Pay Your Mortgage Down Fast by Renting Your Basement

If you're looking to pay your mortgage down faster, you might want to consider transforming your basement into a rental apartment. The extra cash from the rental can be put directly towards the principle of your loan – allowing you to shave years off your mortgage term.

For example, say you have a mortgage of $150,000 at a fixed interest rate of 4.55%. You could make monthly payments of $834.39 to pay off your loan in 25 years. Or, you could rent out your basement for $834.39 per month and double your mortgage payment, allowing you to pay your mortgage off in approximately nine years, and resultantly save $66,957.37 in interest alone.   

The problem is, renting out part of your home – and becoming a landlord – isn't as simple as placing an ad in the paper. Before you draft that lease, keep the following six tips in mind:

#1 - Find out if a basement apartment is an option

Different municipalities have different bylaws regarding 'second suites'. To find out if they're allowed – and under what conditions – contact your municipal government department that issues building permits.

#2 - Know the codes

Get to know your area's fire and building codes as well as zoning and property standards. In some cases, you may need to call in the fire department to inspect your existing basement, or employ an experienced contractor who has built legal basement apartments before. They'll be able to give you a good idea as to what needs to be done so that you can appropriately estimate costs.

#3 - Uncover the demand

Visit CMHC's website to determine your area's rental vacancy rate and average rent.  If there's a low rental vacancy rate, chances are there will be a high demand for your new apartment. If it's higher, you might have a tough time renting it out unless you're in a coveted area. Current average rental rates will also tell you how much you should spend on the construction of a basement apartment, and how long it will take you to pay the renovation costs off. You don't want to invest in granite countertops and stainless steel appliances if you're not going to see a return on your investment.

#4 - Determine if you're ready to be a landlord

Being a landlord isn't all fun and games – or an easy way to make money. Be prepared to field emergency phone calls in the middle of the night, spend money on repairs and deal with troublesome tenants. You should also make sure you have the equivalent of two months' rent in the bank in case your apartment is vacant for a period of time.

#5 - Choose the right tenant

Choosing a suitable tenant is a task in itself. Never settle for the first individual who puts an offer in, and take the time to learn as much about all applicants as possible – either by sending them a questionnaire to fill out before they see the apartment, or by asking them questions about themselves when they show up for the viewing. Once you've decided on a potential renter, always check their credit report or employ a company such as tenantcreditcheck.com to do it for you. This step can teach you a lot about whether the potential tenant pays their bills on time and whether they can afford to pay their rent.

#6 - Treat it like a business

Renting out your basement isn't the same as investing money in a GIC. It’s a business – you’ll need to report all income and abide by appropriate tenant/landlord laws.

___________

The swanky basement lounge you see in the photo is courtesy of http://www.flickr.com/photos/jagwired/ / CC BY 2.0