Mortgage Helper Suite

Last updated: Nov 24, 2023

With the price of homes very high in many locations, often aspiring homeowners will consider buying a property with intent to rent out part of the space, such as a basement or spare bedroom, to tenants or roommates. The plan is to use the rental income to offset the mortgage payment, hence the term 'mortgage-helper suite.'

When the space is a self-contained suite, fully compliant with municipal zoning (i.e. the suite is legal/permitted), the borrower can use the (projected) rental income added to their own to help qualify for the mortgage. For example, a client could buy a legal 4-plex, occupy one unit and use the rent from the other three added to his own to make the mortgage qualifying debt-to-income ratio work. Here's another example.

When the space is a room in your house, that income cannot be used, but if income comes from a non-conforming self-contained suite (basement, garage, etc.) that income can sometimes be used depending on lender, and not by others. Generally, lenders want to (and you should also) assess the risk that a municipality could force you to shut down your suite, and there goes the income you were relying on to help pay the mortgage. Doesn't mean you can't rent out a space in your property; just means you can't use the projected income to help you qualify for the mortgage because the income is unreliable from a mortgage lender's point of view.

To prove the amount of rental income a rental suite could generate, lenders often require an independent assessment from a licensed property appraiser. Your mortgage professional would help you coordinate this. If leases are already in place, then those can be used to prove income instead.

When you owner-occupy the property, the minimum down payment is as low as 5% provided the property is a 4-plex or less. When you do not intend to live in one of the units, then the down payment requirements are much higher, currently 20% down for a non-owner-occupied rental.

Certain lenders are better to work with than others for qualifying for mortgages where the potential rental income is required to make the numbers work. Ask your mortgage professional for help.

Continued below, the practical side of ownership...

Practical Considerations for Owning a Home with a Rental Suite

So now to the practical side of owning a home with a basement apartment or other rental suite. It might seem like a no-brainer, but keep in mind the following things you will need to do:

maintain the space at a minimum and fix things when they break
renovate/create the space if it doesn't existing yet (ask us about our purchase + improvement program)
comply with municipal bylaws, permits, and fire codes
have the right property insurance
learn how to attract good tenants and to screen them
deal with loss of privacy (noise, number of bodies, parking, etc.)
learn and abide by the landlord-tenant rules

Scott McGillivray, host of HGTV Income Property, says there is no better return on investment than an income suite, bar-none. Don Campbell, the author of a number of books on real estate investing, says a rental suite can be an effective way to help pay the mortgage, but you have to treat it like the business it is.

“It is a great way to get on the property ladder and live in an area you want but can’t otherwise afford, but it comes with a cost,” he says. “If you don’t do it right, it can drive you crazy, both financially and psychologically.”

To avoid problems, here is Mr. Campbell‘s list of considerations for aspiring mom-and-pop landlords:

1. Consider your privacy.

Can you live with seeing a stranger around your house or using your property outside? Is the extra money worth it?

2. Try to avoid renting to family members.

It is best not to rent to family, as it completely changes the relationship and is difficult to use “eviction” or “collection” rules against a non-paying family member without destroying the relationship and having the repercussions ripple out into the rest of the family.

3. Sign a proper written lease.

Always – even with family members – have a properly written lease between you and the tenant that clearly outlines the rules, late rent penalties, expectations, and length of term. It must be signed by every adult who is to reside in the suite.

4. Set rent at a fair market level, never low.

Never be the lowest rent in the market – you will attract the type of renter whose focus is solely on dollars. It will also lead to more rapid turnover as they leave to the next “lowest rent” spot. To set the proper rent for your suite, go online and search for available units in your area. Make sure to look at a number of different sites and be location-specific in your comparisons. Look at the amenities and picture them through the eyes of a potential renter. Then place your price in the middle or higher end of the average comparable.

5. Do your landlording/suite research.

Each province and territory has its own landlord-tenant legislation so make sure to read up on the rules that apply where you live. In addition, make sure to research your local municipal bylaws, which include things like guidelines and standards for fire and building safety. Municipal bylaws also cover issues like zoning and permits. For example, some cities are now looking to shut down secondary suites in specific neighbourhoods. Not conforming to these rules means you could be shut down at a moment’s notice, so check with the city to make sure that your suite is legal. The Canada Housing Mortgage and Housing Corp. has a useful website with many good links.

6. Tell your home insurance company.

When you rent out a unit in your home, you are obliged to inform your home insurance company – something that the vast majority of people fail to do. If anything were to happen, for instance if a fire starts in the rental suite, the insurance company could say they were not informed of the tenant and that the policy is voided.

7. Research the income tax repercussions.

Once you have a rental suite in your home, you have to claim that rental income on your tax return. In addition, once you start using the property for revenue, a portion of any capital gain when selling the property could be deemed taxable.

8. Learn from other landlords.

Knowing the tricks of the trade is important and who better to learn from than other landlords? A great free way is to visit www.myREINspace.com and use the search function to read discussions between Canadian property owners and their experiences and strategies when dealing with tenants.

Rental Suite Summary

The money a rental suite can generate can go a long way to helping you achieve your financial objectives, whether to live in a certain part of town, create the option for someone to take maternity leave or a sabbatical, or to simply help pay down the mortgage faster. If you are considering renting out part of your home, our advice is do your homework and be prepared for the work (including the hassle) that comes with being a landlord.

Buying Home with a Rental Suite / Mortgage Helper

With the price of homes very high in many locations, often aspiring homeowners will consider buying a property with intent to rent out part of the space, such as a basement or spare bedroom, to tenants or roommates.