Income units not always as ‘suite’ as they sound
Weigh the pros And Cons of renting extrA spACe, ApArtment in your home
In many areas, the real estate market continues to be hot — and for some homeowners who end up with more space than they may need, they might start to think about ways to help offset the costs of their mortgages. Enter the income property. Though I may not be known as the income-generating renovation guy (you’ll have to look to someone else on HGTV for that), that doesn’t mean I can’t help you make your extra addition the right way. If you’re thinking of adding an income suite, here are a few questions you should answer before you get started.
WHY ADD AN EXTRA UNIT?
There are lots of reasons you could carve out an extra unit in your home. For some families, it gives you the space to bring in an elderly family member, while still giving them their own independent space. For others, it can provide a valuable source of income to help pay down the mortgage.
Or it could be a combination of the two. If mobility becomes an issue in later years, you can move down to the one-level apartment, making the upper part of the home the rental unit, or leaving it open for family to move in.
CAN YOU LEGALLY ADD AN EXTRA UNIT?
First, you’ve got to make sure your municipality allows basement apartments. If it does, each municipality may have its own regulations to follow, so make sure you pay attention to what those are.
Retrofitting your basement into a separate apartment is going to require permits before you begin construction. Believe me, you don’t want begin construction without the official go-ahead. Without a permit, you may be asked to stop work on the project and even remove any finished work so it can be properly inspected.
In all cases, it has to be safe for the tenant. That means the apartment unit must have a safe, separate exit in case of an emergency, such as a fire. This exit has to open directly to the outdoors; it can’t open into a different unit.
ARE YOU READY TO BE A LANDLORD?
The extra cash every month is definitely a huge draw to having an income suite in your home, but don’t assume you can just sit back and let the money roll in. This is still income you have to work for — and there are a few questions you should ask yourself before you take the plunge as a landlord.
DOES THIS MAKE FINANCIAL SENSE?
You may only look at the rental income as cash that you can put toward your mortgage, but there’s more to it than that. You’ll need to allocate some of those funds for repairs, insurance and replacing items like a fridge or oven unit.
And what if multiple things go wrong at once? Say the A/C needs to be replaced, the unit needs repainting, your tenant has moved out, and you haven’t been able to secure a replacement. You’ll need to dip into your savings for a unit that isn’t generating any income. Is that a cost you can afford?
Without a good cushion of savings beforehand, the hassle of maintaining the unit may be more expensive than you can handle.
DO YOU HAVE TIME TO MANAGE THE PROPERTY?
Part of this is handling repairs like I mentioned above, but think about the time factor involved in renting out a unit. Do you (or your partner) have time and motivation to screen tenants, collect rent on time, handle repairs quickly, and learn the tenant and landlord rights in your area? In Ontario, for instance, you’re required to give 24 hours’ notice before entering a tenant’s space, and you can only do so between 8 a.m. and 8 p.m. Does that work with your schedule? If not, you may need to come up with another plan, like hiring a property manager.
If you’re ready to be a landlord, and have the means and ability to build a rental unit, it may be time to start looking for a contractor. If you’re starting to have second thoughts, an income property may not be the right track for you to take as a homeowner. A different income stream could be a better fit.