Having a rental space in your home is a great mortgage helper as well as it also increases the value of your home. Many people are unaware of the challenges that are generated by having a rental suite in their home. Here are some tips and tricks to ensure you are equipped to handle your first tenant experience.
1. Consider your privacy.
Can you live with seeing a stranger around your house or using your property outside? Is the extra money worth it?
2. Try to avoid renting to family.
It is best not to rent to family, as it completely changes the relationship and is difficult to use “eviction” or “collection” rules against a non-paying family member without destroying the relationship and having the repercussions ripple out into the rest of the family.
3. Sign a proper written lease.
Always – even with family members – have a properly written lease between you and the tenant that clearly outlines the rules, late rent penalties, expectations, and length of term. It must be signed by every adult who is to reside in the suite.
4. Don’t set your rent too low.
Never be the lowest rent in the market – you will attract the type of renter whose focus is solely on dollars. It will also lead to more rapid turnover as they leave to the next “lowest rent” spot. To set the proper rent for your suite, go online and search for available units in your area. Make sure to look at a number of different sites and be location-specific in your comparisons. Look at the amenities and picture them through the eyes of a potential renter. Then place your price in the middle or higher end of the average comparable.
5. Do your research.
Each province and territory has its own landlord-tenant legislation so make sure to read up on the rules that apply where you live. In addition, make sure to research your local municipal bylaws, which include things like guidelines and standards for fire and building safety. Municipal bylaws also cover issues like zoning and permits. For example, some cities are now looking to shut down secondary suites in specific neighbourhoods. Not conforming to these rules means you could be shut down at a moment’s notice, so check with the city to make sure that your suite is legal. The Canada Housing Mortgage and Housing Corp. has a useful website with many good links.
6. Tell your home insurance company.
When you rent out a unit in your home, you are obliged to inform your home insurance company – something that the vast majority of people fail to do. If anything were to happen, for instance if a fire starts in the rental suite, the insurance company could say they were not informed of the tenant and that the policy is voided.
7. Research the tax repercussions.
Once you have a rental suite in your home, you have to claim that rental income on your tax return. In addition, once you start using the property for revenue, a portion of the capital gain when selling the property could be deemed taxable.
8. Learn from other landlords.
Knowing the tricks of the trade is important and who better to learn from than other landlords? A great free way is to visit the Real Estate Investment Network and use the search function to read discussions between Canadian property owners and their experiences and strategies when dealing with tenants.