Any homeowner who has bought a home to live in that also has an income suite in it knows it can have a huge impact on the affordability of the home.  While income suites take away some of the space in the house that could otherwise be used by you, the cashflows that come in with the renting of the space change your carrying costs considerably.

Let’s review some key points and then consider an example.

Most Lenders Take Rental Income at 50%…

If you’re looking at buying a home with an income suite, the good news is that the income from renting the suite increases your income in the eyes of a mortgage lender.  If there is a tenant already in place at the home, paying $1,500 a month, that’s $18,000 in annual income.

The bad news is that most lenders discount that rent, often at 50%, in order to account for vacancy.  Unlike a salary, lenders are concerned that the rental income won’t always be there and while it does allow you to increase your approved mortgage amount by some, don’t count on the full 100%.  A good mortgage broker might be able to find you a lender who will take 75% of the rental income, but expect it to be discounted by some amount.

… but the Cashflow is absolutely 100%.

Regardless of how a lender looks at the rental income, when you have a tenant, you are absolutely getting the full amount of rent they pay deposited into your bank each month.

With current mortgage rates (1.99% for a fixed, five year term, amortized over 25 years), every $100,000 in mortgage costs you about $425 per month.  If you’re considering buying a home with an income suite or two, you can figure out how much of your mortgage can be paid by the rental income by dividing it by $425 and multiplying it by $100,000.

  • $1,000 per month from a basement suite? That rent pays for $236,000 worth of your mortgage.
  • $1,500 per month from a bigger, nicer basement suite? Now $353,000 of your mortgage is covered.
  • $2,500 per month from the other half of the duplex you just bought? Congratulations, that rent pays for $589,000 worth of your mortgage.

There are two ways of looking at the impact of your rental income and both are pretty great.

First, when you do the math like above, you can consider the mortgage amount that the rent pays to effectively be a discount on the home.  After all, if you buy a home with $1,500 in rental income, you’re going to paying the same each month as a home that costs $353,000 less.  In exchange for giving up some of your home’s space until you want it for yourself and your family, you are getting a heck of a discount on the effective price of the home.

The second way to look at it is that the rental income means your home cashflows the same as a home that costs $353,000 more.  You can buy a home for $1.2M with no rental income, or a home for $1.5M with $1,500 in rental income and it costs you the same on a monthly basis once you add the rental income into the equation.

If one income suite is good…two are even better.

Let’s go over an example of a listing our team has coming out shortly.

144 Quebec Avenue is a massive (over 2,700 sf above grade, plus another 900 sf of finished basement) detached home just north of High Park.  The home has five bedrooms, four full washrooms, a detached garage accessed by a back laneway, two upper level decks and a backyard patio oasis.  It has absolutely everything you need in a home.

The home is zoned as a triplex and it is currently configured with the owner suite on the main floor and basement, and two updated, attractive income suites.   The one on the 2nd floor brings in $1,325 in rental income (and that is actually below market rates) and the 3rd floor unit brings in $1,500 per month.  That’s $2,825 per month in rental income and it could easily be over $3,000 when the rent for the 2nd floor is brought up to market rates.

With current mortgage rates (1.99% for a fixed, five year term, amortized over 25 years), the $2,825 in rental income pays for over $650,000 of the mortgage.  Let that sink in for a moment.  $650K.  If we look at it from the other perspective, this home cashflows the same as a home that costs $650,000 more.  You can buy it, or a home that costs over half a million dollars more, and your monthly mortgage costs are going to be the same.

Check out the virtual tour here or by clicking on the house below.  If you or someone you know loves the idea of buying a massive home at what is effectively a massive discount, let us know and we’ll arrange a showing.

While being a landlord isn’t for everyone, there are absolutely huge benefits to having an income suite in your home.  If you like the idea of effectively getting a huge a discount on a home, get in touch with us so we can help!