Amanda Kelly rents out a portion of her home to help cover her bills and estimates a third of the neighbours on her street are doing the same.Amy Hutchison
Amanda Kelly bought a pre-war single-family home in Barrie, Ont., in 2019 specifically for its potential to generate revenue.
At the time, she was a government employee and wanted to find a home with a big backyard for her two rescue dogs. However, she knew that affording a traditional single-family home on her own would be a challenge.
“I purchased a home specifically because it already had a separate entrance to the basement and a detached garage,” Ms. Kelly says. “It’s definitely the only reason I’m still able to own it right now.”
Over the years, she has rented out the two-bedroom basement unit to numerous tenants and has recently begun converting her garage into a garden unit. In 2021, after quitting her job to co-found an end-of-life startup, called AWAKE, Ms. Kelly briefly moved back in with her parents and rented out the main unit as well.
“I wanted to start my own business but keep my house,” she says, adding that she later moved into the basement unit and continues to rent out the rest of the house. “With me living in the basement and renting out upstairs, I cover the mortgage and half of the bills.”
Though the arrangement is exactly what she had pictured, she says that homeowners today need to get creative to get into or stay in the market – and she’s not alone.
Any time you change your property from using it personally to renting it out, the CRA could consider that a change in use, and there could be a tax liability.
— Hanna Roohi, accountant and partner at Roohi CPA LLP
Ms. Kelly estimates that about a third of the homes in her neighbourhood are occupied by the original owners, another third by multigenerational families, and another by other millennials who also rent out portions to cover their cost – including both her next-door neighbours.
According to a recent survey conducted by Re/Max Canada, many Canadians are exploring non-traditional pathways to home ownership, or using their home to help cover rising costs. The study found that about a third of first-time buyers are exploring alternative ownership options, and nearly half are open to them for future purchases.
“If you’re a first-time homebuyer, and you’re in a very expensive market like Ontario or British Columbia, or you don’t have a high monthly income, it’s really hard,” says Christopher Alexander, president of Re/Max Canada.
Of those considering alternative paths to homeownership the survey found that 22 per cent are interested in a rent-to-own agreement, 21 per cent would consider co-ownership with a non-romantic partner – like a friend or relative – and 17 per cent are open to renting out a portion of the property.
“Renting out a portion of your home has been really popular; that’s not necessarily a new trend, but it is accelerating,” says Mr. Alexander. “A lot of homeowners, in a rising interest rate environment, were renting rooms to students or single people to offset their expenses.”
Other revenue opportunities available to homeowners include renting roof space to solar companies, yard space for pet owners, garage space for storage, even private pools or hot tubs.
“The strong desire for home ownership, and the fact that people are willing to get creative to achieve that, speaks to the long-term viability and stability of owning real estate in Canada,” Mr. Alexander says.
At the same time, he warns that buyers and owners need to ensure they’re protecting themselves from potential liability before pursuing some of these strategies. “I’d urge caution around doing handshake deals and recommend being organized about it so that you can have peace of mind entering into a partnership and/or supplementary income venture,” he says.
Those pursuing alternative homeownership structures, or seeking to use their home to generate revenue, also need to be aware of the potential tax implications, says Hanna Roohi, a Mississauga-based certified public accountant and partner at Roohi CPA LLP.
“If someone’s renting out a portion of their home, they need to be aware of the change in use rules,” she says. “Any time you change your property from using it personally to renting it out, the CRA could consider that a change in use, and there could be a tax liability.”
Ms. Roohi explains that those who are renting out a relatively small portion of their home, or share costs with a roommate, for example, are typically exempt. However, those who renovate a portion of their home for rental purposes may be effectively changing its legal status from a residence to a business, with potentially significant tax implications.
“No matter what the type of income, it kind of falls in with the same general principles,” she says. “You have to report the income you receive, and you can typically write off any expenses directly related to the income you’re generating.”
Ms. Roohi advises those looking to get into a non-traditional purchase agreement or generate revenue from their home to first speak with legal and accounting professionals. She adds that in recent years, a lot of her clients have done just that.
“It is common now,” she says. “Especially in this economy, you have to try different avenues.”