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Householders with Extensions to Rent Create Second Income
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Householders with Extensions to Rent Create Second Income
Date Added: December 01, 2011 10:30:33 AM
Author: Greg Watson
Category: Real Estate

As the cost of home ownership continues to rise and mortgage stress sees owners looking for alternative ways of topping up their mortgage payments, the idea of bringing a tenant into the family property is being re-examined and given new life. While many people, especially students in shared accommodation, take in a boarder to occupy a single room and share expenses, there is a broader application of this strategy which could help out people who have an unoccupied extension to their current dwelling. Many properties have self-contained extensions to rent at ground level, or suitable space built-in under a high-set property to create a separate self-contained living area. If this part of the dwelling is unoccupied, it is a wasted resource that could be earning additional income to offset part of the mortgage, or be put towards refurbishing expenses. With the competition for rental space heating up, a look at the real estate Manawatu market should assist an owner with extensions to rent to decide if there is a rental demand for this type of living accommodation. Of course, sharing private living space with a total stranger is not just all about making some extra income. There will be some loss of privacy, and careful thought should be put into how that will be managed, and whether the owner will be able to keep the welcome mat out if the tenant steps out of line. The tenant should also have some rights, and these issues need to be negotiated prior to someone moving in and occupying the extensions to rent. As with most methods of creating income, a tax liability is usually also created. The general rule is that any income earned from a rental premises will be liable for income tax, and must be included in an income tax return. This isn’t all bad news, as any expenses incurred in the process can be deducted off the income. When the space being rented is a part of the family property Manawatu, a calculation of the overall floor space of the entire dwelling must be done, followed by a similar calculation of the extensions to rent space. This is to determine what percentage of the total dwelling is occupied by the extension and enables the owner or their tax agent to calculate the portion of expenses that is attached to the extension, so it can be deducted off the rental income. This is an excellent strategy to create a separate income stream in a relatively short time frame. However, before any decisions are made, it would be prudent to contact a taxation specialist, as the laws are complex and any misinterpretation at the outset could be expensive further down the track.
 
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