She retired last year and now is down to her pension and investment dividends as her income and quite frankly is worried if that is enough income. She has been kicking around the "income suite" idea for a few years now, but has thought it not the best idea having a "stranger" living under her.
Problem is, her basement is HUGE and totally unfinished. It is 1,500 sq/ft of prime real estate and if she doesn't put in a suite, she figures she should at least finish it to increase her property value.
Big issue is the $$ needed to finish this area and hence her phone call to me.
She currently does not have a mortgage and dreads the idea of getting one. This is where I came in with some financial tax facts that she never was aware of that may make this idea far more appealing than initially thought.
- Mortgage interest is not tax deductible on a principal residence property in Canada, however if you have a rental unit within your principal residence, you can claim the expenses related to the rental part of the building. Canada Revenue Agency has a Rental Income Guide that explains the formula used under "Personal Portion".
- Canada Revenue Agency will also allow you to write off 100% of the repairs and maintenance of the rental, so this is excellent in her case as she can update the suite and write off the entire renovation costs (check with your Accountant for more specifics).
This makes the rental suite option far more appealing as it offers a way of reducing her income tax payable with the expenses she can claim.
Also, rental suites:
- Increase property value as a "mortgage helper" as most buyers are savvy to the idea of offsetting their housing costs with a renter.
- Create a source of income from your home.
- Help to offset your monthly housing costs.
Really this is an excellent way to use the extra space you have in your home that you would otherwise just have to pay for entirely out of your after tax dollars!
Trick is to get a good solid renter who is respectful and trustworthy. That is totally another blog on how to screen potential renters, but you get the idea.
As I always say, when needing to increase your income, look around first and think about what you already have. You never know, it may be something as simple as renting a room to a student.
Until next blog...
Liz
I couldn’t agree with you more! That is one of the questions haunting people with mortgage. They’re afraid that having a rental unit might affect their mortgage rate. But, just like you said, it is a good way of managing one’s resources. By doing that, people can have a source of constant income.
ReplyDeleteHaving someone rent a room or space in your house can be another source of income. But people should have to be careful when entering this kind of real estate investment. It does have it advantages, but bear in mind that there are laws regarding the issue, so it would be wise to research about them first to avoid problems.
ReplyDeleteIt’s a wise idea to allow somebody to rent a part of your house, especially when you really need additional income. At any rate, somebody must be aware of the pros and cons of this decision and the possible outcomes of such a move. I know it’s hard, and sometimes worrying, that a stranger is living with you, but I think it’s worth a try. :)
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