Thinking of selling the downtown home you can no longer afford? Here’s another idea

Has a change in your personal situation, like divorce or job loss, forced you to evaluate whether it makes financial sense to keep living in your house? Before you call a real estate agent and walk away from the home and neighbourhood you love, why not consider converting your basement into an income suite?

Basement apartments – particularly those in lively urban neighbourhoods near public transit – are valuable and sought-after commodities. Especially when they are legal and done right. Combine savvy design and construction with state-of-the-art building materials, and you’ve got a fantastically livable space that banishes every awful basement cliché and stereotype you can think of. At its best, basement living is better than condo living, and a quality space will attract quality tenants. (More on this in a future blog.)

If the idea of undertaking a basement renovation overwhelms you, it shouldn’t. A professional, well-orchestrated team can complete the project in 4-6 weeks (3 months if underpinning is required). And, unlike remodelling a kitchen, the disruption to the principle residence is minimal and predictable. At Penguin, our goal is to provide our customers with ‘perfect information’ on everything from the exact cost of their project (we have a ‘fixed price’ policy) to the finish date. Our Online Customer Portal System keeps clients updated daily on which trades are working on their home, payment schedules, project timelines and milestones.

That doesnt sound too bad, you’re thinking. But does my basement have what it takes to make a great apartment? Here are my Top Three Must Haves:

  1. Ceiling Height: Your ceiling should be at least 6’5”. This saves you from the costly task of underpinning the basement.
  1. Accessibility: if you have a side entrance or walkout basement, you can save yourself $5,000 – $25,000 depending on whether you’re creating an entrance above or below grade.
  1. Parking: Even within the city of Toronto, there are various zoning designations for parking. Some districts require parking, others require a designated spot for the renter. Find out which applies to you.

 

If all systems are go, let’s look at the financial implications of the renovation. Here is how the numbers look:

A typical basement apartment, without a separate entrance and underpinning, would cost $50,000 to $75,000.

In downtown Toronto, such a space is currently rents for approximately $1200- $1500/month.

Based on a $1,200 rent (I like to be conservative), $300/month would pay off the cost of a basement renovation on a typical 25-30 year amortization mortgage. The surplus ($900/month) would pay off a $225K mortgage.

How does this return compare to other investment vehicles? The above scenario translates into a 19.2 per cent annual rate of return. (1200*12= $14,400/75,000 = 19.2% return)

Beyond enabling you to keep living in the home you love, a second suite is a powerful investment decision that can boost your monthly income and ultimately increase the value of your house. Especially in the eyes of prospective buyers who see how a second suite solution will help them get into the home and neighbourhood of their dreams.