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Is A Basement Apartment Rental A Good Investment?

Creating an accessory apartment comes with both advantages and disadvantages.

The real estate landscape in the GTHA is experiencing rapid up-and-down changes. It’s difficult to keep current with market conditions that might fluctuate wildly from one locality to the next. Higher interest rates and inflationary increases can make the cost of borrowing for a mortgage unaffordable – but home ownership remains the dream and continues to be viewed as a good investment.

Most impacted by these market conditions are first time home buyers.

A basement rental apartment is an attractive solution to offset the increasing costs of mortgage products and rising living expenses. Would a secondary suite be a viable option for your family? Would your preference be for a blank canvas (an unspoiled basement) or something more turn-key?

It seems a simple and elegant solution, but a secondary unit within the home comes with both advantages and disadvantages.

By weighing the benefits and drawbacks, and by understanding the different rental options available, you can make an informed decision as to whether renting out a basement apartment is feasible.

The benefits of having a basement apartment rental.

Burlington Detached House

Additional Income

An accessory apartment can provide a steady stream of passive income, offsetting mortgage costs, property taxes, and utilities. The extra money can also provide financial stability in case of unforeseen expenses or be saved for future investments.

Increased Property Value

Basement renovations typically include the updating of electrical systems, installing new flooring, and adding new fixtures. If the apartment is well designed and well maintained it can increase the value of your house. A rental unit can also increase the marketability of your home as it appeals to buyers looking for an income generating property.

Versatile Use

A secondary unit can serve as a rental property, an in-law suite for family members, or as a home office. This versatility makes it a valuable investment for a wide range of homeowners. Renting a furnished short-term apartment, for example, negates the necessity to pay for off-site storage of your own belongings.

Location Advantage

In areas with limited rental options and steep prices, you can attract high quality renters willing to pay a premium for a basement apartment in a desirable neighbourhood.

Tax Benefits

Owning a rental property can provide tax benefits, as expenses related to the property may be tax deductible. Always consult with a qualified accountant.

The drawbacks of having a rental basement apartment.

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Photo by Anthony Garand on Unsplash

Additional Responsibilities for Homeowners as Landlords

Landlords must deal with legal requirements and regulations related to leasing a basement apartment. Additional responsibilities include the finding and screening of tenants, collecting rent, maintaining the unit and addressing any tenant concerns. You will need to be prepared to take on these responsibilities.

Possible Issues with Noise and Privacy

Valid concerns which can affect the enjoyment of both the landlord and the tenant. Noise from upstairs can disturb tenants living in the lower level – as can the reverse. Privacy may also be an issue, especially if there is only one entrance to the basement apartment that requires traipsing through your own living space.

Increased Wear and Tear

If tenants aren’t careful with the unit, it can result in the need to invest in more maintenance and repairs than if the basement was not being leased.

Insurance

A rental unit in the home will likely result in higher insurance premiums, but this is an expense that can not, and should not, be circumvented.

Comparison of short-term vs long-term rental options.

Two women looking at lease agreement together
Photo by Gabrielle Henderson on Unsplash

Homeowners may consider renting a basement apartment on a short-term basis through an online vacation platform. Short-term rentals can generate higher income, but they also come with higher turnover and maintenance costs. In addition, it may be necessary to obtain extra permits and follow more regulations.

A long-term rental through a traditional lease agreement, provides stable and predictable income without the need for constant marketing and turnover, and generally requires less ongoing maintenance. However, long-term rentals typically generate less income overall than short-term.

Legal considerations and permits.

Landlords who lease a secondary apartment must be aware of the legal considerations and permits required to do so, and must be familiar with the Residential Tenancies Act (RTA), the Landlord and Tenant Board (LTB) and the common issues and disputes that can arise. By following proper legal procedures and regulations, you can ensure your rental is a safe and profitable investment.

In order to legally rent out a basement apartment, you must obtain permits from the city and other governing bodies. The process for obtaining permits can vary depending on your location, so it’s important to research the requirements for your specific area.

Overview of Ontario's Residential Tenancies Act (RTA) and The Landlord and Tenant Board (LTB).

The Residential Tenancies Act (RTA) is the primary law that governs the landlord-tenant relationship in Ontario. The RTA provides protections for both landlords and tenants, including rules around rent increases, lease agreements, maintenance and repairs, and eviction notices. Homeowners who rent out a basement apartment are considered landlords under the RTA. As a landlord, it’s important to be familiar with the RTA and its regulations and guidelines.

The Landlord and Tenant Board (LTB) is an independent organization that resolves disputes between landlords and tenants in the province and is typically the first place to turn for resolution. The LTB has the power to mediate conflicts, issue orders for evictions, and rule on matters related to the RTA.

Renting can be complicated, and there are common problems and disputes that frequently arise between landlords and tenants.

Issues can include late rent payments, maintenance and repair, noise complaints, and more. Homeowners must be prepared to deal with these occurrences, and understand the legal procedures for addressing difficulties. For example, if a tenant is consistently late with rent payments, the landlord may need to issue a notice of termination and file an application with the LTB for an eviction order.

Permits required for building a legal basement apartment.

Sunshine coming through basement window,
Photo by Joao Jesus on Pexels

Before starting any renovation, obtain the required permits from your local building department so as to be in compliance with the most up-to-date building codes and safety standards.

  1. Building Permit is essential for structural changes; adding or removing walls or altering the ceiling height.
  2. Electrical Permit relates to any and all electrical work, including the addition of outlets, switches, or lighting.
  3. Plumbing Permit is necessary for bathroom, laundry, or kitchen plumbing work.
  4. Zoning Permit may be required if your property is not zoned for multi-family dwellings.
  5. HVAC Permit covers the installation of new heating or cooling equipment.

In addition to the permits required to build a legal basement apartment, there are several safety requirements that homeowners/landlords are under obligation to meet.

  1.  Basement apartments must have smoke and carbon monoxide detectors installed.
  2. Windows have to meet the requirements for egress in case of an emergency.
  3. The space must be provided with proper ventilation, heating and cooling.

Failure to meet standards and safety measures can result in fines or legal penalties, so it’s important to take them seriously.

Designing a basement apartment.

Man holding a pencil over renovation drawing with scale ruler on the side.
Photo by Daniel McCullough on Unsplash

Creating a functional, attractive and comfortable unit can maximize rental income and increase the overall value of your property.

Constructing a basement rental can be a great investment, but it’s important to do it right. By selecting qualified contractors, taking into account key design elements, and obtaining the necessary permits, you can create a safe and legal living space that will attract quality tenants and maximize your return on investment. Homeowners can charge a premium for units that offer more square footage, privacy, and amenities than traditional apartments.

Selecting qualified contractors.

Hand with pencil with measuring tape on a floor board.
Photo by Los Muertos Crew on Pexels

When selecting contractors – do your RESEARCH. Do they have the proper qualifications and knowledge to complete the job correctly? Look specifically for contractors with expertise in basement renovations and who are licensed and insured in their trade. This type of project can come with unique challenges; low ceilings, limited natural light, and potential moisture problems, so it’s important to work with someone who knows how to address these issues.

This is not the time to do an ISO on local social media groups for a handyman.

Ask for references from previous clients and search for online reviews. Verify a contractor’s license by checking with the Ontario Ministry of Municipal Affairs and Housing or the local licensing authority in your municipality. This will give you peace of mind knowing the work will be done to the proper standards and in compliance with building codes.

Key design elements.

Small white kitchen with appliances and sink on a dark hardwood floor
Photo by Andrea Davis on Unsplash

When designing a basement apartment, it’s important to consider safety, comfort, and practicality. These are some key design elements to consider:

Living Spaces:

  • The space should be private and separate from the main part of the house. Put in an exclusive entrance, or interior door, that completely closes off the basement apartment.
  • Maximize natural light, and ensure artificial lighting is sufficient.
  • Choose durable, easy to clean flooring. Add area rugs for comfort and warmth.

Kitchen and Dining Area:

  • Make the kitchen appealing to potential tenants by fully outfitted it with a fridge, stove, microwave, and dishwasher.
  • Add overhead and task lighting for cooking and dining.
  • Create a dedicated dining space.
  • Select durable materials for countertops and cabinets.

Bathroom:

  • Give thought to the layout of the bathroom to maximize its functionality.
  • Pick high-quality fixtures that are easy to clean and maintain.
  • Provide adequate lighting.

Some of the nuts and bolts.

Unfurnished basement apartment with pot lights in ceiling, laminate floor, washer and dryer and view of bathroom.
Photo by Point3D Commercial Imaging on Unsplash

Ceiling Height.  The minimum ceiling height required by the Ontario Building Code is 6 feet 11 inches for habitable spaces; however, a minimum height of 7 feet or higher is recommended for comfortable living.

Heating and Cooling.  The HVAC system should be adequate to effectively regulate the temperature in the basement apartment.

Lighting.  Essential for safety and creating a welcoming atmosphere. Give thought to a mix of overhead and task lighting. Recessed fixtures are popular for basements because they provide even illumination without taking up valuable ceiling height. Track lights and wall sconces can accent and highlight feature areas.

Flooring.  Select a material that can withstand heavy foot traffic and potential moisture issues. Vinyl or ceramic tile are popular because they are durable, easy to clean, and can handle dampness. Laminate and engineered hardwood are a fashionable alternative, but more susceptible to water damage and may require the addition of a moisture barrier or subfloor.

Insulation.  Proper insulation keeps the space warm in the winter, cool in the summer, and reduces noise transmission. The Ontario Building Code requires a minimum R-value of R12 for basement walls and R20 for the ceiling. However, depending on your climate zone and specific needs, a higher R-value insulation may be required to achieve optimal energy efficiency.

Soundproofing.  The use of soundproofing elements minimizes noise between the basement and upper levels of the house, and from outside.

Storage.  Maximize space by incorporating ample and creative storage options. Built-in shelving and cabinets, an under-the-stair closet, can all be employed to create storage without taking up valuable floor area.

Parking.  City or suburban living often comes with a lack of parking. It is frequently a major obstacle for tenants, and properties with dedicated parking spots can often command a higher rent.

The decision to enter the rental market.

Bedroom setting with decorated bed, desk with pink chair and built in closets in white.
Photo by Huy Nguyen on Unsplash

After weighing the benefits and drawbacks, you have decided to offer a basement apartment to the rental market.

An unfinished basement affords you the freedom to outfit the unit to your personal taste: however, this requires financing all aspects of the build. An existing “finished” basement may allow you to redesign and update at a more affordable cost.

Features particularly attractive and important to potential tenants:

  • Layout and flow of the suite.
  • Two bedrooms.
  • Laundry facilities.
  • Access to outdoor space.

Being a landlord does come with responsibilities and obligations, which at times, can be very stressful. Rewards, on the other hand, can be substantial; not only in financial gain (rental prices have never been higher), but in providing an opportunity to become acquainted with your tenants – who may in time, become, just like family.

 

 

Cheryl Tym, Sales Representative, REMAX Aboutowne Realty Corp., Brokerage
Cheryl Tym
REALTOR®, RE/MAX Aboutowne Realty Corp., Brokerage

A full time REALTOR® dedicated to providing the best possible service and outcome for clients and their families. International sales, marketing and negotiating skills were part of the daily routine while living and working overseas as Director of Operations for an international hospitality marketing firm. A graduate of Sheridan’s Interior Design Program, and recipient of the Professionalism Award, my artistry and knowledge will highlight the very best features of your property, inside and out.

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CHERYL TYM, REALTOR®
RE/MAX Aboutowne Realty Corp., Brokerage
Independently Owned and Operated
A-309 Lakeshore Road East
Oakville, Ontario, L6J 1J3
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