Let's take a look at turning your single-family home into a two-family, income generating property. This strategy can be an attractive alternative for empty-nesters and retirees who’d prefer not to move – and who’d be happy to generate some extra income.
At some point, usually after the children have moved out, many home owners decide to downsize. Today, that usually means moving into a condo or to a smaller community.
But many couples would prefer to stay in the family home, continuing to enjoy the neighbourhood they know so well. Here’s an alternative for anyone considering their options in such a situation.
Why not re-configure your home into a two-family, income-generating property? This strategy has a number of advantages.
You get to stay in the home and the neighbourhood you love
You can avoid many of stressors involved in adapting to a new neighbourhood, new neighbours, and unfamiliar amenities and services.
You end up with less home to manage.
You can generate important extra income to help fund your retirement years and lifestyle enhancements.
You may significantly increase your property’s value when it’s reclassified as an income property.
Offsetting these advantages, you’ll have to deal with some challenging realties:
Living through the renovation process, likely four months to a year. During this period, you might have to find a temporary residence.
Financing the renovations.
Managing the renovation process to be sure it meets your expectations and stays within budget.
Living alongside tenants who may not share your lifestyle.
Assuming the role of “property manager” – this means, at a minimum, dealing with occupancy, rent collection and maintenance issues.
Should you decide to re-configure your home to generate an income, here’s an ACTION PLAN to get the process underway.
Zoning and Permits
First, you’ll need to check out zoning issues. Is your area zoned for the living arrangement you’re hoping to create? Do you need to apply for rezoning or get a zoning restriction waiver?
Requirements vary from region to region, although there are some basics that will apply almost anywhere – each residence will need at least one exit of its own, plus bedroom, bathroom and kitchen area, and perhaps separate utilities and meters.
Other safety standards, such as fire codes, might change once you turn the space into a two-family dwelling – such information is available from your local building planning department.
You’ll need to consider what kind of people you want to occupy the new space – a family, students, another retired couple? This will affect the number of rooms and their sizes, the design of kitchen and bathroom spaces, and other considerations.
If you need or want to make big changes, consult with a structural engineer. This is the time to think about major issues like the building’s envelope, and to fix any deficiencies or reconfigure the roof, walls, windows or doors.
Determine the rental income you can expect
Contact a real estate agent you trust to determine the rental income you can expect to earn, taking into consideration periods when the unit is vacant. As part of this analysis, find out how this revenue will be taxed, and what portion can be offset as expenses when you file.
You may need to take out a home improvement loan, a business loan, or even a second mortgage. Prospective lenders will need to factor in a number of elements: the use of second unit, your credit rating, etc. Ask your real estate agent to provide you with a home valuation before beginning.
Retain an architect
To be sure your re-configured property is in compliance with local zoning, building codes and safety regulations, retain an architect with local knowledge and expertise in handling this type of project. Be sure to get at least two or preferably three quotes.
Recruit a construction company
Be sure the company is experienced in this kind of project. Get at least three quotes. Have the company you select meet with the architect to work out potential issues before the construction process begins.
Have qualified back-up in place to help keep the project on track. It’s always a good idea to have someone who cares for you to act as your back-up or to offer support as you go through the renovation process. Maybe one of your grown children, or a close friend.
Should you wish to explore this alternative to downsizing, I’d be pleased to help you assess this opportunity in respect to your specific home.
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