There’s no snap-your-fingers solution to being mortgage-free but there is a way to help fast-track your payments – become a landlord.
If you have a second property or basement apartment, you can use the rent to put towards the mortgage, it can make a huge difference. But, if you’re a current or would-be landlord wanting to make mortgage payments using rental income, there are rules and guidelines to keep in mind.
Conversion: If you’re planning to convert a basement or a floor of your home into a rental suite, you’ll need to follow specific requirements to ensure that it is legal. Secondary suites in single or semi-detached homes became legally permissible in the City of Toronto in 2000, but the laws are different in every municipality. In Brampton, for example, basement apartments built after Nov. 16, 1995 are illegal. Pickering, Ajax and Whitby all have their own bylaws as well. Contact a real estate agent who has experience with investment properties in the area you are looking to invest in.
Secondary suites must adhere to fire and electrical codes, property standard bylaws, occupancy provisions, health and safety requirements and residential zoning requirements. If you’re interested in buying a home that already has a secondary suite, you’ll have to make sure it is legal and meets all requirements or hire a professional who knows.
Whether buying a home with a secondary suite or creating a secondary suite, consulting with a building professional is recommended. You must also inform your home insurance company. The City of Toronto’s online resource for secondary suites, secondsuites.info, contains valuable information on how to make sure a basement apartment or secondary suite is legally permissible.
Income tax: Landlords need to report all the rental income they receive. They can write off expenses against that pertain to the house expenses, such as property taxes, house insurance and mortgage interest. Maintenance, operating and advertising costs can also be written off, but land costs and the principal portion of a mortgage cannot. If you get caught by the government not reporting rental income, you’ll get penalized and then they’ll assess tax on the income you didn’t report, so make sure to hire a good accountant.
Separate rental property: If you’re looking to purchase a rental property separate from your personal residence, the down payment is changed; it has to be 20 per cent, as per the new mortgage rules in Ontario. There is no more optional 5, 10 or 15 per cent unless the house is to be the buyer’s personal residence. Ensuring the property is filled with reliable renters who pay rent on time becomes essential because, of course, if somebody doesn’t pay the rent, you still have to make the mortgage payments. A good Real estate agent and/or property manager can be the solution.
Mortgage savings: After reporting your rental income and claiming all related expenses, you can put the income towards any costs – including mortgage payments – related to the rental. You can put it towards principal, interest, tax, utilities – anything related to the property to offset the expenses. Or, use the extra income to increase the amount of your regular mortgage payments. Then you’re paying off your mortgage much faster!
Call me for any questions or guidance on these topics, I have been very successful and have extensive experience investing in Toronto and the Durham Region for over 5 years. I can also refer the best professionals to work with in terms of accountants, contractors, insurance professionals, mortgage agents, etc.
Kyle Bouchard – REALTOR® and real estate investor