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Pros & Cons: Buying a Home with a Rental Unit

Posted by jessicawadden@gmail.com on April 21, 2022
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Is purchasing a home with a Rental Unit is the right option for you? Let’s look at the pros and cons of buying a 2-Apartment Home vs. a Single Family Home, to help you decide.

First, Let’s look at the benefits of buying a home with a Rental Unit:

Pro #1: Income

The obvious benefit of a rental unit is that you will have rental income.  If you take this income and apply it to your mortgage it will help build your home equity at a faster rate.  Some savvy first time home buyers even choose to live in the basement and rent the upstairs unit which usually generates higher rental income.  You always have the option of switching and moving upstairs when you need more space.

Pro #2: Mortgage Approval Amounts

When you apply for a mortgage, your broker will typically consider half of the rental income from the basement apartment as income when calculating the amount of mortgage that you could be approved for.  Choosing a house with a rental unit may give your budget the bump it needed to find a home in your desired area.

Pro #3: Tax Benefits

As an owner of a rental unit, you will be able to claim a percentage of the materials and supplies used for upkeep of the apartment against the rental income on your taxes. I recommend you consult with a professional accountant for a list of items that may or may not be included.

Next, let’s look at the Cons of buying a home with a Rental Unit:

Con #1: Tenants

A lot of people don’t want the hassle of dealing with tenants, especially if you are the one living in the other unit. Personally, after years of living in apartments, I couldn’t wait to buy a house where I didn’t have to worry about my neighbors playing loud music at night or kids practicing gymnastics in the morning.  Besides the noise, you have to deal with collecting rent and fixing things that break.  And if you are not particularly handy, these costs can really add up. 

Con #2: Damages

In a busy rental market, you do have more ability to be picky but there is no guarantee that your tenants are not going to trash your house.  I highly recommend that you ask and contact the tenants’ referrals but this in itself no guarantee.

Con #3: Vacancy

And the biggest con, especially if you are counting on the rental income to help offset the cost of your mortgage, is vacancy.  You really need to ask yourself, what happens if for any reason the apartment is vacant for multiple months? Do you have enough savings or income to not fall behind on your mortgage payment?  Even if you choose to purchase a two unit house, be smart about your finances so that you can weather worst case scenarios.

Thumbnail with text Pros and Cons of buying a Fixer Upper and picture of Jessica Wadden

If you are also trying to choose between a fixer upper house versus something more move-in ready, you should check out my next blog on the pros and cons of buying a fixer upper.

Now that you know some of the main pros and cons of purchasing a home with a basement apartment vs. a single family home, I hope you feel more confident that you are choosing the right type of home for you.

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