easy way to start real estate empire pinterest

An Easy Way to Start Your Real Estate Empire

easy way to start real estate empire pinterestI bought my first property in 2008 in a bidding war in the hot Toronto market.  The bungalow had the shell of a basement suite, which planted the real estate investing seed. But the suite was old and outdated. My family and I proceeded to gut the basement over the next few months. Many estimates later, we were a little more frightened than when we started. But we spent a year and a half scrimping and saving as much as possible with hopes that we could slowly tackle renovations to the suite. During that time, I started reading a lot about real estate investing – trying to drum up the courage to act. A little luck pushed us in the right direction: my husband and I were cast on HGTV’s Income Property.  Scott McGillivray guided us through the renovation, but most importantly inspired us to take the next step and become landlords. It was the best decision we made and we haven’t looked back since. Over the last six years, I have generated more than $15,000 annually for my basement suite.

Whether you are a first-time home buyer looking for your new home or an existing property owner, think about adding an income suite in your primary residence.  It is a great way to get started in building your empire.  Before jumping in, here are a few valuable tips to consider for the newbie investor:

Get your financial house in order

First things first: master the art of spending less than you earn, reducing non-essential expenses, tracking against a budget, and automating your savings.  You can always find ways to do better here.  The important part (for now) is not how much money you have, but the financial habits you have as a foundation for the future.

Do the math

Check listings in your area to find comparable homes with income suites and the rents they generate. Go out and take a look at these properties from a renter’s point of view.  Think about what your income property will need to compete, plus what you could add to make it stand out from the rest.  I did some homework and found comparable rental properties were fetching between $1000 and $1300 in my neighbourhood.

Next, determine how much the income property will cost you to add to your home. One real estate investor famous for shining a spotlight on income suites is Scott McGillivray.  A piece of advice he’s shared with me is to spend no more than two years’ worth of the rental income you think you will receive.  While you may have to borrow money to fund the renovation, it may be worth the added debt. I borrowed $30,000 on a home equity line of credit but was able to pay it off in two years from the rental income generated. Just make sure it’s a calculated risk and you can carry any debt you take on responsibly.

Now the fun math part. Think about what an extra $800, $1000 or $1200 for example can do for you?  I like to pay back any loans with this monthly cash flow immediately.  Once that’s erased, I heap it onto my mortgage. But that might not be the best way to go.  With interest rates at historical lows, the cash flow may be better saved and used to fund future real estate investments.  Run the numbers in different scenarios and figure out what’s going to let you sleep at night!

Deciding on the space

The easiest way to get an income suite is buying a house with it.  But if you have trouble finding one, you can also build one instead.  To add a legal secondary suite, you’ll need to consider various features: separate entrance, fire safety (insulation, fire extinguisher, smoke and carbon monoxide alarms), sound barrier, lighting (window in each bedroom, window dimensions), ceiling height (usually between 6”5 to 7” ft. minimum), parking, etc.  Check your provincial and municipal guidelines as they differ from community to community. It was important for me to have a legal suite with all the permits necessary to protect me from liability and also get top dollar for my unit. Good tenants take comfort in knowing that a suite is legal and meets the safety standards – wouldn’t you?

Rolling out the renovations

Think about ways to keep renovation costs down by tapping into existing plumbing for the laundry or bathroom placement. Take advantage of provincial and federal rebates being offered.  When I was creating my income suite, I was able to get a rebate for disposing of old appliances and purchasing new energy efficient ones.

Large construction firms like Capital Construction recommends that you remember to plan at least 15 to 20% more for the unexpected with renovations, and put your mind at ease by getting at least three quotes to compare against.  Also, roll up your sleeves.  Doing the demo yourself and the painting are two easy ways to shave off a few hundred dollars. Finally make smart renovation decisions.  Where can you splurge versus save?  What’s going to be the WOW factor of your suite?  We opened up walls in the living room and kitchen to make one big living space.  We also put in a glass door shower.  These were costlier decisions. But our kitchen counters are laminate and our floors laminate.  Many affordable products have come a long way in terms of durability and aesthetic. Zero in on who is your ideal tenant profile and renovate with that target audience in mind.

All that’s left…

is to act.  I have been renting my basement suite for the last five years and have had two awesome tenants during that time span. After completing the renovations, our home was appraised at 15% more immediately, while the average in my neighbourhood that year was at 1%. Within six years, our home has appreciated by nearly $300,000 partly due to the location but also because of the value we added with our income suite. While my family has sacrificed privacy and space, we’ve shaved years off our mortgage.  The equity we have built, plus the tax advantages of writing off a portion of our household expenses, has helped us take a giant leap forward in our financial goals.

Daria Hill is a communications consultant by day and a student of real estate investing every other spare minute. Daria lives with her husband James, a real estate agent with Royal LePage, and their daughter in Toronto.  With a love for demolition, design and daydreaming, she is always looking to roll up her sleeves for the next project. Daria currently owns two investment properties but is keen on building her portfolio.


Are you willing to trade space so that someone else pays down your mortgage?  I've personally done it and didn't mind it at all, I felt like I was living in my home for free:)  How about you, how was your experience owning a basement suite?  Was it worth it?

Happy Investing,

 signature

 

 

 


Leave A Response

* Denotes Required Field

CommentLuv badge