Home with Apartment for Income?

[wetbirks]

What would be the better financial decision?

1. Buy a home with a basement apartment and use income to pay mortgage. Would pay $360K for home and rental income would be $600/month(taxable).

2. Buy a home of lesser value, but not worry about tenants. Would pay under $300K for the home.

Thanks for your opinion.

[coolspot]

Just curious, where in Toronto would you find a house for 300K? Are you looking for detached home?

360 cuts it close for a detached home... unless you're looking in a sketchy neighborhood.

To rent your place, it's all about location; unfortunately all the prime locations in Toronto are quite expensive.

[pitz]

1. Buy a home with a basement apartment and use income to pay mortgage. Would pay $360K for home and rental income would be $600/month(taxable).


Well this is an interesting option, as paying an extra $60k could potentially get you an extra $7200/year, which looks like a 12% return.

However, you would still have to subtract expenses, and quite frankly, there should be a 'human cost' imputed to having someone living in your basement in terms of privacy, etc.

You can take $60k and buy many income trusts these days that pay out greater than 12%, and you never have to worry about tenants, etc. So I don't see why you'd be anxious to have people living in an appartment when you could invest the money for a higher return in the markets.


2. Buy a home of lesser value, but not worry about tenants. Would pay under $300K for the home.


This would be my preference. At $600/month rent, the tenants that you'd have, quite frankly, wouldn't be on the top of the totem pole in terms of quality either. And anecdotally, there's going to be an extreme onslaught of condos into the market, which should keep rents flat or on a downward scale for years to come in most major markets in Canada.

[mr_raider]

Ughhh... tenants. It takes one prick who doesn't maintain the damn place properly to put you in the hole. Live alone and be happy.

[mork]

For our first house we had a basement suite we rented. We had decided this was a requirement for us while house hunting (either an existing suite or a layout that would easily allow for the addition of a suite). At the time in my market I felt that the existence of a suite demanded, at most, a 10% premium over a comparable house without a suite.

Financially, it was fantastic. The rental revenue really helped us to meet some of our financial goals.

Maintenance was low. We let our tenants know that if they felt inclined to fix things that go wrong they could do so, deduct the costs from their rent and provide us a copy of the receipt - we asked that if they were going to spend more than $100 they talk to us first. This worked great.. we didn't have to deal with maintenance issues such as leaky faucets and whatnot.. on the whole, this made our time input very small.. the financial cost of maintenance will vary from place to place but for us it was quite small over the few years we had it.

Our tenants varied - we had a wonderful quiet grad student that loved doing yard work. :) We also had a noisy party-type guy who was consistently late with his rent that we couldn't wait to see go.

[bogga]

We currently rent our our basement suite, and have rented it out for the past two years. The revenue has been amazing ($12K a year), and the maintenance neglible (a few lightbulbs).

Screen your tenants, and go with your gut. We plan to keep renting it until we sell the house in about five years, which makes the ROI over seven years $84k. In fact, they pay more on our mortgage than we do! We hardly know they are there too, it has worked our great.