Real Estate

Calculate Profit of Rental Property

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  • Jan 5th, 2018 6:20 pm
[OP]
Deal Addict
Feb 9, 2013
1784 posts
612 upvotes
Mississauga

Calculate Profit of Rental Property

I am renting out a basement for $780, where $300 goes into utilities each month. I am paying $1900 mortgage each month. Annual income is $85k in Ontario. How can I calculate how much profit I make (after tax) on renting out my basement?
11 replies
Deal Guru
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Mar 23, 2008
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Edmonton
Based on what you’ve given... you can’t.

C
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Nov 2, 2013
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Edmonton, AB
Costs of your basement (with the below being the basement share):

- Mortgage interest
- Utilities (if not paid by tenant)
- Land taxes
- Land transfer taxes paid at purchase
- Legal fees paid at purchase
- Mortgage insurance paid at purchase (if applicable)
- insurance

Your revenue of the basement portion are:
- Rent
- Appreciation of the property (basement portion)

So thus, profit would be the revenue - costs.

Contrary to popular belief, profit is not rent - monthly payments

From the sounds of your numbers, it looks something like this for the year for the whole house:
- interest 15500
- utilities 3600
- land taxes 2000
- land transfer tax 8600/5 (assuming you hold and sell after 5 years)
- legal and registration costs 1500/5
- insurance 600
Total: 23720

If your house is 2300 sq. ft. and basement 700 sq. ft as a rough example, then your cost of the basement is 30.4% of the house costs; 7219
Your profit is 9360 (your rent) - 7219 + appreciation; = 2141 + 0.304(house appreciation).

If you put $106,000 as your downpayment, plus the property taxes, land transfer taxes, legal and reg. costs, and insurance, then the basement portion of the initial investment is 33,628, which suggests a ROI of 6.4% without appreciation and real estate agent commission.

So without significant appreciation of your property, it is not worthwhile; your additional cash spent could had been better off in stocks.
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Mar 14, 2006
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@FirstGear
i think you are making it really complicated in a situation that OP is selling the place.

OP just wants to know how to report tax for 2017 with the basement rental.
OP needs to figure out how many % is he renting it out. is it 30% or 40%?
it's as simple as rental income of 2017 - expenses x % of he's renting it out.
that will be profit that will added to his income for tax purpose.
also there should not be capital gain selling the place if rented under 50%.
bottom line: KEEP ALL YOUR PAPERWORKS and hire an Accountant.
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Nov 2, 2013
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mingyang wrote: @FirstGear
i think you are making it really complicated in a situation that OP is selling the place.

OP just wants to know how to report tax for 2017 with the basement rental.
OP needs to figure out how many % is he renting it out. is it 30% or 40%?
it's as simple as rental income of 2017 - expenses x % of he's renting it out.
that will be profit that will added to his income for tax purpose.
also there should not be capital gain selling the place if rented under 50%.
bottom line: KEEP ALL YOUR PAPERWORKS and hire an Accountant.
Where did he say that he's wondering how to report tax? He just wants to determine whether he's making a profit or not.

Also he doesn't have to report the basement as income since it'd be classified as a 'mortgage helper' - it being a small fraction of his home. It is similar for those living with roommates using room rentals. But if he chooses, he can temporarily offset his overall tax burden by claiming rental losses if CCA is claimed. CRA determines the portion used for the purposes of obtaining a taxable income by sq. ft. The downside to this is if the home appreciates, he will pay capital gains on the rented portion.
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In the Alberta Oilfield since 2013
[OP]
Deal Addict
Feb 9, 2013
1784 posts
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Mississauga
CNeufeld wrote: Based on what you’ve given... you can’t.

C
What info is needed? I just want to estimate how much profit I really make to see if it's even worth renting. If in the end I make only $100/month I would not bother renting.
Deal Guru
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Mar 23, 2008
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Edmonton
Profit = income - expenses. The only expense you give is an estimate of your utilities for the suite.

Some of your costs are going to be fixed regardless of renting the suite or not, I guess. For example, your mortgage will be $1900/month, no matter what. But what extra expenses do you incur because of the suite that you would save if you didn't have a renter? Do you pay extra insurance because you have someone living in your basement? Have you verified with your insurance agent that you're covered, for that matter? It would be a bummer if your house burned down because of your tenant and your insurance company refused to pay out because you hadn't told them about the rental...

What about maintenance? Are you going to have extra maintenance costs? You may have to enter estimates for that, but I suspect it wouldn't be much for a basement suite, unless you have run-down appliances.

You're the only one who knows what other costs you incur because of the rental.

C
Jr. Member
Nov 5, 2017
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What about maintenance/damage/upgrade cost ?
[OP]
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Feb 9, 2013
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Mississauga
CNeufeld wrote: Profit = income - expenses. The only expense you give is an estimate of your utilities for the suite.
I see, so:

Profit = 780 (income) - 300 (utilities) - (maintenance/damage/upgrade) - mortgage

I have replaced toilet, bought a portable dehumidifier, duct cleaning, carpet cleaning - so I can deduct all these as "maintenance/damage/upgrade"

How do you factor mortgage? If I'm paying $1900/month, and say basement is 30%, then $570 is basement mortgage, so I can deduct that to reduce profit? That doesn't leave much room for profit, in fact I can report negative profit very easily?
Deal Addict
Oct 21, 2012
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Toronto
jdu0ng wrote: I see, so:

Profit = 780 (income) - 300 (utilities) - (maintenance/damage/upgrade) - mortgage

I have replaced toilet, bought a portable dehumidifier, duct cleaning, carpet cleaning - so I can deduct all these as "maintenance/damage/upgrade"

How do you factor mortgage? If I'm paying $1900/month, and say basement is 30%, then $570 is basement mortgage, so I can deduct that to reduce profit? That doesn't leave much room for profit, in fact I can report negative profit very easily?
You can only claim mortgage interest as an expense.
Deal Guru
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Mar 23, 2008
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Edmonton
jdu0ng wrote: I see, so:

Profit = 780 (income) - 300 (utilities) - (maintenance/damage/upgrade) - mortgage

I have replaced toilet, bought a portable dehumidifier, duct cleaning, carpet cleaning - so I can deduct all these as "maintenance/damage/upgrade"

How do you factor mortgage? If I'm paying $1900/month, and say basement is 30%, then $570 is basement mortgage, so I can deduct that to reduce profit? That doesn't leave much room for profit, in fact I can report negative profit very easily?
Are you talking about what you report to the CRA as income, or are you talking about trying to determine if it’s worthwhile renting your property out? They are two different things.

C
[OP]
Deal Addict
Feb 9, 2013
1784 posts
612 upvotes
Mississauga
CNeufeld wrote: Are you talking about what you report to the CRA as income, or are you talking about trying to determine if it’s worthwhile renting your property out? They are two different things.

C
Ok I see what you meant by fixed expenses vs extra expenses renting out.

GIven all fixed expenses aside, extra income/expenses would just be:

Profit = 780 (income) - 300 (utilities) - (maintenance/damage/upgrade)

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