Your home can mean many things to you. It’s a place of safety and comfort for your family and where cherished memories are formed every day. What you might not realize is that your home can also be a source of passive income for you.
Passive income is money earned without your labour or active involvement. As such, it is the gold standard when it comes to investing. This money can come from a business you don’t actively participate in, from royalties or dividend-paying stocks.
Because passive income requires no labour or heavy time commitment, it’s ideal for retirees or anyone who wants to grow their wealth.
The most obvious choice in generating income from your home is by renting. You could rent a single room to a student during the school year. Or you can fix up the basement and create a separate suite to rent out.
What if you hate the idea of someone living in your space? How about adding a whole new house in your backyard?
A new law from 2018 makes it legal for Ontario residents to build a coach house as long as certain conditions are met. For example, the primary residence must be on a laneway and be serviced by municipal water and hydro lines.
A coach house is superior to a secondary suite in many ways, including more privacy for both renter and owner.
Do you think renting might be the way to create passive income in your life? Be sure to check out these resources to help you get the most out of your unit:
- Everything You Need to Know About Building a Secondary Suite
- How to Find the Right Tenants
- Top Four Tradespeople Every Homeowner Should Know
Rent is the most popular way to make money from your primary residence, but it’s certainly not the only path.
Here are a few other ideas to grow your wealth through homeownership.
Buy a second investment property
You may be able to tap into the equity of your primary home to fund a down payment on a second investment property.
A single home near a university can house multiple students, each one paying to rent a room. You may even find something you can turn into a duplex or triplex to expand your income potential even more. Of course, being a landlord has its perks, but it can also come with its share of headaches.
You’ll have to find and screen tenants, make regular repairs to the house and may have to chase tenants for rent payments. If there’s enough cash flow through the investment, you can eliminate these issues by hiring a management company.
Create a startup business
Starting a new business won’t qualify as passive income at first. However, as your company becomes more profitable, you can begin hiring more staff to take over your role. If you have some business savvy, this is one of the best ways to tap into your home’s equity and grow your net worth.
Use Equity for Home Improvements
Again, this option doesn’t generate income immediately, but a few intelligent upgrades now can mean your home will sell for much more when you’re ready to downsize. You can then reinvest that extra profit to create an income stream. As an added bonus, the interest on home improvement loans may be tax-deductible.
Fund Other Investments
Do you want passive income without the hassles of running a business or being a landlord? You can use your equity to fund other investments. Mutual funds, stocks and bonds can be risky, but can also be rewarding when your portfolio blossoms. This strategy is likely best for young people who can invest for the long term and weather the ups and downs of the market. Just proceed with caution and know what you can afford to risk. Remember, you’re using your hard-earned equity to fund these investments. You don’t want to forfeit your home because you overextended yourself. A good financial advisor can help you reduce risk by pointing you to sheltered investments with the highest returns. Using your equity to invest has other benefits besides passive income, including improving your credit score and reducing your tax burden.
Ready to use your equity to grow your wealth? Here are some other posts to help you get started.
- Six Best Neighbourhoods in Guelph for Buying an Investment Property
- Buying Real Estate vs Investing in Stocks
- Best Time to Buy an Investment Property
If any of these options sound too risky, consider other creative ways to generate income from your home.
Rent storage space: If you have a room in your house you’re not using, consider renting it out as storage space. You can collect your monthly rent, and there are no landlord headaches or noise complaints to worry about.
Charge for parking: If you live on a street where few houses have driveways, you can charge for parking. This is especially profitable the next time a big festival or other event rolls in.
Rent out studio space: Consider sound-proofing your basement or garage and renting out rehearsal space for local musicians. It’s a chance for you to earn passive income while your neighbours thank you for cutting down on the noise.
Did you ever dream there were so many ways to use your primary residence to generate wealth? If you want more guidance on what path is right for you, contact us here.