Real Estate

Rental income question when living at the property

  • Last Updated:
  • Oct 3rd, 2020 9:38 pm
[OP]
Member
Jan 26, 2020
350 posts
77 upvotes
Canada
The real potential is to buy a house that is a wreck and renovate it in every way to maximize revenue. Then everything can be done for the financial side instead of appeasing the emotional whims of some woman's kitchen fantasy when house shopping.
That's where it gets really profitable. There are so many things in a today's typical house design that decrease the revenue side value. Like "open concept". That should be called "noise everywhere concept". Most houses are designed to maximize the ability of the parent to oversee the children of the house. Makes sense, right? The problem is for revenue and sharing everyone wants to be independent and not hear anyone else. Polar opposite design parameters. That's one of the challenges. You always aim for independence for the tenant: A separate entrance and if its plumbed for a little kitchen results in way more revenue. When you're renovating from scratch this is so much easier than tearing apart perfectly good walls.
Deal Guru
User avatar
Mar 23, 2008
11725 posts
7987 upvotes
Edmonton
In Ontario, the definition of a rooming house is renting out rooms to 4 or more people. You can try to bypass that by living in the unit yourself, but that won't stop complaints from flowing in and bylaw officers knocking on your door. Another issue with running a rooming house is they are only allowed in relatively limited areas, and often must be registered with the municipality. And only the owner of the property can register one. So renting out a property and doing that would be a no-go for most of the province. Other provinces, well, you haven't said what jurisdiction you plan on setting up your real estate empire, so I can't advise you on that.

Trying to run multiple "kitchenettes" will also potentially get you in trouble with the fire marshall, and it just takes one pissed off neighbor or former housemate to report you. You'll also have to deal with multiple people and their cooking aromas, and considering the complaints we see in here from people in condos complaining about their neighbors food smells, it won't go well.

Parking... Well, much of Canada outside of the very major cities have relatively crappy transit systems. Many people would rather buy a cheap beater of a car rather than spend an hour or two taking a bus in the middle of winter. Of course, the people you're talking about renting to are likely too broke to afford a car, since they can't afford to live on their own anyway, so maybe it's not a problem. But again, parking is a major complaint in many neighborhoods, and the more people you have in a property, the more of an issue it will be.

Entrances... Entrances to basements are expensive, and can lead to many issues (primarily water related). Plus they take up precious space, so how many can you realistically expect to put in?

Here's some reading for you:
https://www.yorkregion.com/news-story/5 ... use-blues/
https://www.thestar.com/news/investigat ... house.html
https://swchc.on.ca/sites/default/files/RH-EN.pdf
https://www.mississauga.com/news-story/ ... -one-home/

While there may be some social value in a rooming house, the conditions in most of them means that it's only people who are too desperate for housing that would consider them as an option. And these people often don't make the best roommates. If you're living there, you can keep a better eye on this, and might be able to avoid the "hassles" of the RTA protectionism of tenants (again, assuming Ontario), so getting rid of problem tenants isn't as difficult as it would be if you weren't living there.

If you want to continue your discussion on taxes, feel free. If you want to run an illegal roominghouse, feel free to do that too. But I doubt you'll get much buy-in from most people in here that have any other options. Most people would rather have a significant other, some privacy, etc, rather than living with a bunch of strangers.

And just FYI... I did live in a house that a group of us (6, I think) rented back when I was in university. For that brief period of time ( a couple of years), it was fine. I was single, partying on a regular basis, and the people I was living with were friends. But as soon as my financial situation changed enough that shared housing wasn't required, I was more than happy to move out and enjoy my personal space.

C
[OP]
Member
Jan 26, 2020
350 posts
77 upvotes
Canada
> In Ontario, the definition of a rooming house is renting out rooms to 4 or more people.

Fine. I'm not in Ontario and many Canadians aren't. As this scenario probably isn't for much of Ontario because of the higher land cost there. Can you get it through your skull that not everyone lives in hallowed, overpriced, polluted, noisy Toronto or would even want to? Can you grasp that? Honestly its like Torontonians think there is no other Canada outside of their own city. Wake up. Its a lot nicer away from huge cities. You can breathe better.

And I could only add things like kitchenettes if its within municipal code guidelines. Why would you assume I'm trying to skirt the law? In my city people do this all the time? Why? Because rental demand is high and availability is low so it makes sense. Also most single men (who I feel are the best candidates for this type of living because they get lonely less than most women and are not adverse to living alone and not having visitors - one of the stipulations that would be necessary) aren't particularly adventuresome in the kitchen. They make something quick and easy. You're thinking of some immigrant wife that lives in the kitchen creating sauces to die for. Not here.

> Parking... Well, much of Canada outside of the very major cities have relatively crappy transit systems.

Here is great. My previous city is great. You can also bike to transit then get a fast bus/rapid transit more downtown. Never an issue where I've lived. But someone without a car won't live in an area far from transit, will they? Duh.....Not an issue. Cars are a frightful waste of money, especially the insurance and fuel. Plus they pollute our air. The less the better. The depreciate fast, have high interest on their loans, are awkward and often expensive to service and are basically a money pit. I thought RedFlag readers value astute stewardship of finances. It seems I've wandered into a snowflake area where people are terrified of rain or colder weather. Bikes are the greatest transportation tool ever invented. No insurance, minimal maintenance a child could perform, no parking and you feel great when you've arrived. Unlike sitting in a metal pollution machine getting frustrated by traffic. Also bikes take up very little space in traffic, unlike your typical pig SUV. So the more of them on the road the better for cars. The main reason people don't ride bikes it they are enormously out of shape. They make every excuse in the world for not riding but it really boils down to that. Plus people want to eat whatever they want and then hop in their air conditioned/heated polluting machine and arrive to work in sumptuous luxury. With a bike you can't eat a bunch of fried food and then exercise hard. Your body will want to throw up that slop. When you have to exercise after you eat you consciously eat healthier. Its quite remarkable actually. You also learn that if you eat only 1 food at that meal you can exercise much harder, much sooner. Its because its much, much easier to digest. By stressing ourselves physically our body tells us what works and what doesn't.
As for cooking smells, I realize some cultures cook some pretty disgusting things and the aromas are very pungent. Filipinos have a certain fish they seem to like and its nauseating. I live around Filipinos and they almost never cook that and I never smell anything. I've rarely smelled neighbors in 30+ years of living in apartment buildings. Where do you live that this is such a problem? And you can always mention that the area is sensitive to smells so if they want to eat something that stinks they'll have to go to a restaurant. Its not a problem.

> Entrances... Entrances to basements are expensive, and can lead to many issues (primarily water related). Plus they take up precious space, so how many can you realistically expect to put in?

This is the first thing you've said that makes sense. Yes egress modifications are expensive. But it also will pay off over time. Its simply an excellent investment IF you're already renovating the basement. Here I see house after house with newer windows in the basement. But they're still small! Inside they probably renovated nicely but they still don't have much available, natural light which is the number one thing people miss and the main reason people don't like living in basements. I'm just saying if you're going to do it - do it well. A private entrance to a basement brings in huge amounts of light and transforms it from a cheap forgotten part of the house to a wonderful place to welcome you. Just do an image search of egress doors and you'll see all the great things people are doing. Oh....its also great for a fire escape so there's that. As it opens to the yard there's rarely an issue with space. Maybe in Toronto! And there won't be water issues if they've done it well. Egress doors are much like egress windows. Just better. Another option is to dig out more of the area and put in a patio in front of the door. At a certain point, it would probably be wise to just to buy a small backhoe and sell it when your renos are done. Then you're not pressed for time.

All your links are from Ontario. Who cares about Ontario? Not me as I would never want to live there. Where in Ontario can I find a 4 bedroom house for 200k that isn't a moderate driving distance to a well stocked urban area? Plus the winters are not warm and the summers are dripping in humidity. Its a horrible choice geographically. Plus most of its cities are heavily polluted. The only place that would be interesting would be near Niagara Falls because of its proximity to Buffalo, when the border ever reopens. But unfortunately Niagara Falls is not a cheap place to live! And I'm sure there are some lake areas that are rather pristine but they are inevitably a long way away from urban supplies.

> While there may be some social value in a rooming house, the conditions in most of them means that it's only people who are too desperate for housing that would consider them as an option.

No. You're thinking of a rooming house for drunks downtown. Think of hard studying students, hard working young people eager to save money, busy with their lives. Think of older adults without much money just wanting a peaceful place to live as they near retirement. I've found houses where the occupants have been there more than 20 years. Think they are peaceful people? Of course. They have to be. When you don't allow smokers (not smoking but smokers - because smoking outside doesn't work) you wouldn't believe how it cleans up the applying demographic. You also ban alcohol. Its simply not allowed in the house. Not a drop. This also attracts people that hate alcohol and its coarse, loud behavior it often instigates. And yes, living in the house is the way to do it. They have to know you care as well and are on top of problems. This breeds cooperation. Doing little favors for your roommates also works wonders. Doesn't have to be much. The gesture is what's important.

> If you want to continue your discussion on taxes, feel free.

I'm trying but a lot of you feel the need to torpedo this idea. I've seen it work. This is about taxes and shared accommodation. NOT rooming houses.

So you've lived in shared accommodation but were partying/drinking. That wouldn't occur in this situation. Alcohol makes most people loud, rude, overbearing and clumsy. And violent. Its a total fail for shared accommodation. I also wouldn't tolerate pot because of the smoke.

This situation is financial. Pure and simple. You go in with a 5 to 20% down payment and cash out a few years later after living expense free. Very few people have a return like that while living around others in apartment buildings or shared accommodation when they don't control things. And remember, you have control over all the outside area. Renters rarely use the yard I found. They just don't expect it. You can do a lot with a yard. Especially if you have young children.
[OP]
Member
Jan 26, 2020
350 posts
77 upvotes
Canada
In most situations you would get 40-60% more by renting rooms individually and adding a door to the living room. And some houses have a laundry room or den or study or library or dining room or rec room that can be converted to a bedroom as well. Actually this is the key because the house is marketed as a 3 bedroom for say $1200 - 1500 (many in my area where rooms average $500) but it becomes a 5 bedroom bringing in $2000 to $2500 with the owner in one of them. Do the math in your area for houses and rooms.

Those that rent to an entire family at our $1200 - $1500 amount above also have no idea what is going on in the house because THEY AIN'T THERE! When you want to come over you have to give notice. This allows the tenant to hide what's going on normally. How many landlords are surprised by what they find when the tenant vacates? That shows an owner oblivious to their investment. That's a clueless investor. That's like buying a stock and having no idea what its day to day movement is. Who would do that???
Newbie
May 26, 2020
6 posts
4 upvotes
Toronto
I'm a CPA but definitely not an expert..I think its always better to keep things simple. e.g. if you're renting out X% of your primary residence then generally speaking you can deduct that same X% of the costs (mortgage interest, utilities, etc.)...
It's probably not worth recognizing any depreciation on the unit given some of the capital gains implications later on..any aggressive tax deductions might cost more with the accountant to run through than what its worth.
Toronto Real Estate Salesperson
Chartered Professional Accountant
[OP]
Member
Jan 26, 2020
350 posts
77 upvotes
Canada
Thank you. That sounds sensible. Actually I wasn't counting on any depreciation so if that's possible later all the better. There are probably some things I would not consider as expenses that could be as well. So the important thing it seems is to make sure you're paying just interest or as high a percentage of interest as possible, hopefully right up to the sale of the property. Of course there is nothing stopping the owner from listing the property before the mortgage has been fully paid. If they deem the value has risen sharply this probably would be wise. Like now....many properties all over the country are selling very well. Then, if the COVID numbers creep up in the fall and winter and a lot more people are stuck at home not working it may really depress the market as fewer people will have money to purchase anything, let alone a house. And there may be a lot more houses on the market if the government feels enough is enough with the handouts....basically rewarding people who disregarded saving principles instilled into them since they were a child....if their parents had any of course. Without handouts we'll see the full impact of COVID. Those with cash will make a killing if they have the courage to invest when "there is blood in the streets" and the patience to wait out the appreciation.
Member
Nov 5, 2009
223 posts
138 upvotes
Good luck with your rooming house. If its anything like this post its not going to go that well.
[OP]
Member
Jan 26, 2020
350 posts
77 upvotes
Canada
gwill211 wrote: Good luck with your rooming house. If its anything like this post its not going to go that well.
Appreciate the encouragement!
As for not doing well my friend has 2 houses and both are doing well.
I was simply looking for advice on taxes. I know the system works when the requirements are met as I've outlined above. But most people would rather follow the herd, live like sheep, and have little in the way of financial reserves for a long, long time without a hefty salary. For those of us not blessed with high income we need to be resourceful which often translates into living in a more unorthodox fashion. For some odd reason this seems to bother some people.
Deal Addict
Oct 18, 2003
1374 posts
121 upvotes
Is it possible for corporation to collect rent instead of yourself on your owned rental properties. With job income, rental income would be pushing you to a high bracket so wondering if opening up inc and letting it collect rents as a management service so the tax would be at the business rate?
Deal Addict
Mar 22, 2004
3406 posts
846 upvotes
runeash wrote: Is it possible for corporation to collect rent instead of yourself on your owned rental properties. With job income, rental income would be pushing you to a high bracket so wondering if opening up inc and letting it collect rents as a management service so the tax would be at the business rate?
If you are renting it long term, even if the property is owned by corporation the passive income gets taxed at 50%. So no, you would not save on taxes.
Also keep in mind once you put the property under corporation HST will be applicable when you are selling it.
Deal Fanatic
User avatar
Sep 14, 2006
8692 posts
1397 upvotes
MichaelZZZ wrote: > In Ontario, the definition of a rooming house is renting out rooms to 4 or more people.

Fine. I'm not in Ontario and many Canadians aren't. As this scenario probably isn't for much of Ontario because of the higher land cost there. Can you get it through your skull that not everyone lives in hallowed, overpriced, polluted, noisy Toronto or would even want to? Can you grasp that? Honestly its like Torontonians think there is no other Canada outside of their own city. Wake up. Its a lot nicer away from huge cities. You can breathe better.

And I could only add things like kitchenettes if its within municipal code guidelines. Why would you assume I'm trying to skirt the law? In my city people do this all the time? Why? Because rental demand is high and availability is low so it makes sense. Also most single men (who I feel are the best candidates for this type of living because they get lonely less than most women and are not adverse to living alone and not having visitors - one of the stipulations that would be necessary) aren't particularly adventuresome in the kitchen. They make something quick and easy. You're thinking of some immigrant wife that lives in the kitchen creating sauces to die for. Not here.

> Parking... Well, much of Canada outside of the very major cities have relatively crappy transit systems.

Here is great. My previous city is great. You can also bike to transit then get a fast bus/rapid transit more downtown. Never an issue where I've lived. But someone without a car won't live in an area far from transit, will they? Duh.....Not an issue. Cars are a frightful waste of money, especially the insurance and fuel. Plus they pollute our air. The less the better. The depreciate fast, have high interest on their loans, are awkward and often expensive to service and are basically a money pit. I thought RedFlag readers value astute stewardship of finances. It seems I've wandered into a snowflake area where people are terrified of rain or colder weather. Bikes are the greatest transportation tool ever invented. No insurance, minimal maintenance a child could perform, no parking and you feel great when you've arrived. Unlike sitting in a metal pollution machine getting frustrated by traffic. Also bikes take up very little space in traffic, unlike your typical pig SUV. So the more of them on the road the better for cars. The main reason people don't ride bikes it they are enormously out of shape. They make every excuse in the world for not riding but it really boils down to that. Plus people want to eat whatever they want and then hop in their air conditioned/heated polluting machine and arrive to work in sumptuous luxury. With a bike you can't eat a bunch of fried food and then exercise hard. Your body will want to throw up that slop. When you have to exercise after you eat you consciously eat healthier. Its quite remarkable actually. You also learn that if you eat only 1 food at that meal you can exercise much harder, much sooner. Its because its much, much easier to digest. By stressing ourselves physically our body tells us what works and what doesn't.
As for cooking smells, I realize some cultures cook some pretty disgusting things and the aromas are very pungent. Filipinos have a certain fish they seem to like and its nauseating. I live around Filipinos and they almost never cook that and I never smell anything. I've rarely smelled neighbors in 30+ years of living in apartment buildings. Where do you live that this is such a problem? And you can always mention that the area is sensitive to smells so if they want to eat something that stinks they'll have to go to a restaurant. Its not a problem.

> Entrances... Entrances to basements are expensive, and can lead to many issues (primarily water related). Plus they take up precious space, so how many can you realistically expect to put in?

This is the first thing you've said that makes sense. Yes egress modifications are expensive. But it also will pay off over time. Its simply an excellent investment IF you're already renovating the basement. Here I see house after house with newer windows in the basement. But they're still small! Inside they probably renovated nicely but they still don't have much available, natural light which is the number one thing people miss and the main reason people don't like living in basements. I'm just saying if you're going to do it - do it well. A private entrance to a basement brings in huge amounts of light and transforms it from a cheap forgotten part of the house to a wonderful place to welcome you. Just do an image search of egress doors and you'll see all the great things people are doing. Oh....its also great for a fire escape so there's that. As it opens to the yard there's rarely an issue with space. Maybe in Toronto! And there won't be water issues if they've done it well. Egress doors are much like egress windows. Just better. Another option is to dig out more of the area and put in a patio in front of the door. At a certain point, it would probably be wise to just to buy a small backhoe and sell it when your renos are done. Then you're not pressed for time.

All your links are from Ontario. Who cares about Ontario? Not me as I would never want to live there. Where in Ontario can I find a 4 bedroom house for 200k that isn't a moderate driving distance to a well stocked urban area? Plus the winters are not warm and the summers are dripping in humidity. Its a horrible choice geographically. Plus most of its cities are heavily polluted. The only place that would be interesting would be near Niagara Falls because of its proximity to Buffalo, when the border ever reopens. But unfortunately Niagara Falls is not a cheap place to live! And I'm sure there are some lake areas that are rather pristine but they are inevitably a long way away from urban supplies.

> While there may be some social value in a rooming house, the conditions in most of them means that it's only people who are too desperate for housing that would consider them as an option.

No. You're thinking of a rooming house for drunks downtown. Think of hard studying students, hard working young people eager to save money, busy with their lives. Think of older adults without much money just wanting a peaceful place to live as they near retirement. I've found houses where the occupants have been there more than 20 years. Think they are peaceful people? Of course. They have to be. When you don't allow smokers (not smoking but smokers - because smoking outside doesn't work) you wouldn't believe how it cleans up the applying demographic. You also ban alcohol. Its simply not allowed in the house. Not a drop. This also attracts people that hate alcohol and its coarse, loud behavior it often instigates. And yes, living in the house is the way to do it. They have to know you care as well and are on top of problems. This breeds cooperation. Doing little favors for your roommates also works wonders. Doesn't have to be much. The gesture is what's important.

> If you want to continue your discussion on taxes, feel free.

I'm trying but a lot of you feel the need to torpedo this idea. I've seen it work. This is about taxes and shared accommodation. NOT rooming houses.

So you've lived in shared accommodation but were partying/drinking. That wouldn't occur in this situation. Alcohol makes most people loud, rude, overbearing and clumsy. And violent. Its a total fail for shared accommodation. I also wouldn't tolerate pot because of the smoke.

This situation is financial. Pure and simple. You go in with a 5 to 20% down payment and cash out a few years later after living expense free. Very few people have a return like that while living around others in apartment buildings or shared accommodation when they don't control things. And remember, you have control over all the outside area. Renters rarely use the yard I found. They just don't expect it. You can do a lot with a yard. Especially if you have young children.
You keep bashing Ontario but which province and city is your planned purchase going to be in? People can’t help you if we don’t know where you are.
TEAM CANADA!!!!!!!!!!!

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