Let Someone Else Pay Your Mortgage

While you're looking at homes to buy, don't rule out properties that include a rental suite - especially in this tough economy, or if you're a first time home buyer.

Being a landlord will help pay your mortgage (sometimes entirely), and having a rental space increases the value of your home when it's time to sell - especially if you live in an area where rental properties are in high demand, such as near an university or college.

If you already have a home, consider adding a separate rental apartment when you do your next big renovation. Turn extra space into a source of regular income. (Or, if a family member needs that granny flat or in-law suite right now, don't worry: eventually the apartment will boost the equity in your home. )

Getting your Money Back - and Then Some

Scott McGillivray, the host of the HGTV show, Income Property, says that "income suites typically have a 150% to 250% ROI [return on investment]... building an income suite is by far the most profitable homeowner reno."

Your renovation costs should pay themselves back within two years of rent, says McGillivray, who manages 18 properties with more than 100 tenants, and owns 18 income-generating homes he's converted himself.

He notes in his TV series - about first time homeowners and their goal to add a rental suite in their homes - that if "the kitchen has zero counter space and the bedroom can only fit a bed... think of the types of people who might be wanting to rent out your unit." Renovate as well as you can afford, to attract long-term renters.

Halifax real estate lawyer Elias Metlej has a great analogy about one of the pitfalls of buying an investment property: "Your mutual funds will not call you at 2:00 am to complain that they don’t have heat." Landlords have to deal with the demands and eccentricities of renters, not all of whom may be reasonable or ethical or pay exactly on time each month.

However, that said, you can use a rental property in your retirement planning - especially if you've lost some equity in your home due to the recession. You can even get special financing to help you buy a small rental property (that's not your residence) with a small down payment.

Selling a Rental Property

If there is a tenant already in your rental property, your target market shifts to the property investor. If your rental property is vacant, however, it appeals to a much larger market: those who want to move family into the rental suite, or find their own tenants, or redevelop the property.

The Canadian Real Estate Association (CREA) is supporting a change to the Income Tax Act that would allow deferral of the capital gains tax and the recaptured capital cost allowance when a rental property is sold and proceeds are reinvested in another rental property within one year.

“Our proposal has benefits... for rental housing and for the small investor, as well as some significant environmental benefits as old buildings are renovated and made more energy efficient," says CREA president Calvin Lindberg earlier this year. CREA claims that currently, the federal tax system "acts as a lock on prosperity by discouraging real estate reinvestment and redevelopment."

What do you think? Is there a rental property in your future? Leave your comments here.

1 Comment

  1. rental inventory 04/06/2010 at 11:07 AM

    Interesting post because in London, UK there is a lot of contention over affordability. Lots of people cannot afford to buy and many rely on renting out a room so they can afford the mortgage. In the future as house prices continue to rise affordability will become even more of an issue. I don't think buyers should rule out rental properties because it obviously means someone thought the property was a good investment. I personally would not rule out a rental property.

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