Passive income. The easiest way to create passive form of income is through renting out a property whether an entire house or a spare bedroom. What is passive income? Simply define by Robert Kiyosaki, the author of rich dad poor dad, an income stream that is generated with little or no effort. It is called passive because it is effortless also known as “dumb” income that does not involve a lot of strategy compare to other forms of income generating sources.
Home owner rent out a spare bedroom for different reason. Whether your budget is stretched thin or you’re looking for a way to get ahead, renting out that extra bedroom can provide a financial boost. Add breathing room to your monthly budget. With less of your monthly income going toward mortgage payments, you can focus on other priorities like adding to your emergency savings or retirement account or paying off credit card debt.
A savvy real estate investor on the other hand would acquire multiple properties to produce multiple income stream which requires more cash flow and involves higher risk compare to a simple homeowner renting out just a spare bedroom. Renting out an entire unit is different from just renting out a spare bedroom because they fall in to two different property law in Ontario.
This is when an investor needs to be careful and make sure he has a good understanding of tenancy law in the province of Ontario under Residential Tenancy Act.
So you have decided to rent out an extra bedroom space in your primary residence. The good news is under hotel accommodation where a landlord (owner of the house) resides in the same premisses, an entrance is shared including amenities such as kitchen and bathroom such tenancy is excluded from residential tenancy act under hotel accommodation. Therefore a landlord or the owner of the house that lives under the same roof can impose his own rules as long as it does not violate the quiet enjoyment of his border.
On the other hand when renting out an entire unit such as basement unit equipped with a separate entrance or renting out an entire house such tenancy falls in to the rules of Residential Tenancy Act. Under the act, a tenant must be given proper notice when terminating a tenancy agreement. For example a month to month tenancy requires a 60 days notice, a weekly tenancy requires a 28 days notice. Also, keep in mind the “no pet” clause in the province of Ontario which entails that a landlord cannot prohibit a tenant from bringing in pets in the house unless such pet can pose harm or causes allergic reaction to people living in the house.
Under lease agreement 60 days notice must be given to both party in advance prior to termination of tenancy. Question normally arise, what if a tenant failed to pay monthly rent obligation? Under RTA a tenant must be given a proper notice – whether the tenant is under a lease agreement or a month to month tenancy a notice must be given to both party. If a tenant still does not complies to a landlord demand for rent, a landlord must obtain an eviction notice from the sheriff office and this may take few days to receive. It could take up to 30 to 60 days before a tenant can be fully evicted out of the premisses.
Wether you are planning of renting out a whole unit or a spare bedroom it is also important to know the zoning bylaws within your area. Some areas in Toronto, ON. prohibits subletting a residential home so it is important to check with the municipality about your zoning bylaws.
There is also a difference between a legal apartment and illegal apartment so don’t get mixed up between the two. What constitute a legal apartment is a unit that is inspected and approved by the municipality and deem to be safe to live in. Such inspection includes checking of proper entrance and exit, windows, doors, electrical wiring, fixtures etc. It sometimes can be very expensive to upgrade a unit to a legal apartment and this is why almost 90% of home rental apartment in Toronto is an illegal apartment to begin with. Otherwise, there would a lot of people living in the street.
I am not suggesting that you start an illegal rental apartment but it is important for you to know the facts. Renting out a property can be very rewarding and can add to financial gain if done correctly.