Ask a first-time home buyer their biggest worry and the answer is likely to be the mortgage. Taking on the largest debt of one's life is a sobering experience. Even for those that come to the table with a sizeable down-payment, a mortgage is a long and costly commitment. Many buyers take comfort in knowing that if they need extra income to make the mortgage payments, they can rent out part of their home. But not all rental properties are created equal.
"There are some surefire signs that are really obvious when you're looking to see if you can generate extra income from your home," says Scott McGillivray, host of HGTV's series Income Property. On the show, he helps first-time homeowners shoulder the burden of their mortgages by building rental suites and creating income properties.
Here are some of Scott's top tips for getting cash out of your home.
Buy the right house. The best income properties have a separate entrance, but this is one of the costliest renovations to make to a home. If you're in the market for a house with income potential, choose a place that already has some of the basics of an income property. In addition to a separate entrance, look for a home that has a separate washroom and kitchen in the basement already, or at least one that has the plumbing and electrical wiring already in place. "There are tons of houses that already have rental units that aren't even being used," Scott says. If you plan on having a basement apartment, make sure the ceilings are high enough to qualify as a legal income property. Ceilings need to be at least 6"11, although allowances are made for bulkhead and ductwork.
Make sure it's worth it. You can expect to spend $10,000 on average to add a rental suite to your home. The important thing, says Scott, is to avoid spending more than two years of rent on the renovation. So make sure the work is worth the money before you leap in. Scott cautions that there's no return on investment when it comes to upgrades such as fancy drapes, granite counters or high-end tiles in your rental unit. "When people are looking to access more income from their home, they need to look at fundamentals."
Don't cut corners. While it doesn't pay to spend on frills for your rental suite, it needs to be an attractive space to live. "Cutting corners is always a bad scene. I've seen people skip the insulation and put drywall right on the framing. You'll get mould on the walls and high tenant turnover." The apartment needs to be built to the same level of quality as the rest of your house. While there are some projects you can do on your own, says Scott, others should be left to the professionals. Good DIY projects include assembling cabinetry, putting up baseboard and trim, and laying laminate floors. Call in the professionals for drywall and plumbing, electrical and heating work. If you can picture yourself living happily in the space for a year, you've done a good job.
Know the value-adds. Once you have the basics of a rental property, which includes a kitchen, bathroom, sleeping area and separate entrance, you can add amenities that will boost your income. A washer and dryer, for example, will bring in an additional $50 in rent per month. You can charge another $25 if there is a dishwasher in the kitchen. A parking space is also valuable. If you're located in a large city, a spot is worth $125 a month. Also, Scott says, a four-piece bathroom that includes a bathtub is always a better draw than a three-piece.
Keep it green. If you include utilities in the rent, you can charge an extra $150 to $175 per month. This is when you want to make sure that you have the proper insulation in the suite, along with low-flow toilets and faucets and energy efficient light bulbs. An energy-efficient renovation can also get you thousands of dollars in federal and provincial rebates. Check out the grants and incentives available to make your income property as lucrative as possible.
Scott McGillivray will be appearing at the National Home Show later this month with more ideas on how to generate income from your home.