Tips for Adding an Income Suite to Your Home

Wish your mortgage payment had less of an impact on your finances? One way to offset mortgage carrying costs is to re-purpose part of your home as a rental – and with house prices bypassing the $1 million mark in many of Canada’s cities (such as the Toronto, Vancouver and Calgary real estate markets), this is becoming a common tactic for home-buyers and owners.

For those who want to afford more than a townhouse or condo but have limited affordability, the income from a rental suite can effectively help them move up in the market. It’s a practice encouraged by the Canada Mortgage and Housing Corporation (CMHC), because it contributes to affordable rental options within cities. As it states on its website, “Not only are secondary suites a source of affordable rental housing, they can also provide the needed extra income to first-time buyers for whom that additional income makes housing affordable in high-cost areas.” The CMHC also recently passed rules to make it easier for homeowners with suites to borrow, allowing 100% of their gross rental income to be considered when they apply for a mortgage or loan.

But renting out an income suite also means assuming the role of landlord – something many homeowners have no experience with.

Here’s what you should consider when renting out an income suite.

Make Sure Your Rental Suite Follows the Rules

In order to be considered a legal secondary suite, the rental must fit the following criteria:

  • It must have its own separate, private entrance
  • The unit must have its own kitchen, living and sleeping areas, none of which are shared by the landlord
  • There may be only one rental unit per home, and only single detached residences qualify (there are other rules that govern rentals in rowhouses).
  • The unit must meet the safety and fire codes as outlined by the Residential Tenancy Act (RTA) in your province
  • You must live in an area or zone where secondary suites are allowed

If you’re buying a home that already has a suite included, it’s important to know if it’s up to code, or includes illegal or shoddy work. You’ll have to update it with new renovations if that’s the case. This can especially be an issue in older homes, where units may have been built prior to new regulations, or require updates to their wiring and insulation in order to adhere to fire code.

Get Your Landlord Business in Order

Being a landlord isn’t an easy task; not only will you need to market your unit to prospective tenants, but you’ll be fully responsible for maintaining it and keeping it in safe, livable condition. For example, if the appliances stop working or the sink backs up at three a.m, you’ll need to deal with the situation ASAP, and will be on the hook for all costs and labour.

Running a rental unit is also more involved than picking your tenant and collecting a rent cheque each month. You’ll need to report the rent as income on your taxes, though you may be able to write off some expenses associated with it. Hiring an accountant to help you keep track of your assets and expenses is a good idea – and they’ll also be very helpful should you sell your home and need to report your capital gains.

It’s also important to know your landlord rights and legal requirements in your province as they can differ across Canada. Brush up on privacy laws, the CMHC’s Provincial and Territorial Fact Sheets, and your local legislation and RTA. Still not sure? Invest in a consultation with an experienced tenancy lawyer, who can answer any additional questions you may have. 

Prepare the Worst Case Scenario

While you may have been meticulous during your tenant selection process, disputes can – and will – happen. It’s important to know the processes for coping with such issues, and what it’ll cost you. If you’re unhappy with your tenant, you don’t have the power to simply turf them out, even if they’ve stopped paying rent. You’ll need to serve them with notice, apply for have a case for arrears opened, and may even need to have a tribunal hearing in order to resolve the issue.  This process costs time and money, and can jeopardize your finances if you’re relying on that rental income month-to-month. As with any smart financial plan, ensure you have a rainy day fund on hand to cope with unexpected repairs or loss of rent – just in case.

Plan for Life After Landlord

Do you intend to rent out your suite indefinitely, or is the goal to eventually reside in the entire home once on firmer financial ground? How many months, or years, will you need to keep the rental to recoup your costs and be profitable? Will you renovate your home to revert it back to a single-family residence when you’re no longer renting it out? As with any business, ensure you have a three, five, or even 10-year strategy in place. After all, it’s ultimately your home – so plan to enjoy it, along with all the responsibility.

Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.