Last week, we gave you an introduction to secondary suites and carriage homes, but did you know that you can find these types of dwellings all over Peterborough? And that they are quickly becoming a popular choice for many homebuyers looking to supplement their income and improve the affordability of their homes?
Here’s a closer look at what you need to know about secondary suites in Peterborough…
It’s True, We’re in a Housing Crisis
If you’ve read the news lately, chances are you’re pretty well-informed about the current state of real estate in Canada. In a nutshell, the number of available homes (inventory) is low, and the demand for those homes is high. This creates the current seller’s market that we’re in, but it also makes things harder for first-time buyers and renters to find affordable housing.
Real estate experts at the CMHC say the best way to combat this affordable housing crisis, is to build more affordable homes. However, there’s something else that can help.
About 8 years ago, legislation was passed to help quell some of the concerns over homes becoming less affordable–in the form of secondary suites.
Read last week’s blog here to get a refresher on secondary suites.
But Haven’t Secondary Suites Been Around Forever?
Secondary suites and “in-law” suites are not a new concept. The idea of housing multiple families in one dwelling is something that has been going on for ages. However, the main difference between secondary suites and in-law suites is how they are seen in the eyes of the law.
Legal vs. Illegal Secondary Suites
You won’t be able to tell just by looking at them, but there are two types of secondary suites: legal and illegal. Here are the main differences between the two:
Legal secondary suites:
- Have gone through the necessary permits and construction regulations
- Follow strict guidelines from the municipality
- Are an official separate address from the main dwelling with their own sewage and utilities
- Are recognized by banks as an official apartment that generates income, and, as result, you can borrow money against it
Illegal secondary suites:
- Have not gone through the necessary permits and construction regulations specific to secondary suites
- Are not subject to other laws and regulations pertaining to secondary suites
- May not be recognized as an official separate address from the main dwelling
- Might still use the same sewage and utilities as the main dwelling
- Could present a grey area when trying to obtain insurance, etc.
- Are not recognized by banks, and therefore, do not provide any additional value for borrowing
The Benefits of Buying a Home with a Secondary Suite
Secondary suites probably present the biggest benefit to first-time homebuyers and buyers that are looking to enter the real estate market and build wealth. The absolute biggest benefit is that buying a home with a secondary suite can drastically improve the affordability of buying a home.
Downsizers can also capitalize on having a secondary suite. If they no longer require the same amount of space they once needed, they can purchase a home with a secondary suite and essentially fund their retirement with rental income. It’s a smart way to get more for less.
Is Building a Secondary Suite Worth It?
If you’re looking at a home that might have the potential to have a secondary suite that doesn’t yet exist, you can still enjoy the benefits even if you have to invest a little more upfront.
Let’s crunch some numbers.
Let’s say you have an unfinished basement with a walk-out. It’s the perfect spot for a secondary suite. On average, the cost to build a secondary suite from the ground up ranges from about $50-$75 per square foot.
If you build a 1,000 square foot apartment in your basement, you can expect the cost to run about $50,000-$75,000 in total for your initial investment.
Then, let’s say you’re able to rent the apartment for about $1,500/month. That’s $18,000 per year. In about 5 years you will recoup 100% of your investment. Now, that number might not sound super impressive, 5 years is a long time. But consider this: homes with secondary suites are also more valuable than those without.
On average, we would estimate that homes with a secondary suite are worth about 10% more than those without. So if you have a $500,000 home, with a secondary suite, that home is worth closer to $550,000.
So you can see that building a secondary suite is also worth it in the long run.
Wondering about other home improvements that provide great ROI? Check out these other posts:
- Home Renovations that Offer a High Return
- 4 Things You Need to Consider When Completing Cottage Renovations
There’s Even a Specific Mortgage For This
You can also apply for a “cost improvement mortgage” or “purchase plus improvements mortgage” to help with the cost of building a secondary suite in a home that doesn’t already have one. With this type of mortgage, the bank pre-approves a certain amount of money in addition to the mortgage (usually around 10%) to complete the renovations required to create the secondary suite. From there, your lawyer holds the funds in trust to pay for contractors as these costs come up.
The Future of Secondary Suites
As we continue to grapple with housing supply issues and affordability becomes more important for buyers, we predict that secondary suites are going to become even more prevalent throughout the country.
If you want to learn more about secondary suites or get started in the real estate market with an affordable option, contact us today. We’re happy to help!
