Turn Your Home Into a Money Maker

During downward markets or recessionary periods, tightening belts, pinching pennies and cutting back spending is typical. As an investor, you may want to do the opposite. I’m not suggesting you go on a spending spree, purchase a new car or take a lavish holiday. I am suggesting you spend money to make more money by converting something you may already have.

Consider adding $350 to $1,400 per month to your income by adding a legal suite in the basement, loft or unused portion of your property. One of the challenges with this scenario is that a suite costs money. However, because you will be making money by spending money, you are actually investing, not spending. Spending money is when you buy something and the money never comes back to you. Investing is buying something that will return more money back to you than it initially cost.

So where do you get the money to renovate or build a suite? With an existing property you can borrow the money from your bank or through a mortgage broker using the equity in your property. If you are in the process of buying a property, it is possible to borrow additional money called a Renovation Allowance which is then added to your mortgage. Since you will be receiving rent from the suite, lenders will consider a portion of this rent as additional income when qualifying for the loan. More income means that you can borrow more money.

Some suites may take as little as $6,000 for used kitchen cabinets and appliances if a bathroom and bedroom(s) are already in place. If not and depending on the quality and complexity of a new suite, it can easily run upwards of $50,000 or more. Depending on the city, neighbourhood, number of bedrooms and quality of the suite, you will be able to collect from $350 to $1,400 per month in additional income.

If you borrow $30,000 as a Renovation Allowance from your bank or mortgage broker at 4% interest with a 25 year amortization to build a suite, your monthly payment will only be around $158/mo. You may also want to increase your home insurance to cover the new improvements.

Assuming you could now generate $800/mo in rent minus your loan payment of $158/ mo, you would have an extra $642/mo or $7,700 annually. If you earn $65,000 per year at your current job, $7,700 is the equivalent of a 12% raise in a time when people are taking pay cuts and losing their jobs. This way you’re in control of your income.

In regards to income tax, rental income is not treated the same as job income. With rental income in Canada, you are allowed to write off all expenses related to building, maintaining and running the new suite including the interest costs on the $30,000 loan. Any income tax paid on the rental income will be much less than income tax paid on job income, therefore putting even more money in your pocket.

The first step in adding or building a suite is to confirm that your property has the correct zoning for a legal suite. If it doesn’t, you may be able to purchase a license to operate a suite or even change your existing zoning. Each municipality views suites and zoning differently and any new construction will need to comply with the current building code. You can find out all the details through a quick trip or phone call to your local City Hall’s

Planning and Development Department.
The second step is to call your bank or mortgage broker to ensure that you can borrow the money. If you are in the process of buying a home, ensure that the property you buy has the correct zoning prior to the purchase.

If you cannot get proper zoning or a license for a legal suite, then consider opening up a room in your home (maybe your basement, unused bedroom or loft) for a roommate, border, exchange student or local student via a homestay program through your local college or university. The benefit with this scenario is that in most cases you won’t have to make major alterations to the home nor will you require a loan or specific zoning.

So before you tighten your belt, pinch pennies and cut all spending, consider taking control of your own income by creating your very own money maker. Then sit back and start cashing those cheques.

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