All About Suites
The stock market is down.
Interest rates are rising.
Food costs more.
Gas costs more.
This is getting pretty exhausting, eh?
If only there was some way to bring in some extra income to help offset this. If only there was a way to rent out the unused space in your home!
In all seriousness, there has never been a better time to add an income suite to your house. With every 1% increase in interest rates, homeowners can expect their monthly payments to go up by $50 per $100,000 financed. So if you have $300,000 outstanding on your home and you're nearing a re-finance with an expected increase of 3%, that would result in approximately $450 more every month! With the price of everything else rising, where does this money come from?
A great way to offset these rising interest rates is with a legal secondary suite, and for a couple of reasons.
First, it makes sense as a long-term decision. A house with a legal suite will see around $40,000 returned in terms of home resale value immediately. Now, this may not help in the short term, but it is an added bonus in the long term when the home is sold.
Second, it helps out in the short term. A newly built, 1-bedroom legal suite will cost approximately $60,000 to $70,000 to build. This cost is the whole process from start to finish, including a separate heat source, appliances, kitchen, bathroom, final clean, etc. If your basement is already finished and just needs to be converted to a secondary suite, this number drops by almost half! This investment will return approximately $1,000 per month, give or take a hundred dollars or so, depending on location and size. If you choose to do a furnished rental, you can expect $1,200 per month and up. If you choose to rent it out as an AirBNB, I've heard of basements getting $2,500 per month! At the low end, your return is about $40,000 in resale value plus an additional $12,000 per year if it stays rented with minimal maintenance, a nearly 20% cash-on-cash return.
Assuming your mortgage is about to rise by $450 per month, it would be pretty nice to have that taken care of by a basement tenant, plus an extra couple hundred dollars to cover everything else that costs more.
Aside from basements, a garden suite can be added to nearly every property in Edmonton. The process for a garden suite, whether at ground level or over a garage, is a little different, but the idea is the same. It maximizes the income your property can generate. The ability to put in a garden suite will depend on your property's zoning and your current site coverage, and there are quite a few design regulations from the City of Edmonton to ensure your suite isn't an inconvenience.
Garden suites can be great for everyone. They can be a guest house, they can support aging in place, multigenerational living on a single property, or simply as extra rental income. Let's look at it from a financial standpoint. Single-story garden suites start from around $150,000, above-garage garden suites start from around $175,000, and custom designs can exceed $250,000 depending on size, design, and site conditions.
For example, let's look at a 2-story house on a large lot that can accommodate a 650 square-feet, garden suite over a double garage. At the time of writing, there is a 2-story house in Edmonton with a legal secondary suite in the basement and an existing 2-car garage facing an alley at the back of the house listed for $485,000. To demolish the existing garage and rebuild a garden suite with a garage, we can expect around $180,000 as a starter. The living area above the suite can rent for $1,400 per month, the double garage can be rented for $400 per month, the main and second floors of the house for $1,800 per month, and the basement for $1,000 per month. This is a total of $4,600 of potential rental income for $665,000. This can cashflow about $1,500 per month with 20% down, or alternatively, as the buyer, you could choose to live in any one of these suites and live for less than $500 per month, or even free! Short-term rentals or furnished rentals, if feasible, can net even more profit.
For more information on secondary suites or garden suites, give us a call at 780-517-6725, and let us work with you to manage inflation!