June 20, 2016
Basement Living: Paying Off Your Mortgage Sooner by Renting Out the Main Floor of Your House
Are you looking to pay off you mortgage sooner? Buying a home with a basement apartment may be your ticket.
And while a lot of homeowners consider renting out a basement apartment, what’s stopping you from taking it a step further? What if instead of living upstairs and renting out the basement, you did the opposite: living in the basement and renting out the upstairs?
I know what you’re thinking: Why condemn myself to the basement when the main floor is available? I own this house, so why should I live downstairs?
First off, it’s a good way to subsidize your mortgage in high-priced Toronto and Vancouver housing markets. The rent from your tenants can go directly toward the mortgage, helping you burn your mortgage sooner.
This is the living arrangement I used when I bought my house in August 2012. By living in the basement, I was able to pay off my mortgage in three years by age 30. It inspired me to write a book on how other homebuyers can follow in my footsteps called Burn Your Mortgage: A Simple, Powerful Path to Financial Freedom.
I wish I could take full credit for the idea, but I actually got it from Scott McGillivray, the host of HGTV’s Income Property. Scott lived in the basement and rented out the upstairs of his first house for nine years. Not only did this help Scott get ahead financially, it put him in the financial position to build his real estate empire.
Are you suited for basement living?
I’m the first to admit basement living isn’t practical for everyone. This living arrangement worked for me because I’m single and I lead a busy life, so I’m barely home at all. If you’re single like me or are one half of a couple, basement living is worth considering; if you have kids, it’s likely not a plausible solution. A basement apartment is cramped enough for one or two people, let alone a family. You’re probably better off living upstairs and renting out the basement.
Basement living can take some getting used to. Personally, I’ve been living in the basement most of my life, so it wasn’t any different. In fact, I went from a cramped basement apartment in a two-bedroom bungalow at my mother’s to a spacious basement apartment with hardwood floors in a three-bedroom bungalow. With that perspective, I enjoyed my space even more.
3 key considerations for basement living
Still trying to decide whether basement living is right for you? Here are three key things to keep in mind.
It’s all about cash flow. As a landlord, you can make a lot more rent from the upstairs; in my experience, you can make nearly double. In my house, I could rent the basement out for about $800 a month or rent out the upstairs for $1,600 a month. As it was for Scott McGillivray, it was a clear decision to go with the second option. Living in the basement made perfect sense—the math doesn’t lie.
It’s not forever. If you’re on the fence about living in the basement, remember this living arrangement isn’t forever. You can do it for a couple years to get financially ahead or you can do it until your mortgage is paid off, like I did. It’s completely up to you.
Also, you can compare this living situation to renting an apartment. You’ll spend the same or less in your basement apartment as you would renting a small space from someone else, but you’re living on your own property, paying a substantial amount toward your mortgage. If you can justify spending a few years in a rental, you can justify living in the basement.
Picking the right tenants is key. Living in the basement is a lot more pleasant when you choose the right tenants. Since the basement tends to be the noisiest part of the house, you want to choose respectful tenants who aren’t going to make a racket upstairs. You can be as selective as you want when choosing who lives a few feet from you, so take your time. If you can find a long-term copacetic living situation with your tenants, your mortgage will be gone before you know it.
There are just a few of the factors to consider when deciding to live in your basement. By buying a home with a lower apartment—in words of Scott McGillivray—“you can start bringing cheques to the bank.”
Unsplash: Siddharth Kothari