Thinking of renting out your home, or another property you own, to get an income? Here are 4 optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition to consider:
- Rent out your whole home for part of the year.
- Rent out your basement or a room for all or part of year.
- Turn your home into a duplex and rent out 1 floor as an apartment.
- Rent out a family cottage or other vacation home for part of the year.
3 advantages of renting out your home
- Brings in cash – InvestInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition the rental income, buy an annuity to create monthly income or use it to cover expenses.
- Allows you to build equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition – Increase the amount you own in an assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition that may go up in value.
- Provides a tax breakTax break A credit or deduction that lowers the tax you owe. Governments often offer tax breaks to help people save, go to school or pay costs such as child care.+ read full definition – Deduct part of your mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition, taxes and other expenses against the rent you get.
4 disadvantages of renting out your home
- May reduce enjoyment of your home – You have to shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition it with tenants.
- You still have to pay property taxes and other costs – You are responsible for maintaining the property.
- May create landlord issues – You may have to do extra maintenance and deal with hassles from tenants. You are responsible for meeting legal requirements.
- Creates taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition costs – You may have to pay tax on income from rent and any unshelteredUnsheltered A regular investment or account that does not shelter your money from tax. In other words, you have to pay tax on your savings and the money you make investing them.+ read full definition investments you make with your rental income, and part of the capital gains when you sell the home if you deduct a portion of your mortgage as an expense.
Check with your municipal government before you rent out any property you own. There are rules you must follow.
Renting out your home:
- brings in cash
- keeps equity
- provides tax breaks