The drastic rise in inflation has many people concerned for their financial future and the affordability of their homes. The high cost of gas is driving everything up, and it seems like the only thing that isn’t skyrocketing is your income.
As a homeowner, you’re in a unique situation. On the one hand, you may feel distressed as your utilities, water bill, and property taxes shoot through the roof. However, your home also provides an incredible tool to help you grow your income and wealth through difficult financial times.
All this comes without working overtime or taking on a second job to make ends meet. How? You can turn your home, or part of your home, into a rental property.
Of course, renting comes with risks and responsibilities and is not for everyone. Before taking the plunge, it’s a good idea to figure out your risk tolerance and weigh the pros and cons of your options.
Need advice on buying or selling as the market shifts? Here are some other resources to help:
- Are Bully Offers Still A Thing?
- Will Interest Rates Cool The Hot Seller’s Market?
- The Benefits Of Moving To A Bigger House In The Same Neighbourhood
How Much Work Needs To Be Done?
Building a legal secondary suite can require substantial renovations. You’ll need to invest a significant amount of time and money upfront, which can demand a level of risk that not every homeowner finds acceptable. You may want to book a consultation with a contractor to find out what updates you’ll need before your unit will be ready to advertise.
Once you have an idea of the budget you’ll need, take a look to see what other homeowners are charging for rent in your area. Does the amount leave you with enough to pay for the renovations with some leftover? Having a financial cushion will ease the stress whenever a dispute arises or if your unit sits vacant for any length of time.
If you decide to go ahead, there are permits to acquire and legal implications to understand. In addition, you’ll want to know about your rights and those of your tenant. You can find the Ontario Residential Tenancies Act here.
Do You Even Want To Be A Landlord?
There’s no doubt that real estate is one of the safest long-term investments you can make. Property values generally increase over time, even if they dip in the short term. However, not everyone has what it takes to be a landlord.
Finding the right tenant is essential to your success. You’ll need to perform extensive background checks. Even then, there is always the risk that your tenant refuses to pay rent or damages your property. When you find the right person, be prepared to answer calls and quickly respond whenever problems arise.
Providing top-quality service makes for a happy tenant who stays for the long-term, making your venture a successful one!
How To Finance Your Project
Building a secondary suite in your house has other benefits beyond providing an immediate source of income. The value of your property automatically increases, which adds to your net worth in two ways.
- Your equity grows. This gives you more buying power, allowing you to upgrade to a larger home later or even fund another investment.
- If you decide to sell, you can expect to enjoy a substantial return on your investment. A house that offers income potential is very appealing to buyers and can earn far more than one without.
However, before you can enjoy any of those advantages, you first have to find a way to finance your project. If you have owned your home for several years, you’ll have built significant equity. You may be able to take out a second mortgage or a home equity line of credit to finance your renovations. Otherwise, you may have to tap into your savings or apply for a different type of loan.
Whether you intend to rent your property or not, the right renovations can still add value. Here are some of the best ideas:
- Should You Buy A Fixer-Upper Or A Renovated Home?
- Semi-Detached Or Attached: What Has The Better Resale Value?
- Should You Renovate The Kitchen?
Which Rental Opportunity Is Right For You?
You’ve analyzed your budget, weighed the pros and cons, and you’ve decided that the investor’s life is for you! What’s the next step? You can use a few options to earn income from your property. You can decide on one, or combine several options to maximize your income potential!
Rent a single room
Are you out of luck as an investor if you are risk-averse and don’t want to invest much money to prepare your house? You could consider renting out a single room in your home and still generate monthly passive income. Adding a lock to each bedroom door is likely the only major change you’ll need to make. Students are always looking for a place to stay, and finding the right tenant can be as simple as posting on social media.
Add A Basement Apartment
If your home has a finished basement, you can renovate it into a completely separate unit. You need a separate kitchen, dining room, living room, and bathroom for your basement apartment to be legal. In addition, safety regulations require a minimum of 20 minutes of fire separation from the main house. An egress window is required unless the basement has a walkout. Be sure to understand the zoning laws in your area and obtain all required permits before starting your renovations.
Build A Garden Suite
One of the most exciting developments over the last few years is the legalization of coach houses throughout Toronto. Until February of 2022, you could only build a separate secondary suite if your property faced a laneway off the backyard. However, the Ontario government is now actively encouraging homeowners to build garden suites to increase the housing supply. To be legal, a garden suite must have a living and sleeping area, a bathroom and a kitchen. In addition, it should be at least 188 square feet. Why a garden suite instead of a basement apartment? A garden suite is entirely separate from the main house and offers far more privacy and noise reduction.
It isn’t just a way to generate income and build equity. It’s the perfect way to help a family member downsize while keeping their freedom and independence.
Do you want to find a home with built-in rent potential? We can help you achieve your goals. Book a buyer’s meeting with us right here.
