7

What are the advantages and disadvantages of leasing out a property or part of a property (such as a basement apartment)?

  • 1
    I've been wondering the same thing - I watch Investment Property on HGTV a lot, and investing in a basement apartment for the monthly rent looks like a good idea, but...? – Nat_Rea Nov 17 '09 at 0:40
  • A basement apartment is a great idea. If I had a bigger basement, I would do it. On the downside, in addition to the the potential of getting a bad tenant, you also have to deal with your existing neighbours. Nobody wants a neighbourhood full of basement renters...more cars parked on the street, new tenants moving in and out every year, etc... On the plus side, the rate of return is better than any relatively low risk investment. – Cart Nov 24 '09 at 15:56
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The obvious advantage is turning your biggest liability into an income-generating asset.

The downside are: (1), you have to find tenants (postings, time to show the place, credit/background check, and etc) (2), you have to deal with tenants (collection of rent, repairs of things that broke by itself, complaints from neighbors, termination, and etc) (3), you have to deal with the repairs

In many ways, it's no different from running another (small) business, so it all boils down to how much time you are willing to invest and how handy you are in doing reno's and/or small repairs around the house.

For profitability/ROI analysis, you want to assume collection of 11 months of rent per year (i.e. assume tenant doesn't renew after year, so you have the worst case scenario) and factor in all the associated expense (be honest). Renting out a second property is a bit tricky as you often have to deal with a large operating expense (i.e. mortgage), and renting a basement apartment is not bad financially and you will have to get used to have "strangers" downstairs.

4

It doesn't make a lot of sense to buy a house/condo and rent it out now.

  1. Housing is over-priced in GTA
  2. There is an abundance of unoccupied rental units out there. Mostly b/c of the low mortgage rates
  3. The rent to housing price ratio is incredibly low which favours tenants

On the other hand, I think finishing your basement and then renting it out is an excellent idea. The ROR is excellent as long as you can deal with the "strangers" in the basement, have the extra driveway space and negative association with renting out your basement.

HTH

2

Complexity has mentioned some good points.

I'd also like to add on the downsides: It's not that easy to get rid of a tenant!

Imagine if your tenant passed your background check with flying colors but then turned out to be the tenant from hell... How would you resolve the situation? If the thought of that kind of situation stresses you (it would stress me!), I would consider carefully whether you really want to be a landlord.

  • This is true. The other headache that one of my friends used to fret over was "what if they are running a grow-op?" – Zephyr Nov 21 '09 at 5:57
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    For every 1 bad tenant there are 20 great tenants. Hire a real estate agent to help you find a tenant. Although this cuts into your rental income, it's a good idea IMO. – Cart Nov 24 '09 at 15:48
  • It's important to note that it can be extremely difficult to evict even a tenant who defaults/stops paying rent. Depending on local law, it may take many months and lots of expenses to take the required legal steps to evict someone. – Steven Feb 2 '12 at 16:18
  • @Zephyr if the tenant is running a grow-op, you have recourse. They can be evicted for illegal activity. – Jerry Penner Sep 27 '13 at 20:17

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