Basic Suite Topics – Page 2

The 5 Things Your Home Needs to Have Before You Suite It

You have thought about if a secondary suite is right for you and decided that you want to take the plunge, Congratulations! There are lots of great houses on the market, but not all of them will be great for adding a legal suite. You can of course look to buy a home that already has a suite in it, but most of these are not legal, and if you get reported by neighbours or tenants the city can shut you down. And those that are already legal can have a high price tag.

There are many homes that have the potential to become great income properties, and all it takes is a bit of research and a good eye to see a diamond in the rough. As you look for your perfect investment property or “house hack”, keep the following criteria in mind to make sure you set yourself up for success.

1. Your House is Properly Zoned for a Suite

In each city zoning regulations are a little bit different. Cities like Edmonton have it the simplest, where any residential property can contain a secondary suite. Calgary, Vancouver, and Toronto however need to be zoned in a specific sub-zone (ex; R1, RT-1) that allows for multi-family dwellings. The best thing you can do is search your cities website, or call their number to get the zoning criteria.

Knowing the proper zoning criteria can help you filter your searches for houses that fit within your cities guidelines. Many realtors have programs that will only show you houses with the proper zoning. You can also check websites like mls.ca to look for homes on your own in areas that you know have the right zoning.

If you are currently living in a home that you would like to suite but it is not zoned properly then all is still not lost. You can always apply for an exception through your city council. A lot of times this also involves connecting with your neighbours to get their approval of having a suite.

Some neighbours might not like the idea of having multifamily homes in their neighbourhoods. The Calgary Journal did some research on secondary suites that were appealed, and found that the top two reasons for neighbours appealing had to do with privacy concerns, and benchmark number 2…

2. Have Plenty of Parking

When you are looking to buy a home with a suite, parking is something that you need to take very seriously. We recommend making sure that there is at least parking available for 4 vehicles around or within your property lines. An example of this could be a lane home that has a parking pad on the back of the house that can house 2 cars, and street parking at the front of the house. Or a corner lot with a front facing garage and parking on the side of the house.

Parking is a really big deal, and if you want to keep your tenants and neighbours happy then make sure that the home that you buy has plenty of parking spaces. If the house you are looking at does not seem to have many parking spots then it is not a home worth purchasing, even if it has the proper zoning.

3. Needs a Separate Entrance

When looking for a home to add a suite into, having separate entrances are one of the simplest ways to decide if a house is worth viewing or not. Houses with walkout basement entrances are ideal, or homes that have a door that leads directly to stairs that take you to the basement work too.

That is not to say that having a single entrance never works however. If the entrance to a home can be separated into a common space with an inside door leading to the upstairs and another door leading to the suite downstairs then this could also work for you. However, if the only way to get to the basement is through stairs in the middle of the house then adding a basement suite is usually not worth doing.

You always can core out a door on the side of a house, but the costs of doing so are pretty high, and I would not recommend doing this on your first investment home.

4. Has Big Enough Windows in Basement Bedrooms

This is not just about providing natural light into a home. Safety is the name of the game when looking at windows. The main reason why there are so many regulations to follow is because Cities want to make sure that the places that people live in are safe. If a fire were to break out in the basement and a tenant was trapped in their room how would they get out? The windows of a bedroom have to be large enough for an adult to escape from.

Those regulations vary by small amounts from city to city, but a general rule of thumb is about 4 square feet or larger. If you look at a window and think “I can’t get out of that” then it is probably too small. Making windows larger is also an option, and it costs less than a door, but you may have to add window wells if you need to dig deeper.

5. The Mechanical Room is Accessible

This is actually less of an issue now in some major cities like Calgary, but in quite a few cities through out Canada your mechanical room (or at least the electrical panel) needs to be accessible for both upstairs and downstairs tenants. That means that if your mechanical room is located in an area in your basement that can not be easily turned into a common space then you will have to get it moved to a space that can be. This can be an absolute deal breaker for many homes.

Fortunately these rules seem to be changing. In Calgary, for example, so long as the basement suite tenant, and landlord, can access the mechanical room, all that you need to do is add a clause in your contract saying that you will access the mechanical room within 24 hours if requested by the upstairs tenant. This means that if a power breaker flips, your upstairs tenant needs to contact you or the basement tenant, and it has to be fixed by the next day. Inconvenient for the upstairs tenant, yes. But this change alone has meant that so many more homes have the potential to now be suited. This is amazing news for real estate investors, and a small price to pay in the long run if it means more legal suites in a growing city.

If you are unsure what the rules are for your city, the best thing to do is give the building and development department a call. They normally do not have this information readily available online.

To Sum it Up

Zoning, parking, entrances, windows, and mechanical rooms. This could sound like a big and scary list to remember as you are looking to find the right home to suite. It takes some pre-work to find the perfect home, but if you take the time to make sure your house can meet these requirements then you will have a more enjoyable suiting process.

Stick with Second-Suite to learn even more about suiting your homes, and as always feel free to share your stories in the comments bellow.

How Much Money Should You Put Towards a Down Payment of a Rental Property?

How Much Money Should You Put Towards a Down Payment of a Rental Property? When it comes to down payments there is no definitive answer on how much you should pay. How many properties you own, your current financial situation, and how close you are to retirement all have an impact on what decision you might make. In this post we will be looking at 3 different downpayment options, their pros and cons, and what we would recommend to you.

1. 20% Down Payment

This is the most popular downpayment option that many people choose when they are buying a home, as it is the minimum that you can put down without being considered a high-ratio mortgage. In fact, it is so common, that many new homeowners do not even realize that they can put down a percentage more or less than 20%. Although 20% is the standard, is it actually the right choice?

Pros

The biggest benefit is that you will not need to pay for mortgage insurance if you are at 20% or above (like CMHC) on your home.
Your monthly mortgage payments will be less than if you had a high-ratio mortgage.
Reduces risk if you can not pay back to loan or have to sell and housing prices have dropped.

Cons

There is a large upfront cost. 20% of a house is not affordable for everyone. Buying a $400,000 home means that you need to have $80,000 sitting around. This is a big challenge for first time home buyers.
That money is sitting in the house instead of being invested elsewhere.

2. 5% Down Payment

This is the lowest amount that you could put toward a mortgage (in most cases), and doing so put you in the category of a “high-ratio” mortgage. When you put less than 20% into a down payment you will need to get CMHC insurance (Genworth or AIG or also options, but their rates are usually worse). Basically, a premium is added on top op your mortgage

Here is the basic example; You buy a house for $300,000 and put 5% down ($15,000). For CHMC to insure your mortgage they require a 4% premium on the amount owed ($285,000). 4% of $285,000 is $11,400. This $11,400 is added to the mortgage total so your mortgage becomes $296,400. In this example you are adding an extra $38 a month to your mortgage payments. If you want to learn more about this the Government of Canada has an article all about it here.

So is it worth doing this?

Pros

You get into a home sooner. For many first time home owners, this is the only way to get into owning their first home in a reasonable time.
Instead of having that excess money sitting in your house, you could invest it in another property (or other wise investment).

Cons

CMHC is an added cost.
Only putting 5% down means that your mortgage payments will cost you more.
You have to live in the house (upstairs or downstairs suite) to be allowed to take advantage of the 5% down option. You can however move out of the home after a short period of time and still reap the 5% downpayment benefits.

3. Put as much as you can down

This option involves putting as much as you can into the down payment of your home (or just paying for the whole house in cash). For those of you who absolutely hate the feeling of being in debt then this could be a wise choice for you.

Pros

The more money you put down, the less interest you pay.
Your monthly mortgage payments will cost much less.
You will gain more monthly income from the house sooner.

Cons

The money that you have in the house in not being invested elsewhere.
Most people cannot afford to put a large lump sum of money into a home.

What is the right option for you?

The answer to this question ultimately depends on a few factors. Mainly being your current age, available funds, and your risk tolerance.

If you are a younger person, who has more tolerance to risk, I would recommend putting 5% into a downpayment. The CMHC, and higher monthly mortgage costs are there, but if you are investing in a home with a secondary suite, then your monthly mortgage cost sees a significant reduction. My wife and I were able to buy our first home in 2014 at 5% down, and were able to quickly save up and buy a second home in 2016 at 5% down as well. Our first home is now paying for itself, and we are paying only a third of the mortgage on the second house due to renters. Putting 5% down has allowed us to do more with our money, but it is not without its risks. If a tenant moves out, and the house is empty for a month or two, I have to foot the bill. So it is always worth while having an emergency fund on hand if you go down this route.

If you are looking to invest in homes later in your life, then I would recommend putting down as much as you can, and ultimately feel comfortable with. The goal for you is to get the homes paid off in 10-15 years instead of 25, so that you can use the income property as an income generator at, or before retirement.

Buying a house as a rental property is first an foremost an investment, and the most important thing is to think about what will give you the best value for your dollar.

Please share your thoughts in the comments below!

Basement Suite Ceiling Regulations for Calgary, Vancouver, and Toronto

Before you build a legal secondary suite you will want to make sure that the space is meeting all of the legal requirements. Ceiling height requirements can be a simple thing to overlook, but are extremely important to get right (especially when you have to deal with ductwork or stairs). Fortunately, regulations have recently changed, meaning that hitting this requirement has become easier than ever. Read below to learn about the ceiling requirements for basement suites in Calgary, Vancouver, and Toronto.

If you want to learn more about adding a legal basement suite to your home check out Legal Basement Suites: Calgary – The First 4 Steps.

Calgary

In Calgary, the regulations have recently changed, allowing basement suites to have a minimum height of 1.95m (6 feet 4¾ inches).

Ceiling heights can be reduced to 1.85m (6 feet 0? inches) where ductwork and beams make drop ceilings necessary.
Doors within the suite may be reduced to 1.89m (6 feet 2? inches) where required.

Just a few years ago regulations said that ceiling heights had to be a minimum of 6 feet 10½ inches. This means that more houses than ever are capable of becoming legal suites.

Vancouver

Vancouver has also stated that they have relaxed their ceiling height requirements recently, although they are still less lax than Calgary is.

A minimum existing ceiling height of 1.98m (6 feet 6 inches) is required over 80% of the suite area and all exit routes.

The wording on their regulations is a little bit different. Vancouver’s minimum requirement is still easily achievable in most basement suites.

The real question here is what about the other 20% of the suite area? Vague wording like this is usually done on purpose, as it allows for more case by case decisions to be made, depending on the property. The 20% of the area is most likely accounting for ceiling height dips due to ductwork or beams as well, but it does not give a specific minimum. You will want to chat with the Development and Building Services Centre (604-873-7611) to get the right information on your unique property.

Toronto

Finding regulations for legal secondary suite requirements in Toronto has been a bit of a challenge. I have still not been able to find official guidance on the City of Toronto website, but I have been able to find enough sources stating the same number that I feel confident in the answer. You can find the sources here, here, and here.

The minimum ceiling height is 1.95m (6 feet 5 inches).
The main entrance must be at least 32 inches by 78 inches.

That is is. The city does not give any guidelines on what to do about ductwork or beams, so you will want to make sure that you call the city about any questions in this area. Their general inquiries number is 416-397-5330.

Conclusion

In Calgary, Vancouver, and Toronto, ceiling height requirements should not create too many issues for you. Even in Toronto, where the regulations say that the lowest a ceiling height can be is 6’5″ this is more than doable. With proper planning, and careful consideration on secondary heat sources, you should be able to achieve the ceiling height requirements.

If you have any questions or comments please feel free to share them!

The Hidden Costs of Investment Properties

We believe that owning an investment property is a great decision for many people. There are some hidden costs that investors do not consider when looking to get into rental properties, and we will take a look at them today.

Maintenance and Upkeep

This is a big hidden cost of investment properties that many people overlook. According to the US News the average homeowner spends between 1 and 4 percent of their homes value on maintenance and upkeep. The older that your home is the higher some of the costs can be. Our second home was built in 1978, and there are a few updated that we will need to be making in the upcoming years. We need to replace the fence and update the backyard this summer, and will need to re-shingle the roof in the next 5 years. Both of these project will cost between 4-10K dollars each.

Of course, you don’t have to put money into up keeping your property, but doing so will have a negative impact on the amount of rent you can get, and the type of person willing to rent from your hovel. Home upkeep is always worth doing.

And make sure that your keep all of your receipts! The benefit of maintenance and upkeep on a rental property is that it is all tax deductible! This is a business expense!

Property Tax

Even though you may not be living on the property, you do still have to pay property tax. If you want to find out what your yearly property tax will be you can check it our here for Calgary, Vancouver, and Toronto.

You will want to make sure that you incorporate your property tax into your monthly mortgage payment costs so that you can accurately decide on a fair rent.

Income Tax

Yes, the money that you get from your rent is taxable. Some people skirt this by getting paid under-the-table, especially with illegal suites, but please trust us, it is not worth it.

If you are interested in turning your illegal suite into a legal one learn how to get started here.

If you have a spouse, you can split the income between the two of you if you both have ownership in the house. Before you make any decisions in this area however, I would highly recommend that you talk to a chartered accountant on how to best organize your investment properties.

Conclusion

We hope that you feel more prepared for the costs that are involved in rental property ownership. Wit this knowledge you should be able to better judge your properties and make sure that you can make the most amount possible with them.

Happy renting, and tell us your stories in the comments!