,” she said of her efforts to find an alternative. “And he (the landlord) could see it for himself, he was also searching for me. We didn’t expect to be in this dilemma still.”

The landlord, out of desperation, she said, refunded her the five months of rent advance so she could have something to use to find another place. She used the money, she said, to fund hers’ and her daughter’s stay at a hotel near her daughter’s elementary school until they were finally able to find an affordable rental.

It all comes down to an imbalance of supply and demand, Yim said.

“Just with infrastructure, there’s too much demand for the supply that we have,” he said. “And it’s just going to be a fundamental supply shortage for many years to come.”

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