When it comes to your wallet, what do you need to consider when creating an income property?
Purchasing an income property or creating one in your own home could be a small business for you to gain more income. Income Property host Scott McGillivray and MoneySense magazine’s Bruce Sellery help us look at the financial pros and cons of starting an income property.
For the most part, investing in an income suite (whether it’s been bought or created) is temporary. It’s possible to make it permanent, but there are risks and pitfalls that homeowners need to think about before getting into the process. Remember that you always need to think of it as a business. Even if the property is as small as renting out the lower level of your home, it puts a focus on an increase in revenue versus focusing solely on the spending factors. An income property can help increase your cash flow without cutting your spending (because we all know how difficult that can be!).
Am I getting more out of this than I’m putting in?
Above all, never forget that this is a business! Bruce reminds us that it’s important to listen to the numbers, not your feelings. For many first-time home buyers, their dream home doesn’t include having strangers living under their same roof. It’s important to think of the upside: having renters in your home can help you gain more income so that you can achieve your future goals faster. Having an income suite doesn’t have to last forever if you don’t want it, but the reality is that this extra income can help you find a better balance between the money you’re spending and the money you’re earning.
Should you rent out the extra space in your home?
Do you have some unused rooms or floors in your home? Scott refers to this as “underutilized capacity”, and it’s something he sees a lot of with his clients, especially from:
- First-time home buyers;
- Empty nesters;
- Single individuals who are recently divorced (or are empty nesters);
- Older couples who don’t want to leave their home since they’ve lived there all their life.
If you’re in one of these groups, turning part of your home into an income property could be a great way to make your home more financially sustainable.
What are the pitfalls of having an income property?
Both Scott and Bruce strongly agree on one thing: an income property isn’t for everybody! Scott says that the biggest mistake he’s seen with income property owners is that they’re jumping too quickly from start to finish. Be sure to do your proper research and have the passion to invest in your income property to make it really great. If not, you might be left wondering why your property isn’t attracting the type of tenants you’re hoping for, or leaving it in poor condition after they leave.
For more of Bruce Sellery and Scott McGillivray’s advice on investing in income properties, watch the video below: