6 Advantages of Renting Out Your Basement
The overall benefits of homeownership are huge. Of course, there’s the main one of building equity, but another significant benefit to homeownership is in its income potential. By renting out your basement, you can turn your home investment into a profitable asset.
Plus you still get to take advantage of other benefits like the freedom to renovate or build to your specific needs, tax benefits, and more financial freedom by way of predictable expenses and long-term savings.
Let’s look at the many advantages of renting out your basement as an income property.
An Additional Source of Income
Depending on the square footage and number of bedrooms in your basement, the amount you can charge in rent will vary. However, any amount of extra income helps you pay down debt, help with the mortgage payments and property taxes, and build savings.
For the long term, these rent payments from your tenants can also help you pay off your mortgage much sooner. Imagine living mortgage-free years earlier than expected.
An Easy Way to Add Value to Your Property
Homes with legal basement suites can carry a higher value than similar homes without. If you decide to sell your home later, you’ll potentially attract property investors who may be interested in renting out both the basement and the upper floor separately. Additionally, other homeowners like yourself may be looking for a home where a tenant helps pay the mortgage.
Because there are legal requirements to own an income suite, any renovations you do to meet these requirements will only add more value to your property, keeping it in modern living conditions for the long term.
We’ve created worksheets for seven of our most popular income suite home models. These proformas will do all the calculations for you and show you how beneficial an income suite can be. Simply fill out the form below and we’ll send it directly to your inbox.
Tax Benefits for Income Suites
Although you’ll be required to claim the rent payments you’ll receive as additional income, there are tax benefits to owning an income suite in your home. Since the income suite is technically a business, you’ll be able to deduct a portion of your mortgage interest, utility costs, repairs, and applicable depreciation. This works to reduce your net income when it comes time to file your taxes each year.
If you aren’t familiar with filing taxes related to a business, it’s best to work with a tax professional to ensure you’re reaping the benefits of these tax deductions properly. Doing so incorrectly could result in audits and taxes owing later.
A Low-Cost Way to Become a Landlord
Many property investors purchase separate homes or condo units to rent out, but this comes with quite a few additional expenses. While this may be something to consider for the future if you wish to expand your property investments, starting with your own home’s basement keeps your costs low and maximizes your earning potential.
Additionally, maintaining properties for tenants could mean making occasional repairs or collecting rent in person. By having your tenants in your own home, you eliminate commute times and other related costs.
Extra Security When You’re Away
Your tenants can act as an added layer of security for your home while you’re away on vacation or business. The home still looks lived in, and if you have a good relationship with them, they may take care of minor tasks while you’re gone such as mowing the lawn, shovelling snow, or taking in flyers. If you both have pets, it may also be an opportunity to share pet sitting duties rather than using a costly service.
If You’re Building New, You May Qualify for a Larger Home
Mortgage lenders consider the income you’ll receive from a legal basement suite, so if you’re building a new home and are considering adding a legal suite, the additional income may help you qualify for a larger home. There are restrictions to this process, and you need to be careful not to take on more mortgage than you can actually afford.
Finishing a basement adds costs to the purchase price of the home as well, so be sure to consider the overall costs and final purchase price before deciding on whether to buy a bigger home. However, if it fits your current budget and future financial plans, this option may allow you to stay in the same home for a longer term if it’s a home you plan to grow into.
There are many benefits to renting out your basement to tenants. The additional income can help you pay off your mortgage faster, help you build equity and it can also be the stepping-stone to starting a property investment portfolio, as you can use the equity in your home to put a down payment on additional rental properties. Whatever your future goals, a basement income suite can help get you there.
About the Author:
At Sterling Homes, our mission is to provide the opportunity for affordable homeownership without compromise. Over the last 70 years, Sterling Edmonton has quickly become one of Edmonton’s most popular builders. We bring more than seven decades worth of exceptional customer service, superior design and unparalleled craftsmanship to the greater Edmonton area. As a member of the Qualico Group, Sterling Homes focuses on greater Edmonton’s finest family communities, while being able to offer some of the region’s most family friendly prices thanks to volume purchasing power for materials, trades and land. This has not only made Sterling one of Edmonton’s bestselling, move-up builders, but also one of the industry’s most respected home providers. It is through our uncompromising commitment to our customers that we proudly deliver the Sterling Advantage – that’s why each and every home we build includes a 10-year home warranty, a completion guarantee and new home warranty excellence rating. Our Advantage is our pledge that, when you build your dream home with Sterling, we will deliver a timely, well-built home you’re sure to enjoy for years to come.
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