Pros
- Room to grow as your family expands and changes
- Extra income
- Improved cash flow
- May enable you to buy a bigger house
Cons
- Less privacy and possible sharing of facilities
- Income is taxable
- Paperwork and responsibilities
- May add to the cost of the house and taxes
If you're shopping around for a house, you may, like many Canadians, be thinking about buying a property with a rental unit.
While renting our part of your home appears to be a foolproof financial strategy, there are several things you should be aware of before you decide to have tenants in your home.
Painting the financial picture...
Some people assume that having a unit to rent out will automatically help them qualify for a mortgage.
Whether or not this is the case could depend on several factors, such as location, the legal status of unit, and if there is a current tenant. Each lender has its own documentation requirements and calculations regarding how rental income is factored into an application.
On the flip side, while a rental apartment may help you pay the mortgage, it may also increase both the purchase price and property taxes. So your monthly payments may end up higher than those for a similar home down the street without a rental unit.
When crunching numbers, estimate the hard costs of renting, such as the additional draw on utilities, repairs, and maintenance, and income tax payable (though expenses can help offset this).
Balancing the benefits...
Take the less tangible "soft cost" into account, such as the time you'll spend managing administrative tasks and making repairs.
How do you feel about the potential loss of storage space, reduced privacy and interuptions such as the inevitable knock on the door when the plumbing springs a leak in the middle of the night? You may also need to share facilities such as laundry, the backyard, or paking space.
Remember too, that, landlords have legal obligations, which involve respecting the tenant's rights and responsibilities and ensuring the unit meets local zoning bylaws and fire and safety codes
The long-term plan
Many people find the long- and short-term benefits so appealing they are willing to make these sacrifices. Certainly, a monthly cheque can be a welcome addition to the household cash flow.
Moreover, choosing a property with a rental unit could help you buy a bigger house than you might otherwise afford. While that extra space is being occupied by someone else for the time being, it may provide extra room down the road for a growing family, a private getaway for teenagers, or a haven for aging parents.
If you're considering purchasing a home with a rental unit, talk to me before you sign. I can arrange financing with a lender who will help you achieve your unique homeownership goals.
Lisette Amalfi Harris, AMP
Senior Mortgage Consultant/Owner
Mortgage Alliance o/a OAC Mortgages Inc
(905) 529-1199
TF: (877) 529-1199
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