Creating a rental unit can pay off
Adding secondary suite can reduce homeowners’ mortgage costs
With their two kids headed to university, Kathryn and Scott Monger weighed their future as empty-nesters.
They discussed whether to downsize from the two-storey house in Scarborough they bought new 11 years ago, or whether to renovate it.
“We considered the costly expenses of moving, the future possibility of boomerang children, and our aging parents before deciding to renovate our unfinished walkout basement and add a second suite,” says Kathryn. As well as providing extra income, their decision meant they’d have backup accommodation if one of their children or their parents needed it.
They spent $88,000 to create a legal, 400-square-foot basement apartment. That included $75,000 for work by GTA renovation company Penguin Basements, a gas fireplace, new French doors, appliances and fixtures. The apartment will rent for $1,390 a month, including utilities.
Guy Solomon, president of Penguin Basements, says adding an apartment makes sense in terms of return — it can help first-time buyers or young families offset the cost of ownership with extra income and provide empty-nesters like the Mongers with additional funds.
“Even if it costs you $100,000 to build a secondary suite and it adds $450 a month to your mortgage payment, you will get $1,000 to $1,700 a month in rental income,” says Solomon. His company does approximately 500 basement renovations a year and about 20 per cent of those are basement apartments.
“We’ve seen a steep climb in interest,” he says.
Solomon says it’s important to take time to properly plan a secondary suite and to understand the full scope of work. It also is wise to consult with a financial adviser. As well, ensure it’s a legal apartment that meets building and fire code standards — it will cost more initially, but you won’t run afoul of municipal bylaws, the space will be safe for tenants and it will secure your investment.
He says about “97 per cent of queries about creating basement suites are feasible,” and each one depends on how much money is available to be spent. The biggest costs are adjusting ceiling height and creating an entrance.
If your house’s exterior wall is within 1.2 metres of the lot line with the next-door property, you won’t be able to build a walkway. There’s also a limiting distance that restricts how many windows can face a neighbouring house (fire transfers faster through glass). You will also need adequate egress — a provision for escape from the apartment. You may need committee of adjustment permission for extra parking spaces.
“If you’re thinking of adding an exterior door leading to the basement, there’s the excavation, pinning to the foundation, adding a railing, waterproofing and a drain,” Solomon says. Creating a walk-out from the basement costs about $18,000 to $30,000, he estimates.
“If you can find a house that has a back entrance — amazing. We also like houses with side entrances,” says Solomon, as stairs to the basement can be easily blocked off from the main level. But it also means the homeowner will need a vestibule built at the bottom of the stairs to allow access to the mechanicals, with another door opening to the tenant’s apartment.
Toronto real estate broker and blogger David Fleming isn’t a fan of creating basement apartments in existing houses. “There are tens of thousands who will disagree with me, but I personally don’t like adding one because I like to keep my business and personal life separate. I also find that TV shows completely lead people astray. It’s going to cost twice as much as you think and take three times longer.”
He also says often — especially if a couple is younger — they are going to wish they had that space for their own use in the future. “They may have spent $40,000 to build the apartment, then when they have a second child, they’ll need the space and have to spend again to convert it back.”
However, Fleming is in favour of buying a house that already has a turnkey basement apartment with rental income that allows people to buy in areas they wouldn’t otherwise be able to afford. He also likes that rental income from a secondary suite can dramatically reduce homeowners’ mortgage costs.
The Mongers, meanwhile, are pleased with their basement renovation. While the basement framing, drywall, plumb- ing rough-ins for two sets of laundry and a new bathroom and the electrical work was completed in a week, the finishing stages took a lot longer.
After passing all inspections, the Mongers’ basement suite was leased to a tenant this past Aug. 1.
A few tips about adding an apartment:
Get several estimates and follow up on referrals provided by the contractor.
Ensure everything you want is detailed in the contract. Don’t accept verbal promises.
Be as detailed as possible with specifications for the project and ensure you double-check things at each stage