Could You Turn Your Home Into an Income Property?

With the recent popularity of a new home show on HGTV teaching owners how to turn their house into an income generating property and with some of the grants many cities offer, I'm often asked by Canadians about the viability of turning their home into a money maker. Could being a landlord be a lucrative side venture for you?

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In many cities, basement apartment suites used to be illegal. They existed, but covertly. With a shortage of sustainable housing in a good number of urban areas, most city councils have lifted the ban (if there was one and as long as you have permits and adhere to the City's building guidelines for development). Some municipalities have gone as far as to offer incentives for building a basement or garage suite if rented to a low income resident.

Possible municipal incentives aside, what should your return on investment fetch for a standard basement renovation for example? I spoke with Scott McGillivray, host of HGTV's Income Properties, and he cites that your renovation should pay for itself in two years. If you think you can fetch a $1,000 a month in rent, your reno shouldn't exceed $24,000 for example.

But you absolutely need to do your homework and McGillivray suggests bringing in your own contractor and inspector before tackling a project or purchasing a property with a basement apartment in mind. He closes with "buyer beware".

You'll also want to figure out your own handiness, emergency fund for your renter's emergencies (even if the suite is brand new) and your propensity for being a landlord. If you travel a great deal for example, who will fill in to take care of a 2am leaky faucet or broken appliance? You might live through such an event in your own home, but remember a renter will expect immediate repairs.

Adding the title of landlord to your current full time day job isn't for everyone. But it's a way to bring in some extra income (if you live in the appropriate zone) and can offer some tax deductions on your current mortgage (if renos are done to generate income, the interest is tax deductible). But ensure you have some pros on your side like a solid contractor, accountant and possibly a property manager.

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Kelley Keehn is a personal finance expert and author of The Money Book for Everyone Else and The Prosperity Factor for Kids. For more information, visit www.kelleykeehn.com.

Do you have a money question? Drop Kelley a line at wealth@kelleykeehn.com