Basement Suites worth it???
I am a fan of maximizing my dollars in whatever capacity possible while maintaining sanity and lifestyle. I find basement suites a way for this to happen.
I am a fan of legal basement suites…. illegal and non-conforming are awesome too on a cashflow perspective but come with a bit more risk. All things considered, I like them.
Basement suites are not for everyone though. I have friends with kids and they have learned to despise the basement suite because they are consistently feeling bad for the tenants below. As their kids jump off the couch and rattle the lights downstairs, or scream as they trip, fall and smash their head on the coffee table. My friends instantly care for their child, but at the back of their mind they feel bad for their tenants below. These are real life problems as an upstairs tenant or basement tenant. If you can mitigate these issues as best as possible, or learn to be numb to feelings of guilt for the basement tenant…you have yourself a sweet cash flowing property that you will enjoy!
How to make this happen?!?!
Here is a quick example:
$280,000 home in a neighbourhood that allows legal suites. Purchase the home with a purchase plus improvements mortgage adding $40,000 for basement renovations. You hire a contractor to suite the basement for you and ensure it is legal (if possible) and beautiful for your future tenant.
Total cost $320,000 x 5% down = $16,000. Total mortgage after CMHC = $314,944
Monthly payment: $1440/month + Property Taxes $250/month + $300/m utilities + $100/m house insurance. Grand total: $2090/month.
Rental income from new legal basement $1100/m (includes utilities)
$2090-1100 = $990/m.
WHOA! You get a $320,000 home for $990/m all in. That is incredible.
To find a home with no income suite that allows you to have costs at 990/m (mortgage, taxes, utilities, insurance) would be priced at $125,000! That is staggering! It also allows you to have a newly renovated home in the basement which may have increased your value beyond the $40,000 inputted. Although, that would be considered bonus. Do not do this plan for increased home value. Your primary purpose should be cash flow, and the ability to pay down your mortgage dramatically faster for even greater cash flow. We cannot control the market and how homes are priced short term and long term…but we can control a homes ability to generate cash flow.
I live in Lethbridge, and this is the city link for basic information: http://bit.ly/1QOUmfx
Those reading this not located in Lethbridge, search out your cities website in the development or permit section to get more details. They should all have a section for it.
As a fan of basement suites and an owner of a legal suited property, I had been through the process. I would be happy to share some of the insights I have learned going through the process and some of the amazing trades our city has to help with this. Email or call me (my contact info is on the home page). I may do a post later on about the process in future months if demand is there. Let me know.
On a final note, basement suites make good long term revenue sources whether you live there or not. If you end up keeping the home you will now generate income up and down allowing you to afford even more for your next home purchase. In the example above, your costs were $990/m. If you rent out the main floor for $1300/m, this would allow you to profit $310/m after all costs including utilities! Not bad. You do need to manage two tenants now, which can be a pain for some. Although, that “pain” now earns you a potential $3720 of annual profit. This pays for that family trip you wanted, meanwhile the tenant has been paying down your mortgage principle as well. Double win!
Random tips for legal, non-conforming, or illegal suites.
- Insulate the heck out of common walls and floors. 🙂 Especially your main floor, which is their ceiling. Roxul insulation is magic and worth the cost. Jam as much as possible in between that common area.
- Invest in the thickest and densest wooden door that separates the suite from your main floor suite (if there is one). If you are retrofitting a single family home into a suited home, there will be a door into their space. Some drywall over this, and others leave the door. If you decide to keep the door, pay the extra bucks so noise does not transfer through as well. Also put weather-stripping all around the door for added privacy for both of you.
- Whenever possible, have the entrance to the suite towards the front or the side of the house. This allows you to keep your backyard, yours. This is good for both parties.
- Take pride in your basement suite and make it look good. The better the suite, the better the tenant. Typically this translates into maximum profit as well, and minimal time invested dealing with problematic tenants or short term tenants.
- If you do a legal suite, you will have a separate heating source for the basement. This means you will not share the same heating vents that are notorious for transferring sound from upstairs to downstairs. This cuts down almost 100% on conversations being heard, music being heard, or “night time activities”. Once again, a HUGE win for everyone.
That’s all for now! Good luck in choosing your suited properties!