Me and My Money

Let tenants pay mortgage but tread with care...

Posted November 25, 2011
Originally Published July 1, 2010

A recent column about a woman yearning to buy her own place, but stalled because of a low down payment coupled with insufficient income, struck a chord in homeowners and home-owners-to-be.

Here’s what Paul had to say.

“Your response to the 42-year-old lady who wanted to buy a house didn't consider the alternative of renting out a room or rooms. All at market rates. Many advantages, expansions of group of friends, trade off of services for rent and it allows one to participate in the best wealth building plan available in Canada.”

True enough. There are no black and whites about money only a rainbow of grays. And for every solution there is almost always a handful of combinations and permutations.

Having a tenant pay the mortgage or part of it is one route to home ownership. At $800 a month you can support roughly $140,000 of mortgage at current rates. Also, expenses related to the rental can be deducted against the income generated. But you also must claim the income.

An existing suite in the basement allowed me to buy my first house and years ago putting a suite in a later home allowed my family to weather a period of financial turbulence.

The money was great but there were costs and privacy certainly is one of them. Additionally, I have learned that I am not the best landlord material and this is a vital thing to know about yourself. I am very sensitive to other people’s noise in and around my house. I’m not tough enough and I’m not as good a judge of character as I thought I was.

Among the memorable tenants was one gentleman who thought it appropriate to do small engine repair on the wool berber carpet. Another couple disappeared in the middle of the night with the suite’s furniture.

Also, I had to evict a single mother I’d taken pity upon when she began entertaining johns in the apartment. And let me tell you, getting rid of a tenant determined to stay -- even with cause -- can be a difficult enterprise.

Having said that I know many homeowners who have made good second incomes from tenants. Here are eight secrets to their success.

1. Vetting is vital, including knowing if and where they are employed and for how long.
2. Checking references is also important though no one is going to give you names of landlords who have nothing but bad things to say. Our small-engine repair chappie didn’t have references because he said he had been living at home for the past 15 years. That alone should have been a red flag. Likely he had been renting but simply didn’t have good references.
3. A credit check is critical. A history of late payments signals future problems with collecting rent. Reluctance to agree to a credit check is another red flag.
4. If a prospective tenant doesn’t come along who fits the bill and, most importantly, fits your temperament and lifestyle, pass up a month’s rent rather than pick an unsuitable person.
5. If the rent isn’t paid on the first of the month, offer some leeway. The second time it happens, start the eviction process no if ands or buts. You can always change your mind later but it is important not to delay or months of rent could be lost.
6. If you live in the same house as your tenant you should maintain a business-like attitude about things such as rent, shared chores, cleanliness and noise.
7. Set aside money for repairs. One strategy is to take 10 per cent of the rent each month to build up a repairmaintenance pot.
8. Do NOT spend the damage deposit or the last month’s rent. Put it in a separate account so you don’t get caught short when a tenant moves out and you have to return it.

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