1 Rental properties: Do it legally, or don't do it.
Just because you have space for a renter doesn't mean you're allowed to get one. Some municipalities don't issue permits for secondary suites. If you build one anyway (there's always a contractor out there who will do work without permits), and you're discovered, you can be forced to pay fines and even dismantle the rental property. “We've heard of situations where disgruntled neighbours inform the city of illegal units next to them," says Rebecca Isenberg, sales representative at Sutton Sadie Moranis Realty Brokerage in Toronto. She and her business partner, Helene Katz, broker of record at the same agency, have 35 years combined experience and have helped scores of homeowners become landlords.
Besides zoning issues, "a prospective landlord must verify that a second unit meets the requirements of the fire code," says Rebecca. For example, are there two exits, and is the ceiling high enough? If something goes wrong—a fire, for example—in an illegal dwelling, the landlord is on the hook. “If your insurance company isn't aware of the second dwelling, they may not pay your claim, if you make one. They certainly will not cover the tenant's possessions, and you might have a lawsuit from your tenants," says Helene.
If you've got permits for the space, there's no need to be anxious about notifying your insurance provider. "Your premium might increase, and any new tenant will still be required to purchase their own insurance package in order for the landlord to be fully, legally, covered," says Helene. It's just a phone call, and it could save you a lot of headache.
2 You probably won't pocket the entire rent—it's taxable and there are expenses.
You'll need to issue a receipt to your tenants for the rent they pay on their rental property, and they may use it to claim a deduction on their income tax. Even if they don't, you're expected to declare the rent as income and pay tax on it accordingly.
Tax aside, landlords face other expenses. On average, plan to spend the equivalent of a couple months rent every year on home maintenance and upkeep of the rental property (painting and cleaning services when tenants move out, appliance repairs, and fixture upgrades or replacement).