7 Tips for Converting Your House Into a Rental Property

Are you considering converting your primary or secondary residence into a rental property? It appears to be the right time to become a landlord.

According to the Canadian Mortgage and Housing Corporation, despite an increase in rental housing in 2023, supply is not forecast to keep up with demand, resulting in record-low vacancy rates (1.5%) and record-high average rent growth (8%). This presents a promising opportunity for property owners like you to generate a steady income from your primary or secondary residence. 

Meanwhile, the May 2024 report by Rentals.ca says rents for all residential property types in Canada remained near a record high in April, averaging $2,188 per month. Rents increased 9.3% annually in April, accelerating from an 8.8% annual growth rate in March.

However, as a property owner mulling over whether or not to jump into the rental property market, careful planning and understanding the associated responsibilities and liabilities is critical. Let’s review what you need to consider if you plan on becoming a landlord.

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Pros and Cons of Converting a Primary Residence Into a Rental Property

Landlords face a few pros and cons, as with any small business (and renting a home is a business venture).

The Pros:

• Tax deductions. As a landlord, you can take advantage of various tax deductions to reduce your overall taxable income, including property taxes, mortgage interest payments, and maintenance and repair costs.  

• Supplements your income. Having renters helps you generate income and a predictable cash flow. In addition to growing wealth and improving financial stability, it can help cover mortgage payments and property-related expenses that crop up.

• Diversifies your investments. Renting a property helps diversify your investments, and as you pay down mortgage debt, you’ll earn equity in the home that can be used for future investments.

The Cons:

• Managing a property is time-consuming. Being a landlord is a full-time job. It requires a significant amount of time to screen tenants, deal with maintenance issues and the upkeep of the property, and possibly deal with difficult tenants or disputes between a tenant and a neighbour.

• Budgeting for maintenance expenses. All properties require regular maintenance, and then unexpected repairs may be required that can hurt your cash flow. Building a budget to tackle these necessary expenses can be challenging.

• Periods of vacancy. There’s always the potential for your rental property to be vacant if you can’t find the tenants you want, which can strain your finances.

If you’re seriously considering transforming a primary or secondary residence into a rental property, or renting a separate unit in your home where you live (like a dedicated basement apartment for renting to students), here are seven things to keep in mind and investigate:

1. Local Zoning Laws and Regulations

Research the zoning laws in your municipality to ensure you’re legally permitted to rent your property. Some areas may have restrictions on occupancy limits and safety standards for unrelated tenants living in the same dwelling. Also, be aware of local landlord-tenant regulations that you must comply with, including lease agreements, building codes, and eviction procedures.

2. Know the Rental Market Value in Your Municipality

Check local real estate listings and online rental platforms to see your municipality’s going rate for your type of dwelling to set a competitive rent price. Hiring a property appraisal professional to determine an accurate estimate may be worthwhile.

3. The Cost of Maintenance

Create a dedicated budget to cover routine maintenance and emergency repairs. For example, if the furnace in the building suddenly ceases to work in the dead of winter and needs to be replaced, you’ll want to have the funds on hand to act fast.

4. Preparing the Property for Tenants

There are several steps to take to prepare the dwelling before you start advertising its availability. These measures include installing battery-backup smoke and fire alarms and a carbon monoxide alarm and repairing leaky faucets, broken electrical fixtures, loose stair handrails, cabinets, and drawers. Making upgrades, such as modernizing the kitchen or bathroom, might attract potential tenants.

5. Screening Tenants

Screen all tenant applicants, check their employment references, rental histories, and conduct criminal background checks through the Royal Canadian Mounted Police. Ensure you follow fair and legal practices and avoid discriminating against applicants.

6. How It Affects Your Taxes

Speak to an accountant or lawyer to ensure you understand the tax implications of becoming a landlord. Rental income is taxable, but you can deduct expenses related to the rental property, including repairs and maintenance. 

7. Purchase Landlord Insurance

Without a doubt, protect your property from unforeseen damage and loss and cover your liability risks with a comprehensive landlord insurance policy. Zensurance can help you get the low-cost, customized coverage you need when you submit an online application for a free quote. We’re here to support you in your journey as a landlord.

Potential Liabilities Every Landlord Should Consider

Despite the many upsides of renting a residential property, being a landlord has several risks.

Among the liabilities to consider are:

• Property Damage. In addition to damages caused by severe weather or a natural disaster, a tenant might accidentally or intentionally damage your rental property.

• Third-Party Bodily Injuries. If one of your tenants, their guests, or a visitor to your property is injured because of an unrepaired hazard, like a stairwell that’s in poor shape or slip and falls in the wintertime because the driveway and entrance to the abode were covered in ice and snow, you can be liable for their medical expenses.

• Tenant Disputes. Legal disputes can arise with a tenant over the lease terms, when you must return their security deposit after they move out, and especially the eviction process.

• Equipment Breakdowns. The HVAC system and kitchen and laundry appliances could unexpectedly cease functioning because of an internal mechanical or electrical malfunction. Repairing or replacing them can prove expensive.

How to Get Low-Cost Landlord Insurance Fast

Getting comprehensive insurance coverage is when Zensurance comes into the picture: we specialize in helping thousands of Canadian rental property owners get the affordable landlord insurance protection they need, and we customize it to suit your dwelling and specific liability risks.

Fill out our online application now to get a free quote. Let us worry about getting the required insurance so you can focus on preparing your property to rent and finding tenants.