Income properties are a hot topic these days given the rising costs of home ownership in the country. The concept is simple: turn an area of your home into a legal, self-contained apartment, then collect rent each month to off-set the costs of owning and maintaining the property. This can be a sound investment strategy to actualize the dream of owning a home, or to further expand your real estate investment portfolio.
Here are a few things you should consider before deciding to become a landlord in your own home.
One of the most obvious advantages of having a legal basement suite is the rental income property can help pay down your current mortgage or assist with the ongoing yearly expenses and maintenance of a property once the mortgage has been paid off. Another advantage is the increase in resale value because income properties attract a wider range of buyers, including first-time homeowners or those who plan to live with extended family or elderly in-laws.
Having an income property does come with some tax implications. While you will need to declare the income you receive each month on your tax return, you’ll also have the benefit of writing off a portion of the yearly home maintenance, mortgage interest and utility costs if they are included in the rent.
Here’s an idea of the expenses you can deduct come tax time:
- Property Taxes
- Insurance Premiums
- Repair and Maintenance
- Mortgage Interest
- Accounting and Office Expenses
It’s in your best interest to speak with an accountant for more details on tax benefits or liabilities.
Know the Rules
Find out what the rights and responsibilities are for both landlords and tenants by visiting your municipal bylaw office. They will supply you with a copy of the Rental Act which outlines the rules and regulations governing income suites in your area and the procedure to resolve any disputes which may arise during the tenancy. The bylaw office will also determine whether your income property complies with local zoning plans or if any permits are needed to legalize changes to your existing suite.
You will need to determine how much to charge for the monthly rent and what utilities and amenities will be included, if any. Take into consideration whether you plan to include the heat, water or power in the rental amount. Does the unit have in-suite laundry facilities or can it come furnished? Will the tenant have a dedicated parking spot or be allowed to have pets? You will also want to ask yourself how much privacy you need in the exterior spaces of your home. Will the tenant have unlimited access to the backyard or deck area?
Here’s a breakdown of monthly rent rates for income properties in Toronto:
- Bachelor pad – $896
- 1 Bedroom – $1,067
- 2 Bedroom – $1,251
- 3+ Bedroom – $1,458
A large part of being a successful landlord is having all of your paper work in order. This is not only important for maintaining a positive relationship with your tenant, but also to protect yourself and the property if the tenancy doesn’t work out for some reason.
Ready? Here’s What You Do
- One of the most difficult aspects of having an income property is finding the right tenant to move into the space. The tenant needs to be well-suited for your individual lifestyle. Renting to an opera singer who practices at home may seem like a great idea at first – free concerts every day! – but what happens when it’s time to put your newborn infant down for an afternoon nap?
- It’s important to qualify all of the prospective tenants who apply to live in your unit. Start by asking them to fill out an application form with their personal information, employment status and previous rental history. It’s also a good idea to have the tenant supply a few references you can call to verify the information they have provided. Lastly, you will want their permission to perform credit history and criminal record check.
- Once the perfect tenant has been selected, sign a lease – standard form leases are available at the municipal bylaw office – detailing every aspect of your arrangement from the rental amount, to property rules and the procedure for ending the tenancy. On move-in day, perform a pre-inspection walk through with the tenant, then fill out a rental unit condition report. This report will be compared to the unit condition report that is filled out when the tenancy is over.
- Keep detailed records of how and when the rent is paid, any repairs or maintenance performed on the unit, document any disputes or problems with the tenant and finally, ensure the tenant receives a copy of all of the paperwork for their records.
Having a rental unit in your home can come with a unique set of challenges and not everybody is cut out to be a landlord. But for those of you who tackle this type of property investment, having an income suite can be a sweet way to further expand your real estate empire.
Are you considering transforming an area of your home into an income property? We have a list of general contractors who can turn your idea into a reality. Consult our list of professionals for all your home renovation needs!