How to determine how much to charge your business for rent (in your house)?
Your best approach is to assess rent levels in your local area for offices of a similar size. You need to take into account all the usuals - amenities, parking, etc, just as if your home-office was provided by a third-party. Get your $/sq ft and work out the monthly amount. With this figure, you need to then work out what % of it you can charge. If the space is used exclusively for the business, charge 100%. If it's used about half the time, charge 50%, etc. I would strongly advise you to do two things - 1. make sure your accountant and your attorney help you get this squared away. 2. document everything about how you arrived at the cost. Nothing fancy, but dates, realtors, addresses, $/sq foot. A simple table will do. By doing these two things, if the IRS should come around to chat, you should be covered. "If you are talking about a home office, you don't ""charge"" the business anything. If the area is used exclusively as an office you pro-rate by square footage just the actual expenses.  TurboTax recent published an article ""Can I Take the Home Office Deduction?"" which is a must read if you don't understand the process. (Note: I authored said article.)" In Canada I think you'd do it as a % of square footage. For example: Then you can count 20% of the cost of the of renting the apartment as a business expense. I expect that conventions (i.e. that what's accepted rather than challenged by the tax authorities) may vary from country to country. "In the UK it all comes down to what HMRC will allow you to charge without taxing you on the ""rent profit"" and not hitting capital gain tax when you sell the house, it may not all count as your ""main home"" if some is rented out.   (http://www.accountingweb.co.uk/ is a good place to ask this type of questions in the uk)" It depends on the structure of your business. Are you a sole proprietor filing Schedule C on your 1040, or an S-corp, or part of a partnership? The treatment of a home office will differ depending on business entity. To be confident in your solution, and get the best solution for you, consult a local accountant, preferably one who is specialized in taxes for businesses.  Or muddle through the code and figure it out for yourself.  The primary advantage in consulting with an accountant is that you can ask them to point out ways you can restructure your expenses, debts and income in order to minimize your tax burden.  They can help you run the numbers for the various options and choose the one that is right, numerically.
Determine how much you are going to save first.  Then determine where you can spend your money.  If you're living with your parents, try to build an emergency fund of six months income.  The simplest way is to put half of your income in the emergency fund for a year.   Try to save at least 10% of your income for retirement.  The earlier you start this, the longer you'll have to let the magic of compounding work on it.  If your employer offers a 401k with a match, do that first.  If not, consider an IRA.  You probably want to do a Roth now (because you probably pay little in taxes so the deduction from a standard IRA won't help you).   After the year, you'll have an emergency fund.  Work out how much money you'll need for rent, utilities, and groceries when you're on your own.  Invest that in some way.  Pay off student loans if you have any.  Buy a car that you can keep a long time if you need one.  Go to night school.  Put any excess money in a savings account or mutual fund.  This is money for doing things related to housing.  Perhaps you'll need to buy a washer/dryer.  Or pay a down payment on a mortgage eventually.   Saving this money now does two things:  first, it gives you savings for when you need it; second, it keeps you from getting used to spending your entire paycheck.  If you are used to only having $200 of spending cash out of each check, you will fit your spending into that.  If you are used to spending $800 every two weeks, it will be hard to cut your spending to make room for rent, etc. The rent will be determined by: the rent being charged on similar houses near you. Your mortgage and other costs (very unfortunately!) have no bearing, at all, on the price you will get. "The obvious advantage is turning your biggest liability into an income-generating asset. The downside are: (1), you have to find tenants (postings, time to show the place, credit/background check, and etc) (2), you have to deal with tenants (collection of rent, repairs of things that broke by itself, complaints from neighbors, termination, and etc) (3), you have to deal with the repairs In many ways, it's no different from running another (small) business, so it all boils down to how much time you are willing to invest and how handy you are in doing reno's and/or small repairs around the house. For profitability/ROI analysis, you want to assume collection of 11 months of rent per year (i.e. assume tenant doesn't renew after year, so you have the worst case scenario) and factor in all the associated expense (be honest).  Renting out a second property is a bit tricky as you often have to deal with a large operating expense (i.e. mortgage), and renting a basement apartment is not bad financially and you will have to get used to have ""strangers"" downstairs." "Okay so I am going to break this answer into a couple sections: Okay so first things first. Did you get a good deal? This is challenging to answer for a number of reasons. First, a good deal is relative to the buyers goals. If you're attempting to buy an asset that provides passive income then maybe you met your goal and got a good deal. If you're attempting to buy an asset that provides long term growth, and you purchased above market (I'm speculating of course) then you may have made a bad deal. So how do you determine if you got a good deal? Does your ""Gross Rental Multiplier"" equal that or is less than that of the average GRM in your area. The lower the better.  So how do you use the GRM to determine if you're getting a good deal? Divide your purchase price by the average city (or area) GRM and that will tell you what you should be getting annually in rent.  You can also use the GRM to determine if a future purchase is over or under priced. Just replace purchase price with asking price.  Alright, so these are the tools you can use to decide if you made a bad business deal or not. There are many ways to skin a cat so to speak. These are the tools I use BEFORE I purchase a home. Many people are penny wise and pound foolish. Take your time when making large purchases. It's OKAY to say PASS.  Okay next thing is this new purchase you're looking at. The number one rule when working a franchise is you don't open a second store until you have a perfect working model to go off of. If you've never had to file a tax return for your current rental. Then you need to wait. If you've never read your local and state rental laws. Then you need to WAIT. If you've never had to leave an event early, wake up in the middle of the night, or get a text while you're on a date from one of your tenants. THEN YOU NEED TO WAIT. Give it a year or two. Just learn the unknown about rental properties. Use your first as your test bed. It's WAY more cheaper then if you make a bad mistake and roll it over multiple properties.  Finally I will leave you with this. No one on this site, myself included, knows everything there is to know about real estate. Anyone that claims they do, send their ass packing. This is a complex COMPLEX business. There is always something to learn and if you don't have the passion to continue learning then hand it off to someone who does. There is tax law, rental law, city repair law, contract law and this doesn't even include the stuff that makes you money, like knowing how to leverage low or no money down loans.  Please take some time and go out and learn.  Good luck! -AR" You need to understand the business and the books as an owner do it for your parents also the manager could be the issue but it could a lot of things I’d like to see the quarterlies for the last 3 Years and a few other things like monthly statements payrolls some accounts etc... to do the math. it could be a partner? The only way to know this is to follow the paper trail. "From Rich Dad, Poor Dad. 3 Major Things: With rental real estate, in addition to mortgage interest, you also deduct property taxes, and must claim depreciation (cost of house / 27.5 years) Business Expenses. For example, buy a yacht and put it in a charter fleet. Deduct interest on the loan, depreciation of the asset, property taxes, upkeep of the boat. Your ""business"" earns profit from chartering the boat, which if I recall correctly is taxed at a lower rate. You get to go sailing for free. Then there was the concept of subdividing the businesses. If you own a restaurant, create another business to own the property, and the equipment used in the company. Then lease the equipment and rent the land to the restaurant. Now admittedly I thought this was like the Daylight Savings plan of tax avoidance, I mean now aren't you essentially having two companies paying half the taxes. I am sure there are well paid CPAs that make the math happen, perhaps using insurance plans.. Perhaps each business funds a ""whole life"" insurance account, and contributes vast amounts into that. Then you take a loan from your insurance account. Loans of course are not income, so not taxed. The third way is to create your own bank. Banks are required to have reserves of 9%. Meaning if I have $100 dollars, the FDIA allows me to loan $1,111. I then charge you 20% interest, or $222/yr. Now how much can I loan?  ...well you can see how profitable that is. Sure you pay taxes, but when you print your own money who cares? Most of this is just gleamed from books, and government publications, but that was my general understanding of it. Feel free to correct the finer points." first, let me reiterate what everyone else is saying about rental rates having nothing to do with your expenses. you should charge market rates. slightly higher if you want better tenants and slightly lower if you want to avoid prolonged vacancy. you can determine market rates by finding similar properties in your area and seeing what they are asking for rent.  you will need to adjust for location, square footage, number of bathrooms, etc. now that that is out of the way, here is a quick checklist of expenses that you will need to calculate and/or estimate for your specific property in order to decide if you should rent or sell: if you add up all of the above expenses and it's more than the market rates for rent, you should sell.  if the above expenses are below the market rates, then you need to consider if the profit margin is enough to justify the hassle and the risk. "If you're losing money or breaking even, you own a bad investment.  The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change.  Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the ""magic number"" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do.  Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more.  Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer.  Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner.  I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal."