Many buyers are interested in obtaining a property with a suite so they can take advantage of the rental income potential. Though it may seem like a no-brainer, there are some factors to consider before purchasing a home with an income-producing suite. We had the pleasure of sitting down with John Hudey, a mortgage specialist with RBC. John was able to answer some of our questions surrounding rental suites, allowing us to better assist our clients.
An advantage of purchasing a home that has potential to produce rental income is you can often use that rental suite income to offset the cost of qualifying for the property. A maximum of 50% of the suite income can be used to help clients offset the additional costs of the home. In order to include the rental income in your mortgage approval, the bank will require a full appraisal so they can verify the rental value that will be used in the calculation of the offset. Another important thing to consider when seeking out a home with a rental suite is that the suite must be legal in order to use the rental income in your mortgage application. Having an illegal suite in your home can cause issues down the road. If bylaw officials are notified of an illegal suite they can have your suite decommissioned, leaving you without the additional income that was used to acquire your mortgage.
On top of rental income and mortgage applications, we recommend that our clients consider the other implications of becoming a landlord in British Columbia. There are many rules and regulations put in place for landlords to follow. If these rules are not abided by you could end up having to compensate your tenants for up to 12 months of rent. In order to avoid any potential issues, we encourage you to read through the BC Tenancy Laws and Rental Agreements. This will help you understand the full scope of what being a landlord in British Columbia entails.
If you are looking to purchase an income-producing property or are still weighing out your options – give us a call! We’d love to assist in this exciting new endeavour in your life.