Before you dive into a real estate investment, it’s very important that you are very clear about what your goals and lifestyle requirements are now and in the future. What I always ask my clients up front is, ‘what’s your budget?’. Financing is the number one factor in an investment project; without money there will be no investment of any kind. Period.
If you do have money, and you want to get into the real estate world, building a legal secondary dwelling unit in a house is one of the better options out there. There are a ton of pitfalls and risks, so it’s always best to work with a team that has experience in this field.
When looking at a house for a legal secondary suite, you need to consider the following issues:
1. What’s your budget? Are there any opportunities in your city for purchasing and renovating within your budget? Do you have a clear idea of how much it will cost to execute from start to finish? If you don’t know the numbers, speak with a Realtor or professional who understands this business. Your mortgage broker will be a key factor for this type of project. I can almost guarantee that you will need some creative financing, and you will want a broker who knows how to effectively finance a project like this.
2. Is the basement suite legal? Does the zoning by-law allow for secondary suites? If they are not permitted in your target area, seriously consider the consequences and processes if the City should demand that you remove the basement suite. In Ottawa, these suites are legal in every neighborhood except for Rockcliffe Park. Here is a bit more info on ‘illegal units’ and why you do not want to go down that road.
3. How will the tenants be separated? One of the biggest potential issues with suited houses is making sure the home will be desirable to live in. Some options include soundproofing between the units, common entryways, heating systems and laundry space. The better each unit is separated, the happier your tenants will likely be. You don’t want tenants fighting over issues like; its too hot, or the neighbor’s too loud, or the neighbor parked in your space. Separate everything up front, and avoid conflicts later on.
4. Who pays the utilities? Again, separation. Most suited houses offer one electrical meter and one gas meter. This leads to squabbling over who pays what for utilities and much more paperwork. Separating hydro meters to each unit is a no-brainer. One meter for each unit, and each tenant can deal with their billing and usage. Same goes with heating. Will you have a gas furnace heating upstairs, and electric downstairs? Will you have 2 separate furnaces? Each property must be looked at individually to determine the best results.
5. Can you create separate parking for both units? Nothing will hurt your chances of leasing the property to a great tenant more than a lack of parking. Can you widen the driveway to allow for side by side parking? A double driveway and double garage (separated) is the best, but most likely you will need to get creative for other solutions.
For so many reasons, this style of investment property is a big money-maker. They often offer excellent cashflow, and if you’re good, you can force a decent appreciation after the renovations are complete. I usually recommend fully renovating both units, so you can separate all of these issues and build accordingly: separate utility meters, soundproofed units, sufficient parking, separate entry ways, separate laundry, and separate heating and water systems.
For more information on the opportunities available for a project like this in Ottawa, definitely contact me, Chris Steeves, for a full breakdown of how to proceed.