For years, people across Canada have been turning run down, old properties into money, by transforming homes into income properties. Although most people who watch home renovation or real estate television shows can picture themselves quickly fixing or transforming a property for a financial return, it isn’t always that easy. If done correctly however, renovating your first home to become an income property can help you pay your mortgage, and in the long run, make you money. Here are some things to consider before you turn your home into an income property:
Do your research first
Why would you attempt to renovate a home if you aren’t increasing or at least breaking even in the value of the home? If you plan to rent out the home, (the most common form of an income property), make sure you can meet the industry standard, which is to pay back the cost of your renovations within two years rent. If you can meet these two points, you might be ready to renovate.
Two heads are better than one
If you can, never go it alone. Entering this type of venture with a partner gives you more financial security, allows you to delegate work and tasks, and ultimately, it’s good just to have someone next to you through the highs and lows of the renovation process.
Budget, re-budget, and prepare to budget again
Once you’ve got a design and a quote from a professional contractor, make sure you plan to have a slush fund available for the unexpected. As a simple rule, the more you do in a home, the more damage or issues you might uncover. Things like faulty electrical, mould, structural issues, or any combination of troubles are not uncommon once you start opening walls. To be safe, make your budget, and then add 25% on top of the quote to help ease the surprise and stress connected to these types of issues.
Know your choices and make it liveable
Are you going to create a simple basement apartment, split your home into a duplex, or invite multiple tenants by dividing further? Larger spaces will allow you to demand a higher rent, potentially getting you nearer to mortgage free living. At the same time however, you need to make each space liveable. No one wants a bedroom that will only fit a single bed and no furniture, a kitchen with zero counter space, or a bathroom where you’re stepping over the toilet to get to the sink. Your space needs to be easy to rent, and one that will meet the needs to a variety of tenants.
Make it sound and fireproof
As soon as you welcome tenants into your income property, you’re inviting the risk of annoying sound pollution, and even added fire hazards. This is why when you’re renovating your income property, it’s important to put in quality drywall and other barriers to protect the rest of your home against sound invasion, and to serve as a fire barrier.
From the outside in
Before you worry about what tile to put down, or what colour to paint the walls, consider the entrance to your income property. Not only is this important in terms of curb appeal, but tenants typically prefer their own, secured, private entrance to a home. Shared entrances are sometimes acceptable as long as no one’s living space overlaps, but a separate, private entrance is ideal. As well, consider the surface of the entrance and safety to avoid complaints, lawsuits, or costly repairs. No one ever wants a tenant to fall down a slippery and dark stairwell on the way to their basement apartment.
There is a lot to consider before you renovate an income property. If done correctly, however, you could be on your way to mortgage free living and a future source of additional income. For more information on mortgage budgeting and real estate investing, contact the mortgage brokers at FamilyLending.ca
Chanteille Kennedy Writer for FamilyLending.ca