Hello, everyone investing in Hamilton real estate! I trust you’re enjoying the final week of summer!
I read an article recently that stated that at least 100 people turned up for a house viewing in Dublin. That’s the stark reality of the renting crisis these days.
Rental supply is critically low here and even worse in many areas, all thanks to the governments for vote buying and failing Economics 101.
Real estate prices are going down; Rents are at historic highs because tenant demand is so high. Last I checked, Hamilton had the 2nd highest rent increase.
Even a client of ours just rented a duplex for $4,300 plus utilities!
Part of the problem is small landlords getting out of the game thanks to government-regulated rent increases not keeping up with inflation.
Short-term rentals have become a preferred investment option as investors are moving away from excessive government controls.
As a landlord myself, raising rents can be tricky, especially when you haven’t raised rents in years, but savvy investors know that it’s harder to refinance or even sell if a tenant is paying low rent.
On to the subject of today’s article…
One of the largest obstacles preventing people from buying their own homes in the GTA is the notoriously high cost of living.
So, many people are searching for the key to cutting costs and making that home much more affordable – and that key is House Hacking.
Of course, before we dive into the world of house hacking, let’s look at the market in the Greater Toronto Area to understand just how expensive it can be.
The Cost of Living in Toronto and the GTA
While the GTA can be an incredible place to live, with a wide variety of different lifestyles available within the region, however, many Canadians and individuals new to Canada share the same concern that keeps them away – the cost of living.
The average monthly costs of living in Toronto and the GTA are among the highest in the country, with Toronto racking up the highest cost of living for a single person at an average of approximately $2900 per month. With such high expenses, buying a home, let alone finding room to invest and save money, can be incredibly difficult.
This is where house hacking comes in.
What is House Hacking?
Essentially, house hacking is the process of renting out part of your principal residence in order to reduce your cost of living through rental income.
This can be done in various forms, with certain strategies being more effective than others depending on where you are located.
Additional Dwelling Units/Multi-Family Housing
One of the most common strategies for people looking to get into house hacking is using additional dwelling units or multi-family properties in order to get started.
You start by buying either a multi-family property, such as a duplex or triplex, or a single-family property with the potential to create a separate dwelling unit on the property and moving into the portion of the property that you would like to call home.
Then, you can find tenants to occupy the remaining unit(s) and use their rental payments to cover part of the monthly property expenses.
Single-Rooms
If you do not have an entire separate unit to rent out, you can opt to rent out an extra room on the property. Of course, if you do, you will need to ensure that the tenant has access to key amenities such as the kitchen and bathroom.
You will also have to manage living in the same space as the tenant and accepting that they will have access to your personal belongings. So, it is important to establish boundaries with the tenant and ensure they adhere to them.
Short-Term Rentals
If you do not feel comfortable having a tenant on your property long-term, or your house does not support renting to tenants full-time, there is also the option to provide short-term rental housing on your property through sites such as Airbnb and VRBO.
With short-term rentals, you could offer a separate unit as a short-term rental, a single room, or even your entire property if you are going to be away.
What You Should Know Before You Begin House Hacking
While house hacking feels very straightforward, there are some important things you need to know before using this strategy.
- Understand the Workload
House hacking requires you to be hands-on as a landlord, whether you would like to or not. After all, your tenants are on the property with you, and if they have a problem, they are going to be much less likely to send an email or defer to a property manager when they are capable of walking over and knocking on your door.
- Upfront Costs
House hacking – while a reliable strategy for lowering your monthly expenses – does come with plenty of upfront costs to consider.
First, you will need to buy the property you will be using. This can be incredibly expensive in the GTA, with the current price for a detached home averaging approximately $1.15 million.
After that, you will need to pay for any updates and renovations the property needs before you can start renting it out.
These costs can become substantial if you add a unit or divide a property.
Finally, you will need to spend the time and money required to find and screen suitable tenants for the property.
- Setting the Rent
When determining how much you will charge your tenants, there are two key factors you need to consider, the market rent and your monthly property expenses.
Ideally, if you are house hacking, you are going to want to cut your expenses in half, so you will want to set your rent accordingly. You also need to ensure the rent you are charging makes sense in relation to the market rent for a comparable rental unit.
If your rent is significantly higher or lower than the market rent, you should consider adjusting it.
- Tax Considerations
If you decide to try out house hacking for yourself, there are a few key tax considerations you will need to pay attention to.
While house hacking allows you to claim the same tax advantages that would apply to your primary residence on the investment property, they will not apply to the entire property. Instead, you will be limited to claiming these tax benefits strictly on the portion of the property that you are living on, while your tenanted units are taxed as usual.
Learn How to Invest Like a Pro
If you would like to pull together your investment planning and strategy into a single clear integrated system like our 500+ investor clients including 45 self-made real estate investor millionaires, our Vision Architect Program™ is right for you. Please email us at iwin@infinitywealth.ca to speak to one of our investor specialist Coaches at iWIN Real Estate, the FOUR-time Realtors of the Year to Investors in Ontario.
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Until next time,
Happy Investing
Erwin
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