Buy vs rent with a rental suite

Why a suite changes the comparison

Suite income reduces the owner's net monthly cost. Because the buy vs rent comparison is built around housing costs, a reliable income stream can move the result more than almost any other input.

That is exactly why it should be treated with care. The income is not guaranteed, the suite may sit empty, and the rules about renting out part of a home vary by municipality and province.

A good way to use the calculator is to start without the suite, see how the owner stands on its own, and then add the income in cautious steps.

An illustrative home with a suite

Suppose an $800,000 home with 20% down ($160,000), a 4.5% mortgage rate and a 25-year amortization, compared with renting a home of similar size at $3,000 a month. The other assumptions are 3.5% yearly appreciation, 3% rent growth, 1% of value in yearly maintenance and a 5.5% investment return. The calculator's default treatment of suite income takes off a 5% vacancy allowance and applies a 25% placeholder for tax on the net amount. These are illustrative inputs, not tax advice.

With no suite, the buyer is ahead by $61,810 after 10 years and break-even takes about 5.25 years. The owner's first-month cost is about $4,917 against about $3,025 for the renter.

How much the income moves the answer

The table adds suite income in steps. The owner's first-month net cost falls as income rises, and the lead grows.

These gaps look large because suite income is a major lever. Treat the size of the gap as a signal of direction rather than a forecast.

Stress-testing the income

Vacancy and time horizon both matter. If the suite is empty a quarter of the time instead of 5%, a $1,200 suite still leaves the buyer ahead by $182,766 after 10 years, compared with $215,021 at the default. That is a smaller lead but still material.

A short stay reduces the advantage. With $1,200 of suite income and a 3-year horizon, the buyer is ahead by $11,815. At 5 years, the lead is $66,358. The one-time costs of buying and selling still need to be repaid.

Finally, test the case where the suite is vacant for a long stretch and the mortgage must be carried alone. If the payment is unmanageable without the income, the purchase is relying on the suite in a way that carries real risk.

• Test a higher vacancy rate than you expect.
• Test a lower rent than the suite could achieve in a good market.
• Check you can carry the full cost if the suite sits empty for several months.

Legal and practical checks before you count on it

Whether a suite can be rented lawfully depends on local zoning, building and fire requirements, and permits. A suite that is not legal may not be insurable, may complicate the sale, and may be treated differently by a lender.

A landlord also takes on obligations. Tenancy rules in your province apply to the suite, including notice, rent increases and how a tenancy can end. See rent control by province and renting risks and rights for the tenant side.

Check with your insurer about coverage for a rented suite, and with your lender about how rental income is treated when you apply.

Tax and the principal residence

Renting out part of your home raises tax questions. The gain on a home that qualifies as a principal residence is generally tax-free, but different rules apply when part of the home is used to earn rental income. This guide does not describe those outcomes.

The 25% figure in the calculator is a placeholder to keep the example conservative, not a statement about your taxes. Ask an accountant how rental income and your sale would be treated before you rely on the numbers. For the basic rule, see principal residence exemption, and use the suite income tool to test your own assumptions.