For some people, homeownership can look like a one or two-bedroom apartment. For others, they may be looking for a bit more space, a quiet neighbourhood and yard for the dog. And although they are pre-approved to buy a single-family home, the monthly mortgage payments and upkeep can feel a bit daunting. As the cost of single family homes is on the rise, more people are looking for ways to still get that extra space while offsetting some of the costs by renting out their basement.
The benchmark price to buy a home in Calgary has increased nearly 30% since 2020. On top of that, mortgage interest rates have gone from around 1% to 5% in the same timeframe. It’s no question the cost of living has gone way up and people are starting to look for ways to enter the housing market without being limited to a condo paying hundreds of dollars each month in condo fees.
**Did you know that you can buy your next home with as little as 5% down? If your goal is to have an investment property and you already own a home, you can buy a new home with a minimum downpayment as long as this will be your new primary residence. So, let’s say you own an apartment but are tired of condo living. You can purchase a single-family home with a secondary suite with a minimum downpayment (you don’t need to put 20% down). You can rent out your apartment and the basement suite of your new home and now you have two sources of income!
With the recent influx of international and interprovincial migration to our city, we are faced with very low vacancy rates in the rental market. Many people are struggling to find affordable rental options as rental rates have also increased an estimated 36% in the last two years. The cost of renting a basement suite today can be anywhere from $1000-$2000+ per month.
The city has dropped the registration fee making it easier and cheaper to register your suite as a legal secondary suite. However, if you are building a new suite or converting an existing suite the cost can be extremely expensive – one contractor we spoke to said building a new basement suite could be in the range of $100,000 as they need to comply with all new building codes. An existing suite can be legalized a bit easier but still may in the tens of thousands of dollars, depending on what work is required.
With this in mind, you may also want to consider how long it will take to recoup your renovation investment. And will this type of renovation increase your property value? Some neighbourhoods may pay off more than others.
There are pros and cons to having a secondary suite in your home but the numbers are hard to ignore. With many basement suites charging $1,400/month or more – at a 5% interest rate, this can translate into $200,000 or more in extra mortgage qualifying! Please note lenders will typically only count income coming from legal secondary suites, not illegal suites.
If you are buying a home with an existing legal suite, all the work is done, it’s just up to you to find a tenant and start collecting rent. However, homes with legal suites are few and far between! Out of 1227 single family listings in Calgary right now, there are just 80 with legal suites, about 6.5%. And out of those 80, only 29 are below $800,000.
For a high-level overview of what needs to be completed to legalize a suite please check out the City of Calgary Secondary Suite website. Here are a few need-to-knows before you begin your search for a home with a suite that is not already legal and registered with the city:
- You may need a building or development permit
- You need to follow all city land use bylaws and building codes
- All bedrooms must have egress windows
- All walls separating the suite from the main dwelling must be sealed and air tight for fire safety
- New suites must have separate heating sources from the main dwelling
A wise real estate investor once told me “keep your problems close to home” meaning; you want to have easy access to your investment property in case it needs your attention. You can keep a very close eye when that investment property is literally under your feet! As a landlord you can also be qualified for certain tax breaks which will save you more money in the long run.
Having someone else pay part of your mortgage sounds like a dream, however, as your realtor I think it is important for you to consider the lifestyle of being a landlord. More people living under one roof can mean more wear and tear on your property – you may want to set aside some extra money each month to pay for any repairs. Sound can travel very easily between levels, all the insulation in the world still may not completely block out the noise between you and your tenants. The rental market may not always be as strong as it is today, so what happens if your suite is vacant for months or you need to reduce the rental rate in order to attract good tenants?
If you are thinking about buying your first home or an investment property, let’s chat!
– Parker
