Is it worth it?

JERRY LAGACE

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#1
My wife and I are debating buying an expensive house that has a basement rental apartment in it. We could technically afford the house without the rental unit although it would eat up quite a bit of our disposible income. We're new at this rental stuff and before even considering buying this property, we are looking for some feedback from anyone currently owning a home with a basement apartment and what tips or things we should consider. Basically, is it worth it?
Thanks
Jerry
 

CorySperle

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#2
I got started in Real estate this way and it introduced me to being a landlord so was worth it for me, and is a very smart way to reduce the costs of home ownership. Why buy an expensive house however, instead of a more modest one where rental income would not be a factor?
 

JERRY LAGACE

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I got started in Real estate this way and it introduced me to being a landlord so was worth it for me, and is a very smart way to reduce the costs of home ownership. Why buy an expensive house however, instead of a more modest one where rental income would not be a factor?
Thanks for your reply. Valid point concerning the cost of the home...what also has me worried is that this home has been up for sale for over a year already. It was built in 2016 and very well finished. Makes me wonder if potential buyers are drawn away from purchasing this type of home because of the basement apartment...which worries me down the road for resale.
 

ThomasBeyer

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#4
New tax rules make a gain on the rental portion of the house taxable although of course it is widely abused.

Rental income is a great way to get extra cash though .. and again it ought to be reported as taxable income but often is “forgotten” too.

A good idea in principle though.

Far tougher to sell with tenant in it, especially if illegal basement suite as many cities are cracking down on them, all the while moaning about rising rents and not enough renal properties. The odd buyer likes the extra income, but many do not li,e to have permanent company in the basement.

As such, weigh the upside and the downside and then decide what is right for you the next few years. Like many things in life, shades of grey and not black or white !
 
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CorySperle

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#5
Yes in general a tenanted home is more difficult to sell, as is often marketed to investors who are fewer and less mortgage options than homeowners could be one reason the house has not sold. The most likely reason is it is priced too high, so I would find out what the assessed value is and perhaps make a low offer as after a year the motivation to sell could be high.
 
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Alvaro Sanchez

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#6
Please note that homes with nanny suites are the most challenging to manage as noise, shared utilities, lifestyles, etc come into play. If you are flexible by having someone living that close to you then you should be fine. However, its great to have someone pay for your mortgage.
 
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Matt Crowley

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#7
It is a blend of personal and investment choices so the decision is a bit muddier. A basement suite not utilized for income can also be useful for guests or a live-in nanny depending on your lifestyle. All else equal, a basement suite obviously is accretive to the home's value. What I like about basement suites is that the home can carry itself if an opportunity comes up to move cities or job or just to a new home. Basement suite tenants can be great and helpful around the house. Generally, the quality of your suite is the quality of your tenant.
 
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Sherilynn

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#9
I got started with suited houses and they are still my favourite investments because the cashflow can be insanely good. As an added bonus, one can maximize start-up capital.

We bought our first property with low money down on a CHMC-insured mortgage. We lived in one suite and had the other renovated. Then we bought another property and did the same thing. (And again.) This way, we stretched our $85k in startup capital into 3 suited houses with great cashflow.

Cautions about suited houses:
  • Yes, they can require more management but good soundproofing and excellent tenant screening prevent most issues. Our rentals are virtually trouble-free.
  • An existing suite may not be legal (even if the seller claims it is) and therefore could be shut down by the City.
  • An existing suite may not have been professionally constructed and may have serious issues. Usually the worst issues are soundproofing and plumbing.
  • Yes, you will incur capital gains tax but only if you sell.
Advantages:
  • Vacancy isn't as big of an issue because the rent from one suite can cover most or all of the holding costs of the property.
  • Plus even if one suite is vacant, you don't have to worry as much about mowing, shoveling, or break-ins because there is still another tenant on site.
  • And - as mentioned - the cashflow is amazing. Aside from more money in your pocket, your debt-coverage ratio will be better, making it easier to qualify for more mortgages.
 

Sherilynn

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#10
Oh, I just noticed you are considering an "expensive" house. While all the points in my previous post could still apply, the price range of the house is a factor. There isn't as big of a market to sell suited luxury homes, but it still could make a fantastic rental.

We have a beautiful 1450 sf suited bungalow in a nice neighbourhood and we get insanely good rents. I wouldn't call the house "expensive" though.
 

CorySperle

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#11
Some very good advice above. For me my first home was suited as prior to that I always had roommates so never really noticed, but when I moved out and rented the other space the cash flow was amazing. If your able to move every so often, it's a very quick way to build equity.
 

lhartley

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#12
I built a suited home with higher end finishes as a single parent. During construction our quality control manager was bringing through her asian parents. One potential market for a luxury suited home are cultures that promote multi family living or generational living. Grand parents in the suite to take care of kids while other parents work. This is a potential market in some cities where some cultures promote more than one generation or family living in one home.
 
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housingrental

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#13
I will second Cory's post, excellent advice.
To add to them and lhartley's post, let us know where the property is located and price point.
If it is a smaller house in Waterloo (often for income) or Bramptom (often multi-generational living or income) a basement unit often adds value.
In the same area's above a certain price point it might not have much of an impact on valuation.
In certain area's of Toronto above that price point it will still improve valuation.
All real estate is local.
 

Jason Tomassini

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There are some real advantages to purchasing an expensive house with a basement suit that you will live in:
- when the markets grow if the percentage increase is the same across the market, your actual wealth will grow more with a more expensive place.
- if in a few years your family out grows the single unit you can take the other suit over. Presumably your personal income will higher at this point as your career is a number of years older so the affordability will be easier.
- or you can buy a new house using the equity in the first place for the DP and rent out both units.

My wife and I have rented our basement for a number of years without many headaches. The noise can be an issue but we try to find professionals that will be on a similar schedule as our family and it goes better. As always, diligent tenant screening is a must.

Sent from my SM-G930W8 using myREINspace mobile app
 

Jason Tomassini

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#15
There are some real advantages to purchasing an expensive house with a basement suit that you will live in:
- when the markets grow if the percentage increase is the same across the market, your actual wealth will grow more with a more expensive place.
- if in a few years your family out grows the single unit you can take the other suit over. Presumably your personal income will higher at this point as your career is a number of years older so the affordability will be easier.
- or you can buy a new house using the equity in the first place for the DP and rent out both units.

My wife and I have rented our basement for a number of years without many headaches. The noise can be an issue but we try to find professionals that will be on a similar schedule as our family and it goes better. As always, diligent tenant screening is a must.

Sent from my SM-G930W8 using myREINspace mobile app