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As real estate agents, we’ll be the first to admit it – buying a house in Ontario isn’t easy. As heightened interest rates and low supply continually push up the cost of living, following the traditional path to homeownership has become increasingly difficult for many people.

In some of the province’s most expensive marketplaces like Toronto, potential buyers and existing homeowners alike are starting to get creative in their pursuit of housing affordability. The result – ‘House Hacking’.

If you haven’t heard this term before, that’s ok. In a nutshell, house hacking simply means buying a home and renting out a portion of it to earn extra income. That income is then directly contributed to your monthly mortgage payments, often covering a significant fraction of the total cost.

If you’re hoping to buy a home in the next 10 years but are wary of rising costs, house hacking could work for you. In this post, we’ll cover some of the pros and cons of this alternative form of homeownership to give you a better idea of what it entails.

At A Glance

While a relatively new term, house hacking has been a popular method of real estate investment for some time. Even in the past when owning a home was more affordable, renting out a portion of the property was an easy way to cut back on costs and get a headstart on homeownership. Now as many young Canadians become increasingly motivated to escape the rental market, house hacking has become more prominent than ever.

In today’s real estate landscape, there’s no set method for house hacking. Rather, homeowners can explore multiple options and choose a path that works best for them. For some homeowners, hacking involves renting out a basement suite below the home. For others, it could mean living in the basement suite and renting out the remainder of the home for a maximized return. The roommate model, in which tenants have their own bedroom and share the home’s common areas is also popular.

Gearing up to buy your first home? Check out these informative resources from the Bosley Real Estate blog.

Why It Works In Today’s Marketplace

Across Ontario, the escalating costs of homeownership are having a direct impact on renters. With fewer and fewer Canadians financially eligible to buy a home, the need for rental housing continues to grow on a daily basis. As you may expect, this elevated demand has caused average rental rates to spike – particularly in Toronto and cities with a high student population. In today’s marketplace, rents are higher than they’ve ever been, with no sign of slowing down.

So what does this mean for house hackers? Essentially, if you have housing for rent, you’ll be in high demand. In current market conditions, house hacking can bring in some pretty substantial income, which can significantly reduce the burden of your monthly mortgage costs. Now more than ever, having tenants is particularly lucrative.

If you’re interested in house hacking but aren’t sure how much income you could earn based on your property, talk to your real estate agent. Alongside regular buyers and sellers, agents also work with investors and landlords. A great agent can help you build out a complete budget and financial plan for your home purchase, including compelling margins for house hacking returns.

The Fine Print

While most house hackers see the strategy as a simple way to make the cost of their home more manageable, there is still some red tape to be aware of.

Tenant Rights

First and foremost, in Ontario housing tenants in any context legally makes you a landlord. This means having new responsibilities you could be held legally accountable for.

Even if your tenants are living in a separate or detached unit, they’re still entitled to the same legal rights and protections as a traditional tenant. While this likely won’t introduce any challenges in your day-to-day life, it’s important to keep in mind should you wish to sell your home in the future. Or, if you’ve made some great progress on your mortgage and would now like to have the house to yourself, you’ll need to adhere to the same eviction protocol as any corporate or large-scale landlord.

Want to learn more about the legalities of selling your home while hosting tenants? Check out our blog post on the topic – here.

Income Taxes

Just like any other source of income, any money you earn from house hacking will have tax implications. Depending on how much you earn from your tenant, you’ll need to set some earnings aside each month to avoid any unpleasant surprises come tax season.

Gearing up to buy your first home? Our team of experienced agents can help you achieve your real estate goals.

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