# What are the pros and cons of renting below fair market value?



## Edgar (Mar 24, 2014)

Hey all,

My brother will be renting his basement to his stepsister for the next few years. Someone at his work recommended that he charge less in order to capitalize on the some tax perks that he otherwise wouldn't receive. As the financially savvy one in the family, he came to me for advice, but I honestly know nothing about this. I did a bit of reading on the subject, but I think I'm going to recommend that he speak to a specialist about this rather than myself. In case he doesn't, I'd like to give him some information so he at least has some information if forgoes my advice.

What are some of the pros and cons of renting below FMV? (I'm assuming that above FMV, you'd want to charge as much as possible). Also, is there a method to determine FMV beyond looking at comparable prices on kijiji?

Thanks for any help.


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## TomB19 (Sep 24, 2015)

There are some cons.

When you rent to a family member for a low rate, it is inevitable the person will move out on their schedule, as their life dictates, and the landlord family member will find the suite less clean than expected and with more wear and tear than expected. Every time the stepsister takes a 30 minute shower and drains the hot water tank, it will get under his skin. When you give someone a sweet deal, you tend to expect people will respond by treating the suite better but it's the opposite. For the renter family member, it's easy come, easy go.

Find the FMV range and charge the bottom of it. It will save hard feelings.

IOW, if the suite is worth somewhere between 800~1000, charge $800.

Don't forget, in 5 years, that brand new suite is going to have some wear and tear. The next tenant won't pay quite as much and he may not attract as good a renter. Suites have a life cycle and the revenue needs to track that.


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## Spudd (Oct 11, 2011)

If you rent it out for less than FMV to a family member, you don't have to pay tax on it, as it counts as her "chipping in" to the household expenses rather than actually renting.

If you rent it for FMV or above, you pay tax, but you also get to deduct expenses (i.e. if her area is 50% of the floor space of the house, you'd be able to deduct 50% of your property tax, utilities, mortgage interest). 

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/fmv-eng.html


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## Berubeland (Sep 6, 2009)

I could not recommend it at all. Just don't do it. 

Renting is a business. Keep your business and family separate.


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