How I Became My Own Landlord

(Originally Published April 2019)

Recently my wife and I bought our first house together in Kingsville Ontario. Now for me, this was a huge leap into a world I was perfectly happy never leaping into. I was a content renter and thought that I would rent forever, and if we didn’t end up pregnant at the time we did, that may have been my reality.

Now, when I was looking for homes, I found that the rent prices would be up in the $1800-$2500 range for the size home I required for my family in the area I was hoping for, though the choices were slim and gone quickly due to high demand. So, when I bought my home and found that the mortgage payment with a variable rate would be $1200/month + property taxes of $180, instead of the $1800-$2500 range, I had a thought that I ended up running with.

What if I rent the home, to myself?

Now on the surface, I know that doesn’t seem to mean a whole lot and seems a bit off but let me break that down in a little more detail for you.

If I was a landlord and bought this house as a rental property I would want to make some additional profit. So, If I assume I am paying $1380/month, and want to be making money I would need to charge more, but how much more?

First I wanted to factor in the rough estimate of the annual repair costs.

So what would those repairs cost?

I assumed that every year at a minimum I would need to do repairs valued at 1% of the homes value, so in my case with the home valued at roughly $300,000 that would be $3000/year or $250/month, so I wanted to make sure I factored that in.

Now I was at $1,630, but I still have not made any money off myself, and that just won’t do!

I decided, that if I am forking out $1380/month to the house, I wanted to earn back an additional 10% from my tenant (me) on top of the equity I was building, so that worked out to an additional $138/month.

Now, with the $1380 encompassing the mortgage and taxes, the $250/month in reserve for renovations and $138 in profit, I was at $1768/month (rounded to $1800) that I would be charging myself monthly to live in my own home.

At this point this is all nonsense until we actually do something with this number. So, what I did was set up my mortgage account (Much like most of you homeowners will have) and set up an automatic payment to go to that account of $1800 on the 16th of every month – this would be my rent payment to myself.

From that amount, I have increased my mortgage payment from the required $1380 to roughly $1520 which draws out of that account on the 17th of the month.

Having this additional profit applied to the mortgage has shaved years off my expected mortgage payment lifetime already (down to 18 years from 25), and that is before I go and raise the rent on myself every year!

The remaining $280 is left in the account on a monthly basis to grow and is only used for home improvements. If I find a surplus is building beyond the cost of a new roof, which I imagine would be my largest maintenance expense, I plan to apply that to my mortgage at years end.

However, since this is year one and I am already quoting a new air conditioning unit, that may not be the case for several years to come…

I realize this may not work for everyone, and have suggested several alternatives to clients of mine, but this is what works for me.

Thank you for your time, and welcome to my world!