When we bought our first home we thought carefully about the idea of renting out the basement. We ultimately bought a place with a rentable basement and it has worked out very well for us. The best mortgage rates are right around 3% right now, which makes this the perfect time to buy an investment like this.
What To Look For In A Rental Unit
First and foremost, you need to buy a house that’s structurally sound. Cracking paint and an ancient kitchen can be fixed easily, but you don’t want to have to re-pour part of your foundation because of deep structural issues.
Depending on how handy you are, you might do well to buy a house that doesn’t have a rental unit yet, but where you can put one in easily. When we bought our place the kitchen was only roughed in (meaning the plumbing and electrical were ready, but there wasn’t actually a kitchen there). A quick shopping trip later and we’d ordered cabinets, a countertop, a sink, and appliances and were ready to go. We spent less than $10,000 getting it ready – an investment that’s paid us back many times over the years.
Dealing With Tenants
We’ve all heard horror stories about tenants and landlords. When looking for a tenant you of course want to check references and ask a lot of questions, but I’ve found that simply treating people well motivates them to treat you well. If there are any problems, take care of them immediately. When our almost brand-new fridge broke, we had a new one delivered the next day. Tenants who know you have their back will be more respectful of your property.
Reaping The Rewards
Now you can enjoy the fruits of your labors. You should also learn about taxes. Rental units offer a number of helpful tax advantages, including being able to write off a portion of all utilities, taxes, and other bills. In Canada, where mortgage interest can’t be deducted, you are allowed to deduct the interest you pay on the portion of your home that you’re renting.
You should also watch out for how you claim capital costs. A capital cost is any upgrade you do to your property that improves it in any way. You don’t pay capital gains taxes when you sell your primary residence, but if you’ve claimed capital costs on your rental unit, you may have to pay capital gains on that portion of the home. Look into this ahead of time and don’t get stuck.