More On Housing Strategies - Renting Out a Part of Your Property
In response to yesterday's post, Rositta made a suggestion about how to buy more house for your money by purchasing a home with a basement suite and living in the basement while renting out the main floor for a few years.
As regular readers will know, I do own a home with a basement suite and I have tenants living below me. The person who bought my last house has roommates living with him as does another friend of mine. Someone else I know is renting out her garage, and a condo owner rents out her parking spot. All of these strategies are ways to lower your monthly costs by only using the portion of your property that you really need. And financially they work very well.
However, I can tell you from my own experience that there is more to these arrangements than the financial. Renting out space is basically like starting a part-time business. You need to find your customers, collect the money, take care of repairs and maintenance and sometimes much more. While you may get lucky and find someone who rents from you for years without causing any trouble, this is not the norm and you should be expecting to do a decent amount of work.
Also, you are sharing your space, with all that entails. You may have more noise, less privacy, and possibly inconvenience or even damage.
And from a financial planning standpoint, it is important that any of these strategies should be considered as increasing income instead of reducing expenses. Because your expenses will still be there if the person stiffs you one month or if you can't find tenants. So you need to be sure that you can make your monthly budget even if your income from the rental portion of the property fluctuates.
In summary, if this is something that you want to do for extra income, then treat it like a part time job and do it right. But you are still the person on the hook for the entire mortgage payment each month, so be sure that you plan for vacancies and repairs when making your business plan and don't overextend yourself when buying.
5 comments:
You are also opening your doors to all the people your renter associates with, so caution needs to be excercised there.
Mike
As someone who is considering doing just this when I purchase my first home, I appreciate the post. Thanks!
Would you have any thoughts regarding the legal or tax implications of doing this?
Alex
For legal implications, check your provincial government's website (if you are Canadian). They should have a section for landlords and it's usually pretty thorough. My best advice is that knowledge is your friend.
For taxes, one tip is that repair and maintenance is deductible but renovations are not (because the CRA figures they are adding value to the house that you will get back when you sell). So if you do any work on the house, try to separate the two and keep your receipts so that you can claim the maximum that you are entitled to.
Hope this helps! Good luck!!
MD:)
The real estate is the best way to make money. Real estate is a risky business but Real estate gave chance to earn money.
The real estate is the best way to make money. Real estate is a risky business but Real estate gave chance to earn money. people give our property on rent and make money.
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