Even as household sizes are decreasing, our homes are still pretty spacious when compared to eras past. And even if your home was just the right size for you when you bought it, maybe it’s time to make use of that extra space now that kids are growing up and moving out. Still, perhaps the kids are moving back in during rough economic times and you’re looking to include them, while also providing them a place of their own.
Whatever the situation, creating a space in your home to provide a separate rental space is an emerging strategy for many. In some ways, it’s a great way to make your home pay for itself. But, how do you plan for a project like that, and get the proper return on investment you’re looking to get?
Writer Elaine Hirsch is here to outline some guidelines to help you get started.
Deciding to renovate and rent out part of your home is a great way to bring in extra income. If you have extra space available, it can be the ideal way to offset costs like your mortgage each month or simply to accumulate money for savings or future home improvements.
However, the process can be a time-consuming one. Planning out a budget for renovations, carrying out the actual renovating of a rental suite and then finding a tenant is almost emulated by the process of starting a business, which can take time, money, and patience. Use this guide to help you plan your budget and then renovate a rental suite within your home.
Elements of the rental suite space
Determine what will need to be done in order to make the space liveable. A rental suite will require a bathroom as well as a closed space to serve as the bedroom. Ideally, it will also have a private entrance to make things more accessible for the tenant and less disruptive for the homeowners. Although a guest bedroom might be your first choice, it might be better to designate the master bedroom with a connected bathroom as the rental suite to cut down on renovation costs.
Planning your renovation budget
This is perhaps the most difficult aspect of creating a rental suite. You will need to take into consideration what renovations are necessary, including flooring, curtains, furniture, adding in a private entrance, plumbing or any other major renovations. After creating a list of what needs to be done, submit it to a few local contractors to get a quote and choose the most affordable option.
Calculating future income
Although you may be able to earn several hundred dollars each month from the rental suite, remember that that will not simply be cash in your pocket. Plan to set aside the first year or more to pay off renovation costs accrued through the building process. Remember, too, that additional income will need to be taxed. Speak with your C.P.A. to determine if the additional income will bump you or your spouse to a higher tax bracket, which should also be taken into consideration.
Beginning your renovations
Once you have budget for your renovations and determined that your future income from renting out a suite will be worthwhile, you can begin the renovations themselves. Whenever possible, it is great to save money by taking on labor on your own rather than hiring a contractor. However, for major issues like plumbing, electricity and structural work it is best left to the professionals. Use DIY resources to help you tackle smaller projects like laying flooring, tile or carpet on your own.
Life with a rental suite
Even with the best tenant imaginable, life will be very different with someone else in your home. Ideally your tenant will have a private entrance so they can come and go as they please, but expect some noise at times. You may feel strange doing activities like exercising or napping with someone else around, so be prepared for this feeling. Consider putting locks on your doors just for peace of mind.
If you can create a budget for your rental suite renovation that is within your financial reach, and have a possible tenant who will pay to call your rental suite home, then begin the renovation process and enjoy the benefits of having additional income each month.