What are the advantages and disadvantages of leasing out a property or part of a property (such as a basement apartment)?
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.
It doesn't make a lot of sense to buy a house/condo and rent it out now.
- Housing is over-priced in GTA
- There is an abundance of unoccupied rental units out there. Mostly b/c of the low mortgage rates
- 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.
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.