House rich, cash poor. And now you need some cash?
Here is how to generate income out of your home.
In the business of real estate I hear a lot of clichés. My home is the biggest investment I ever made. My home is my castle. Well you get the idea. Many Canadians want to remain living at home. Are you feeling: House rich, cash poor? Did you know it is possible to tap into the wealth that is invested in the value of your home? So when it comes to the golden years or you just need help in getting ahead of the tax man, here are some ideas on how to use the equity you have built in your home.
Tips to Access the Equity in Your Home.
A) A reverse mortgage
A reverse annuity mortgage or home equity plan are both similar strategies. The idea on these plans is to pull equity as a mortgage out of the debt free portion of the home, in either a lump sum or monthly payment, for a set period of time. Once the home is sold the mortgage plus accrued interest must be paid. In the mean time no payments are required and any residual equity of course would flow through to the seller or an estate. It is best to talk to a financial advisor to learn what your options are and what would work best for you.
B) Renting out a part of your home.
Perhaps you have a basement that could be turned into a rental suite. Ensure your municipality allows this option. Some areas may or may not allow this type of arrangement but often time it can be a great way of creating wealth without taking away from your equity.
C) The use of a property manager
This can simplify things so you don’t have to worry about finding and dealing with the tenant and residential tenancy rules. However, this still provides the ability to collect passive income. (Often time your rental income can be off set by your household expenses leaving a zero taxable income, but it is advisable to get professional accounting advice on this mater.)
D) Home Stay Students
Some students will pay up to $750 a month for a bedroom and private bathroom, including picking them up at the Airport, feeding them, and including them in your family activities. Depending on what level of commitment you prefer, this could be an interesting way to make a few extra dollars.
E) Operate a business out of your home. This sure can cut down on your commute time! It also could cut down on your overhead, create supplemental income and assist in lifestyle choices. There are various details to discuss first with your accountant to stay “on side” for items such as PST and GST remittances, and what you can and cannot write off.
As well, talk with your insurance broker. An existing standard home policy does not usually cover business endeavours and you may be exposed to undue liabilities that should be covered. Often the benefits of running a home-based business will out way the risks. Take the extra steps and do some homework. Consider reading, “A Home Inc.: The Canadian Home Based Business Guide,” by Douglas and Diana Gray.