Valley First

Using Rental Income to Build Net Worth

Using rental income to build your net worth and find financial freedom
April 11, 2013

Penticton, B.C.—Becoming mortgage free seems like an unattainable dream for many. According to a new poll, Canadian homeowners don’t believe they will be able to pay off their mortgage until they’re 57, two years more than when compared to results from a similar poll taken last year. B.C. residents are even less optimistic, anticipating they won’t be mortgage-free until they reach 59.

One way to become mortgage free sooner is to consider purchasing a home with a suite, adding a suite to your existing home or even renting a room, says Valley First expert Jane Sacht.

“Rental income can really help you wipe years off your mortgage,” says Sacht. “For example, if you have a $300,000 mortgage at 3.09 per cent interest and are paying $1500 a month, it will take you more than 23 years to pay it off. And, over the life of the mortgage you close to $121,000 in interest.

“If you add rental income to the equation, say $850, you have a significantly larger figure to dedicate to your mortgage. After considering expenses, you could realistically be putting $650 more a month to your mortgage meaning you would be able to slash nine years and about $60,000 in interest payments.”

Paying off a mortgage later in life can have far reaching implications, including decreased retirement savings and added financial stress. For some, it may even mean delaying retirement or downsizing before they’re ready.

“There are two main ways to achieve debt reduction and increased savings—earn more or spend less,” says Sacht. “Earning more may seem out of your control, but adding rental income is one way to do just that. There’s also the added benefit of being able to deduct expenses you incur to maintain the suite.”

While the thought of extra cash in the account is appealing, Sacht advises that you do your research. You’ll need to note any rental suite on your home insurance, be aware of rental unit bylaws and also consider the tax implications that come with rental income.

“Some people are intimidated by the thought of being a landlord, but there are some great resources out there to help you, like the Residential Tenancy Branch website,” says Sacht. “I tell members who are considering purchasing a home with a rental unit to work with a knowledgeable real estate agent and a tax expert who can help you along the way.

“There is real financial freedom when you no longer have that monthly mortgage payment,” adds Sacht. “It allows you to use that money to save for the future and goes a long way in reducing financial stress. It may seem unattainable, but with the addition of rental income it can become a reality more quickly than you probably think.”

About Valley First

Valley First is a division of First West Credit Union, B.C.'s third-largest credit union, which has 40 branches and 29 insurance offices throughout the Lower Mainland, Fraser Valley, Kitimat and Okanagan, Similkameen and Thompson valleys. Led by Launi Skinner, First West has $7.1 billion in assets under administration, more than 171,000 members and close to 1,300 employees.

Have a question? We can provide you with the information you're looking for.

Online

Use our contact form to send us a message—we'll be sure to reply to you with the details you're looking for shortly.

In Person

If you're more comfortable coming in to see us, we'd be happy to chat with you about the questions you have.

By Phone

If you’d like to call us, here is a complete list of our branch and insurance office numbers.

 

 

Social Feed

Visit us on Facebook or Twitter

Sign up for our e-Newsletter