A mortgage helper property is a home with a suite that can be rented out to tenants. Typically, the owner lives in the main part of the home while the tenants occupy a separate area with its own facilities such as a bathroom and kitchen space.
Mortgage helpers are a very attractive option for homebuyers who want to step up into a nicer property that they couldn’t otherwise afford, or are looking to take a big bite out of their monthly mortgage payments.
How exactly do lenders gauge the added value of a home with a rental suite? Nathan Zurowski, with Verico Premium Mortgage Corporation, says, “Typically, 50 per cent of the rental income goes against your debt service ratio, and the lender will want to see a tenancy agreement before closing.”
Real estate agent Cam McLeod with Team Powerhouse Realty has a few suggestions for buyers looking for that perfect mortgage helper suite.
Find the Right Space for the Tenant You Want
As you search for a home, you’ll probably be focusing on the space that works just perfectly for you, but if you’re thinking of bringing in tenants, you need to find a suite that meets the needs of the kind of tenant you want to attract.
“You should be looking for a home in a neighbourhood with a high demand for rentals that is close to the amenities they may rely on, such as public transit connections, schools, shops and services,” McLeod says. He adds that properties located close to universities can make sense even if you don’t plan on renting your suite to students. “It could make your property more attractive to future buyers who want to tap into a dependable rental market.”
McLeod advises buyers to look at trends in the area before converting a property to include a suite. “If you buy an executive home in an upscale neighbourhood and put in a mortgage helper suite, you could find it harder to sell at the right price if most buyers in the area aren’t looking for that. There may be ways to work around this though, for example if you create a space that could also house a nanny or be used as an in-law suite.”
Do your Due Diligence with Existing Tenants
If you’re lucky enough to find a home you love and it already has tenants in the rental suite, it could save you a lot of hassle. You get to reap the financial rewards of your new suite as soon as you buy the property, and you can skip all the effort of finding tenants.
McLeod says it’s still important to do your due diligence because it can be very difficult to remove existing tenants. Take a look at the suite. Do the tenants take pride in their home and keep it clean? Request a copy of their rental application. Consider asking your real estate agent to arrange a meeting between you and the seller to discuss their relationship with the tenants.
You will be bound by the terms of the tenancy agreement between the tenants ant the previous owner, so make sure you read it thoroughly. Find out what the renters currently pay each month. If you think they are paying too little, be aware that you can only increase the rent by an allowable percentage per year.
Stick to Your Comfort Level
Having a suite in your home should be a benefit, not a source of major stress. Staying within your comfort level means being able to manage financially during vacant periods, or if you have to settle a dispute with non-paying tenants.
How do you feel about common entrances, a shared garage or laundry facilities? For some homebuyers, especially those with kids, having separate entrances is high on the priority list. Test out the noise transfer between your spaces, and look into the hot water system to make sure you don’t have to worry about running out of hot water.
Ask a real estate agent about your municipality’s approach to authorized and unauthorized suites. In most areas, you’ll see many more homes with unauthorized suites on the market than authorized ones – but again, the decision comes down to what you are comfortable with.
The Long-Term Advantage
Renting out a part of your home to tenants is a big decision, and some buyers may feel a little unsure about taking that step. Cam says one of the great things about owning a property with a suite is that you don’t have to rent it out, but if times get tough, you’ll have that revenue generator to fall back on.
“Everyone’s parents are getting older. Owning a home with a suite means there’s an opportunity down the road to have parents move in to help raise a child or offset the mortgage. There are many benefits of owning this type of property, even if having tenants is not part of your short-term plan.”