Eight things you need to know about suites, so you can PROFIT in 2016
There have been some interesting changes in the world of secondary suites of late. And it seems that nearly everyone is confused, or working off old information, when it comes to rental suites.
I’m going to share with you the recent game-changers that have really made things open up, what it all means to you as an owner of Kelowna Real Estate and ultimately how you can use this info to make yourself some money.
So let’s start at the top:
In fall of this year, the Federal government and CMHC changed its rules:
“The changes from CMHC would allow homeowners to count the income from their secondary units when qualifying for a loan, something that would seemingly bring more people into the housing market. Under the new rules, CMHC will consider up to 100 per cent of gross rental income from a two-unit owner-occupied property. This includes basement rental units and in-law apartments.” ~ Financial Post
At the same time, almost serendipitously, local governments decided to open things up for us from a zoning by-law perspective,
Council heard a plan in October that would change current rules against mortgage-helping suites at Gallagher’s Canyon, Tower Ranch and Quail Ridge.
“Planner Ryan Smith told council, staff is working on zoning revisions for the three golf course communities that would allow secondary suites to be legalized in much the same manner as they are in other neighbourhoods, without a public hearing.” ~ Kelowna Daily Courier
Affecting even more households, the City of West Kelowna just amended their zoning bylaws. This is huge:
Nearly every residential zoning in West Kelowna now allows carriage houses, and with far fewer stipulations than on the Kelowna side. The largest being that you don’t need a rear lane access on your lot. The property value increase created when a property has two dwellings is exceptional, not to mention the additional cash-flow. I
had my first client this month follow my advice and buy a rental property in West Kelowna, specifically to take advantage of this rule change. I expect many more to follow suit.
So let’s shift our focus away from rules and regulations, and on to something even more influential when it comes to the real estate markets, and suited properties in particular: Demographics.
Baby-boomers, massive in numbers, were ‘busy’ enough to repopulate the earth at a rate of approx. 2.2 kids per household. Consequently, they have created the largest generation in human history. This generation known as Generation Y, born between 1981 and 1993, is entering the real estate market in droves.
The eldest of the Y Generation turned 33 last year, and in the next decade, there will be more people turning 33 than ever before.
Why is that important? Because the average age of a first-time buyer is, in fact, 33. Due to rising prices and affordability issues, these buyers will be looking at suited homes to allow them to make the jump from renter to homeowner.
While at the same time, and just as much of an economic driver:
Baby boomers are looking to augment their retirement, and are turning to investment real estate to pump up their passive income, as they cruise towards their mid 60’s. Suited homes make a great investment for this demographic.
Add to that, baby boomer parents are opting to move into suites and coach houses rather than retirement homes. This puts even more demand on these kinds of properties.
Now lets talk dollars and cents:
Building a secondary suite doesn’t cost anywhere near what most people think it does (especially if you know who to call), and the revenues have never been higher. Here’s the rent you can expect for a rental suite today:
So what does it cost to put one in?
Here is a basic breakdown of the investment, if you paid a contractor to do the entire job (suggested):
Permits and licensing
Cash and carry for $3500, includes counter tops
$1,500 for basic appliances, or treat yourself to state of the art new ones upstairs and bring your current ones down.
(Fire-rated and sound dampening) $3,000
vinyl planking @ 3.50/sq ft x 800 feet -$3,000
$2,000, Includes new hook-ups
Upgrading electrical panel
Upgrading new bathtub, and vanity and toilet
$7,500 (framer, flooring installer, finish carpenter)
It can be done for as low as $15,000 and as high as $35,000, depending on complexity and quality of finish.
You don’t actually need to have any cash on hand to do this, whether you are putting a suite into a home you already own, or are wanting to put one in a house you are buying, there are really cheap financing options available to you through either a home equity line or a purchase plus improvements line.
Here’s what it would cost you on a line of credit using the highest estimate:
Prime plus .60 = 3.3% $35,000 x 0.03 = $96.25/mo. Now let’s say you build a basic/average suite and rent it for $1100, you are netting $1,000+ per month.
The ROI on the $35,000 is 34%, and keep in mind you didn’t spend a dime of your cash on hand.
Now for the big burning question: To legalize or not to legalize.
Many of my clients come to me with hang-ups with regards to in-law suites. People often say that they only want to look at listings with a legal suite. Fact: If you limit yourself to only properties that have legal suites, you will have way less from which to choose. For example, right now on the MLS, there are 13 homes between 350 and 400 with suites, only two of those are legal. And guess what, they are at the top of the price range.
Here’s a cool stat I’ve never seen anyone publish . . . until now:
In the second half of 2015, the average sale price for a home with a legal suite was $436,000
For the same period of time the average sale price of a non-conforming suite was $413,000
This means that the value the market place is putting on the legalizing of a suite is $23,000.
The question becomes, can you legalize an existing suite for less than $15,000 and double your money? The answer, in most cases, is a resounding YES.
So, let’s look at what it means to have a ‘legal’ secondary suite in Kelowna:
Need a building permit
Need a business license
Need 2 designated parking stalls for tenant
A lit pathway
At least 30m(2) of private, open space
The suite cannot exceed 40% of the total square footage of the principal living area
Several building code standards must be met such as:
Minimum ceiling heights
Hard-wired CO2 and smoke detector
If you’re interested in learning more about the subject of suites and real estate investment, I’ve prepared a free .pdf report just email and I will send it over.