Toronto Homes With A Basement Apartment
There has been a lot of discussion in recent years about the need for more housing in the core of our city. There has been a recent proposal to allow single-family zoning properties to be converted into four units or multi-plexes. We certainly needed municipal zoning that permits more flexibility for those wishing to move to Toronto or grow a family. As it stands, the newer rental apartments are actually condos that developments invested in and mom-and-pop investors purchased to become landlords. This has partly driven up the cost of living in Toronto.
What’s A Solution?
There are several solutions to allow for more housing in the city. One of which we will focus on in this real estate blog is a long-held option in the city’s core: the basement apartment, nanny suit, or in-law suite. When a buyer ventures south of Midtown Toronto, the basement suite is more prevalent. Why? The simple fact is that most downtown areas were less desirable until the last decade and a half. To support the mortgage, homeowners created a basement into a suite to rent out to tenants, thereby offering a debt-serving option for them. It was a great idea that is making a big comeback in Toronto’s affordable housing discussion.
There are several pros and cons when it comes to basement rental suites, from practicality, legality, hassle, tenant rights, and investment options.
Legality
It’s rare to see a “legal, conforming” basement suite in Toronto. We would hazard a guess that 2-5% of MLS listings featuring a basement are not legal or non-conforming. That may even be an ambitious number, and there could be fewer. How do we know? Every legal basement must have two means of egress (entrance/exit to the suite) fire-rated, drywall, linked fire alarms, and so on. But we rarely see any of these.
It’s essential to weigh your options when buying a house with a basement suite that is not legal. At some point, the Fire Marshall could shut the space down, demand that changes be made and perhaps face a fine. If someone gets hurt in the space, you could face legal action. If you run into what we call a “professional tenant” who wants to complicate your life, they could threaten to tattle on the landlord regarding the issues with the space and withhold rent. We don’t see this often, but it does happen. Also, if a neighbour wants to create a challenge with you or the tenant, they could call the city if the house is a single-family residence with a non-family member living in the basement suite.
So how are there so many basement suites in houses in downtown Toronto? The City of Toronto has turned a blind eye to some extent. Only when an issue arises have they investigated? The city appreciates that there are too many multi-unit suits in the city to discover and that the city needs this housing to support the economic structure of Toronto. So, tread wisely and do your due diligence.
Investment
The biggest reason that anyone wants to have a basement suite in their home is to generate more income to either assist in the purchase price, lower their monthly carrying costs (debt-servicing,) or have an option for in-laws and nanny support while not having them live in their private space upstairs.
Basement suits have offered many homeowners a medium to generate wealth. There are steps along the way to maximize their investment. The most successful treat the basement suite as a business, investing in improvements and discerning which tenants are permitted to rent in their investment.
Who wouldn’t benefit from someone else paying your mortgage for you?!?
➤ Every good investment needs a well-planned strategy. Start preparing with the following:
- This Is The Year For Buyers In Toronto
- Should I Buy An Investment Property?
- Why Parents Should Invest In Condos For Their Kids
- Condo Versus House Investment
Tenant / Landlord Challenges
Just like any business, who you bring into the office, hire or permit to reside has a significant impact on how the investment goes. Does the tenant pay on time? Do they make excessive noise? Do they care for their space? Are they demanding? Do they live up to their contractual agreement? Will the tenants be long-term, or will the space be a high turnover?
The other side of the coin is landlords; some have been downright unfair over the years. So much so that the Landlord and Tenant Board had to put additional rights favouring the tenant. You can read about those rights and rules and the necessary steps to resolve disputes here.
Safety
Whenever anyone steps on your property, you are a legal risk if they are injured. When someone resides on your property, the threat to their safety increases. Also, being that the landlord may not know the tenant well and how they make decisions in their lives, it’s possible that they light candles and leave these unattended or leave the stovetop on. There are endless risks. Simple mistakes by the landlord or tenant residing in the space can impact everyone in the home.
This is not to say that it is unsafe, but it is essential to understand the risks and know the legality (above) and insured, which we dive into next.
Insurance
Do not insure the house with a basement tenant as a single-family residence. If you do, and there is a problem which requires insurance, you will be hard-pressed to get the proper coverage. Disclose, disclose, disclose. Let your insurance company know that there is a tenant in the basement. Also, have the tenant get tenant insurance covering their belongings and any damage they cause in addition to your home insurance.
Key Takeaway:
Buying or converting an existing house in Toronto to an income-generating home with a basement suite can be an excellent move for many. That being said, it is not without its challenges. Some pros and cons are subjective to each investor. Knowing where you land on the idea is most important. We are here to discuss options for our clients. There is a way. It comes down to one’s concept of risk tolerance and long-term wealth-generating goals.
