Recently, Patrick Dumond, a mortgage broker with Multi-Prêts, appeared on Radio 104.7 Outaouais to discuss converting a primary residence into a rental property. This option is increasingly appealing to homeowners, but before taking the leap, it’s important to understand what it entails.
Why Rent Your Home?
Renting your home can generate additional income, which can be used to fund retirement or improve financial stability. For some, it’s also a way to maintain a foothold in the real estate market, especially if a move is planned in the medium term. Additionally, with growing demand in the rental market, the property can represent an attractive investment. However, for it to be profitable, you need to secure a reliable tenant, set a realistic budget, and understand the long-term implications.
Key Considerations Before Renting
Before making a decision, it’s crucial to carefully assess your property’s rental potential. This includes setting a competitive rent based on the market, accounting for necessary renovations, long-term maintenance costs, and future financing expenses. Typically, a certified appraiser can help estimate the true rental value and prevent overestimating potential income.
On the financing side, caution is needed: many mortgage contracts require the home to be owner-occupied. Converting a primary residence into a rental without restructuring the mortgage can result in penalties or render the loan ineligible. It is often better to review financing in advance, as once a property is officially classified as rental, options like refinancing or lines of credit may be more limited. Moreover, interest rates on rental properties are usually higher, sometimes by 0.15% to 0.25%, which can have a significant long-term impact.
Tax Implications to Understand
Renting your home can also have tax consequences. Without proper documentation, you could lose part of the tax exemption normally granted when selling a primary residence. A mortgage broker can guide you in identifying the necessary documents to ensure everything is in order from the start.
The Role of a Mortgage Broker
Converting your home into a rental property is also about structuring financing correctly, following proper tax practices, and careful planning. Mortgage brokers provide the guidance needed to navigate each step in the right order.