According to a CIBC poll on rental properties, millennials are more likely than any other age group to rent out their homes – or rooms in their home, for extra income.
Almost half od millennials polled (47%) were already landlords (30%), or planed to rent out their properties in the future (17%). In contrast, only 29% of homeowners between the age of 35 and 54 were in the same situation, and only 12% over the age of 55.
Key poll findings:
- Of millennials landlords, more than half (64%) own rental properties that they exclusively rent out.
- 40% rent out a part of their primary home
- 10% make part of their homes available for short term occupancy on Airbnb.
- 31% of landlords rented a room in their primary residents – 22% of landlords opted for long-term tenants, and 9% for short term tenants.
- 72%of all homeowners believed real estate investments were an excellent way of gaining supplemental income.
- 37% of homeowners said they would opt for a home with an option for rental income, if they were buying a home today.
The shift in interest towards owning income properties is partly driven by a desire to offset higher housing costs, but also to generate additional income and build equity. Attitudes towards personal space are also changing among the younger generation, who are more open to opening up their home to a short term tenant.
Is being a landlord worth the headache?
The poll found that Canadian landlords leasing out an entire rental property made on average $2,189 per month from rental income, of which $1,461 went towards monthly expenses. The average cash flow (profit) on rental properties amounted to $728.
Landlords renting out a space in their home reduced their housing costs by up to 70%. On average, Canadian millennials renting out rooms made $1,287 in income a month. The average monthly amount spent on their total household expenses amounted to $1,888.
The majority of millennials polled (80%) agreed that renting out a space in their home made financial sense, but valued their privacy too much to consider it.
30% were concerned with additional costs associated with rental properties, such as maintenance and repairs.
Nevertheless, more than half of landlords 52% believed their investment were ‘worth the headache.’
Among owners of separate rental properties, half attributed their main reason for investing to passive income (22%), 28% were saving for retirement, and 20% had invested to benefit from longterm property appreciation. 14% cited future occupancy for themselves of their children as the main objective.
Lastly, 74% of landlords believed that owning a rental property was worth it even with a negative cash flow, due to the tax benefits associated with their expenses.
Landlords renting out a room in their home could deduct a part of their housing expenses, and owners of rental properties can deduct capital expenses (for example, renovations and real estate commissions) and current expenses (insurance costs and interest) from their income.
Becoming a landlord isn’t for everyone, says CIBC’s Jamie Golombek. “While most homeowners believe the tax benefits alone make an income property a worthwhile investment, it’s critical to understand how it fits into your overall financial plan, and be mindful of all of the tax implications of going this route so you can make the most of the venture.”
Five tips for becoming a landlord:
- Research the costs and risks of being a landlord.
- Finding the right property is crucial to your long term success as a rental property owner. Choose a property with attractive features for tenants, such as proximity to public transportation or building amenities.
- Understand your legal obligations as a landlord as well as zoning and insurance issues for renting out your space.
- Be selecting when choosing your tenants, and prompt when dealing with their concerns.
- Stay organized and keep records of all rental expenses.
Methodology of the CIBC Landlord Poll: On March 2nd and May 4th, an online survey was conducted in two parts among a total of 3,023 randomly selected Canadian adults. From April 5th to April 13th 2018, a second online survey was conducted among 2,153 Canadian adults who own at least one property and use at least a portion of it for rental income. All those interviewed are Angus Reid Forum panellists. The margin of error—which measures sampling variability— is +/- 2.5%, 19 times out of 20. Discrepancies in or between totals are due to rounding.