With an increasing demand for rental properties in Canada, the decision to convert your home to a rental property may be appealing. Skyrocketing home prices are fizzling Canadian home buyers’ interests, and they are now keener in looking for rental homes. For home sellers, it’s a perfect opportunity to get into the rental market.
But it’s easier said than done. Various financial considerations come into play.
Turning your home into rental property results in dealing with mortgage and tax implications. Here are some money matters to consider:
Rental income can be a good source of extra cash. But it also has related expenses that you should consider. Before renting your property, check for any repairs you must make. You can apply for a loan online to ensure all maintenance is sorted out if you need cash. When asking for a security deposit, consider repair and other maintenance costs. You’d want to ensure that tenant damage won’t go beyond the security deposit.
Living in your home before renting it out is a wise financial decision. Primary home mortgages often have lower interest rates and down payments. But it also means the mortgage lender assumes you live in the property.
Make sure to check the occupancy clause of your mortgage agreement. If the lender finds out you’re renting the property, they can charge you with mortgage fraud. It can mean more expenses for you.
The homeowner’s insurance won’t be enough when converting your home to a rental property. You’d need to secure a landlord experience. It’s best to bundle this with other insurances you already own for your home and vehicle.
Landlord insurance is much more expensive than homeowner’s insurance because rental properties have a higher risk of wear and tear. This insurance covers damages to the property structure. But it should also have basic coverage for accidents inside the premises. You can get additional coverage if the rental property is in an area prone to floods and related damages. These would usually cost you extra.
Once you’ve sorted out your related expenses, it’s time to determine how much rent you can charge.
First things first; do market research.
Find out how much the average rental rate is in your area. Make sure to compare based on the location, size, and amenities.
To better gauge how much you can charge, it’s also essential to think about your expenses. You don’t want to break even. You need to earn more above the cost of running the property. You may want to work with an experienced real estate agent to help you with the computation.
After sorting out the financial aspects of your rental property, the next step is to market it. Decide if you want to attract long-term or short-term renters. Your choice would significantly impact how stable your rental income would be. It will also affect how often you’d like to schedule preventive maintenance.