Home ‘suite’ home
Income suites are a hot topic these days given the rising costs of homeownership in Canada. The concept is simple enough: a homeowner can turn an area of their home into a legal, self-contained apartment then collect rent each month to off-set the costs of owning and maintaining the property.
This can be a sound investment strategy for your clients; to actualize the dream of owning a home or to further expand their real estate investment portfolio.
But there are a few things to advise your clients on before they decide to become a landlord in their own home.
1. Financial implications
One of the most obvious advantages to adding a legal basement suite is the rental income, which can help pay down the mortgage or assist with the on-going yearly expenses and maintenance of a property once the mortgage has been paid off.
Another advantage is the increase in re-sale value because income suites attract a wider range of buyers, such as first-time homeowners hoping to climb up the property ladder, real estate investors wanting to build up their portfolio, or buyers who plan to live with extended family or elderly in-laws.
Having an income property does come with some tax implications. While the homeowner will need to declare the income they receive each month on their tax return, they will also have the benefit of writing things off, such as a portion of the yearly home maintenance, mortgage interest or utility costs, if they are included in the rent. There may also be other tax benefits or liabilities depending on the individual situation, so it is best to speak with an accountant for the details.
2. Know the rules
Find out what the rights and responsibilities are for both landlords and tenants by visiting the municipal bylaw office. They will supply the homeowner with a copy of the Rental Act, which outlines the rules and regulations governing rental suites in the area and the procedure to resolve any disputes that may arise during the tenancy.
The bylaw office will also determine whether the planned income suite complies with local zoning plans or if any permits are needed to legalize changes to the existing suite.
The homeowner will also need to determine how much to charge for the monthly rent and what utilities and amenities will be included, if any. Take into consideration whether this will include the heat, water or power in the rental amount.
Does the unit have in-suite laundry facilities or can it come furnished? Will the tenant have a dedicated parking spot or be allowed to have pets? They will also want to consider how much privacy they need in the exterior spaces of their home. Will the tenant have unlimited access to the backyard or deck area?
Browse the local rental listings on Kijiji and Craigslist or read the latest rental market reports on the CMHC website to find out what the going rates are in the neighbourhood.
3. Proper paperwork paramount
A large part of being a successful landlord is having all of the paperwork in order. This is not only important for maintaining a positive relationship with the tenant, but also protects the homeowner and their property if the tenancy does not work out for some reason.
One of the most challenging aspects of having an income property is finding the right tenant to move into the space. The tenant needs to be well suited for the homeowner’s individual lifestyle; renting to an Operatic singer who practises at home may seem like a great idea at first – free concerts every day – but what happens when it’s time to put that newborn infant down for an afternoon nap?
It’s important to qualify all of the prospective tenants who apply to live in the unit. Start by asking them to fill out an application form detailing their personal identifying information, employment status and previous rental history.
It’s also a good idea to have the tenant supply a few references that the homeowner can call to verify the information the prospective tenant has provided. Lastly, they will want their permission to perform credit history and criminal record check.
Once the perfect tenant has been selected, sign a lease – standard form leases are available at the municipal bylaw office – detailing every aspect of the arrangement from the rental amount, to property rules and the procedure for ending the tenancy.
On move-in day, the homeowner should perform a pre-inspection walk-thru with the tenant then fill out a rental unit condition report. This report will be compared to the unit condition report that is filled out when the tenancy is over.
The homeowner should also keep detailed records of how and when the rent is paid, any repairs or maintenance performed on the unit, document any disputes or problems with the tenant and, finally, ensure the tenant receives a copy of all of the paperwork for their records.
Adding a rental unit to a home can come with a unique set of challenges and not everybody is cut out to be a landlord. But for those of your clients who tackle this type of property investment, having an income suite can be a ‘sweet’ way to further expand their real estate empire.