Posted by Maryann Quenet on Friday, August 8th, 2025 2:10pm.
Have you ever wished your home could help pay for itself? In the Greater Toronto Area’s high-priced housing market, many homeowners and buyers are exploring exactly that idea through “house hacking.” This trend has gained popularity as real estate prices have soared – people are finding creative ways to generate income from their primary residence to offset mortgage payments and other costs.
For aspiring homeowners, house hacking can make that first purchase more affordable, and for existing homeowners, it can turn unused space into a source of monthly cash flow. Done right, house hacking can significantly reduce your housing costs and accelerate your equity gains, but it also comes with responsibilities and rules – especially in cities like Toronto. Let’s dive in and see if this approach might work for you.
House hacking means renting out a part of your primary home to generate income – effectively “hacking” your housing situation so that someone else’s rent helps pay your bills. Unlike buying a separate investment property, house hacking usually involves owner-occupied properties where you live in one portion and rent out another. The rental could be a basement suite, a spare bedroom, a garage apartment, or a multi-unit property like a duplex or triplex where you occupy one unit. The extra income from tenants goes toward your mortgage, property taxes, utilities, and maintenance, thereby reducing your out-of-pocket housing cost.
This strategy has become especially appealing in expensive markets. Toronto and the GTA have seen relentless price growth, making traditional homeownership tough for many – but by factoring in tenant income, buyers can qualify for larger mortgages or afford homes that would otherwise be out of reach. Existing homeowners are also jumping on board: with high interest rates and inflation, renting out part of the home can ease financial strain. House hacking essentially turns your home into a quasi-investment property while you live there.
Not all homes are equal when it comes to house hacking. Generally, you want a property that readily accommodates a separate living area. Here are some common approaches:
Duplexes, Triplexes, and Fourplexes: Multi-family homes with two to four units are ideal for house hacking. You can live in one self-contained unit and rent out the others. These properties already have separate kitchens, bathrooms, and entrances for each unit, offering you privacy and a true landlord experience. In the GTA, purpose-built duplexes/triplexes exist in many neighborhoods, or you might convert a large single-family home that’s zoned for multiple units.
Homes with Basement Apartments: A very popular option in Toronto is buying a house with an existing basement suite (or creating one). A legal basement apartment can generate significant rental income, often enough to cover a substantial part of the mortgage. Many bungalows and two-storey homes in the GTA have basement units, but it’s important to ensure they meet safety codes (more on legality later). If done properly, the tenant enjoys a private lower-level apartment, and you retain the main floor for yourself.
Secondary Suites and Coach Houses: Besides basements, some properties have garage lofts, laneway houses, or in-law suites. For instance, a detached garage in Toronto could be converted to a rental studio (laneway suite), or a home might have an above-ground addition with a separate entrance. The City of Toronto has programs encouraging laneway and garden suites as gentle density. If you have space and permission to build one, it can be a great house hack: you live in the main house and rent out the secondary unit.
Room Rentals in Your Home: The simplest hack is renting out a spare bedroom (or two) in the home you occupy. This is common for young homeowners or condo owners – for example, buying a two-bedroom condo and renting the second bedroom to a roommate. While it’s an easy way to get started (minimal renovation needed), it offers less privacy since you’ll be sharing common areas with your tenant. Still, it can work well especially if you find a compatible roommate. Some even host international students or use services like Airbnb (subject to local short-term rental rules) to monetize extra bedrooms.
Each strategy has its nuances, but the goal is the same: generate rental income to offset your mortgage and housing costs. For example, a homeowner in Mississauga might rent their basement for $1,500/month – which could cover a large chunk of a monthly mortgage payment. Over time, this can save tens of thousands of dollars and help pay down your loan faster.
House hacking can sound like a dream – who wouldn’t want help paying the mortgage? – but it’s not all free money. You’re effectively becoming a small-scale landlord, which comes with trade-offs. Let’s break down the key pros and cons:
Pros:
Significant Income Generation: The most obvious benefit is extra cash in your pocket. The rent from tenants is essentially passive income that can go straight toward housing expenses. This can drastically reduce your cost of living. Many house hackers manage to live for the equivalent of renting, but they’re building equity at the same time – a win-win.
Accelerated Equity and Investment Growth: By using rental income to pay down your mortgage, you build equity faster. You might even choose to make additional mortgage prepayments with the rent. In a way, your tenants are helping buy the house for you. Meanwhile, you benefit from any property appreciation. It’s a powerful wealth-building strategy: tenants effectively subsidize your asset purchase.
Tax Advantages: When you rent out part of your home, you may be able to deduct a portion of home expenses (like utilities, repairs, property insurance) against that rental income on your taxes. Also, interest on the mortgage portion used for the rental unit could be deductible. Always consult an accountant, but some house hackers see tax benefits that improve the overall financial gain.
Experience as a Landlord: If you plan to invest in real estate down the road, house hacking is a great way to learn property management on a small scale. You’ll gain experience finding and dealing with tenants, handling maintenance, and understanding landlord-tenant laws, which can prepare you for owning additional rental properties in the future.
Potential Home Value Increase: Improvements made to create a legal rental unit (like a basement reno with second kitchen, separate entrance, etc.) can raise your property’s value. A home with a finished, legal suite often sells for more because of the income potential. So, you could reap the rewards when you decide to sell.
Cons:
Reduced Privacy: Sharing your home – whether it’s a portion of the house or just a room – inherently means less privacy and more noise. Even with separate units, you’ll be aware of each other. Some people find it intrusive to have tenants living on the other side of the wall or coming and going on the property. You need to be comfortable with a stranger (or acquaintance) living in close proximity.
Landlord Responsibilities: Earning rental income is not “free” – you become a landlord and must manage the rental. This includes advertising and vetting tenants, collecting rent, addressing repair requests, and possibly dealing with late payments or disputes. Ontario’s landlord-tenant laws are strict, so you must follow proper procedures. There is paperwork (lease agreements, inspections) and ongoing management involved. If something breaks in the rental unit, it’s on you to fix it. Essentially, you’re running a small business from your home.
Upfront Costs and Effort: If the unit isn’t already set up, you may need to invest in renovations to create a rental suite – putting in a kitchen or bathroom, adding a separate entrance, etc. These can be costly upfront. Even a spare room might need new locks or furnishings. You’ll also likely need to update insurance policies to cover a renter (which can raise premiums). Factor in these costs when calculating the benefit.
Regulatory and Legal Compliance: Perhaps the biggest pitfall for would-be house hackers in the GTA is the myriad of regulations, zoning bylaws, and safety codes surrounding rental units. For example, the City of Toronto requires that basement apartments meet specific fire code standards (proper exits, fire separation, alarms) and be registered. It’s estimated that about 80% of basement apartments in the GTA are not fully legal, which poses risks. If your rental unit isn’t legal and up to code, you could face fines, be forced to remove the unit, or be liable if a tenant is injured due to non-compliance. This means you must be diligent in obtaining permits, renovations to code, and possibly hearings for zoning variances if needed. It’s a hurdle that cannot be ignored.
Tenant Risks and Vacancies: There’s always a chance you end up with a difficult tenant – someone who pays late, causes damage, or disturbs you. Evicting a problematic tenant in Ontario can be a lengthy process. Additionally, if your unit is vacant between tenants, you lose that income until you find a new renter. Your overall financial plan should account for potential vacancies or issues (e.g. have some savings buffer).
Tax Implications on Sale: One often overlooked aspect: renting part of your home can affect the primary residence capital gains exemption. When you sell your home, normally any price gain is tax-free if it’s your principal residence. But if part of the home was used to generate income, that portion might not qualify for the full exemption. For example, if 25% of your home was consistently rented out, 25% of the capital gain when selling could be taxable. There are ways to mitigate this (like not structurally separating the units, or moving back into the whole house for a period before selling), but it’s something to be aware of when you decide to cash out.
As you can see, house hacking has powerful benefits but is not without challenges. It requires a certain mindset – you must be okay acting as a landlord and sharing your property. Many GTA homeowners find the trade-off well worth it for the financial freedom it can provide, but it’s important to go in with eyes open.
Because of the regulatory piece mentioned above, let’s emphasize the legal aspect: if you plan to rent out a portion of your home, ensure you do it legitimately and safely. Municipal bylaws in Toronto and surrounding cities have specific requirements for secondary suites (basement or otherwise). Key points to consider:
Zoning and Registration: Not every home is allowed to have a secondary unit, though Ontario law has pushed cities to permit them in most single-family zones. Toronto, for instance, now broadly allows secondary suites, but you still need to register the unit with the city and meet criteria like parking space, minimum ceiling heights, etc. Homes with existing suites built before certain dates might be grandfathered. Always check local zoning rules or consult with a housing professional.
Building and Fire Codes: A rental unit must comply with the Ontario Building Code and Fire Code. This means proper egress (exit) windows or doors, fire-rated drywall between units, interconnected smoke alarms, safe electrical installations, etc. It’s wise to hire a professional inspector or contractor who knows the code requirements for basement apartments. As one Toronto real estate lawyer noted, if you see a listing mentioning a “retrofit” basement apartment, find out what’s missing and what it would take to legalize it. Getting inspections done (fire, electrical) and a letter of compliance is part of legalizing a suite.
Permits for Renovations: If you’re creating or altering a suite, get the necessary building permits. Not only is it the law, it ensures the work is done safely. Unpermitted work can lead to orders to undo renovations – a nightmare scenario to avoid.
Landlord Obligations: As a landlord in Ontario, you must follow the Residential Tenancies Act. That means using proper leases, adhering to rent increase guidelines, respecting tenant privacy rights, and providing a safe dwelling. You cannot just kick out a tenant because you feel like it; there are rules. It’s crucial to familiarize yourself with these or hire a property manager if needed.
Insurance and Liability: Inform your home insurance provider if you take on a tenant. Regular homeowner insurance might not cover damage or liability related to a rental situation unless you have it specifically included. Yes, your premium may rise, but it’s worth it. As noted, if a tenant is injured (say, slips on their private entrance stairs), and you had an illegal unit or didn’t disclose it to insurance, you could be personally liable. Protect yourself by doing it by the book.
In summary, house hacking is a powerful tool to make GTA homeownership more attainable and sustainable. By offsetting expenses, it can turn a tough housing market into an opportunity for financial growth. If done responsibly, you can truly live for less while building wealth through your home.
Interested in finding the perfect property to house hack, or need advice on adding a rental suite to your home? The Johnson Team can help make it happen. We pride ourselves on creative strategies just like this that enable our clients to achieve their real estate goals.
Ready to explore this strategy or any other real estate plans? Please contact us today to start working with an agent right away.