Ontario is making it easier for homeowners to build secondary rental suites in a bid to create precious new supplies.
But Bill 23, the More Homes, Built Faster Act, which passed late last year, also presents landlords with a unique opportunity to augment the value of their homes should they decide to list it at a later time.
That begs the question: which upgrades add the most value?
“If you’re renovating to maximize the value of your home, the scope of work will likely be different than renovating to suit your specific needs. Not all upgrades are created equal. Size, laundry, and fresh finishes will help increase income potential in a rental,” Megan McMurray, general manager of Billdr, told CREW.
McMurray added that she’s duplexing a single-family home in Toronto right now.
“One of the challenges of this project is finding ways to accommodate the main amenities in both units. You need to consider providing a functional laundry setup, full three-piece bathrooms, and bright kitchens in both units. This ultimately will impact the income potential.”
Bill 23 makes sound cases for basement and laneway units, especially the latter.
Billdr, an online platform that functions as a marketplace for consumers, helping them get quotes and track the progress of their renovations on a dashboard, has noticed, however, that the current economic climate has poured cold water on Canadians’ willingness to invest in home renovations.
In tandem with record inflation, the Bank of Canada has undertaken an aggressive interest rate-hiking campaign, having recently increased its overnight lending rate to 4.5%.
“That said, although property values may plateau, the market will continue to increase in value, so investing in your property one way or another makes sense,” McMurray said. “In the renovation space, my domain, we know reno projects will continue, but the scope and size might be smaller as a result of the current state of the market.”
Ryan Coyle, a Toronto-based real estate investor and founder of Connect.ca, says Bill 23 certainly won’t help solve the GTA’s chronic undersupply of housing, however, every additional unit should be treated as precious, and the government’s legislation will help homeowners struggling with mortgage payments in a rising interest rate environment carry their mortgages.
He added they will even be able to turn a profit every month.
“We’re seeing rents at the highest level they’ve ever been at,” Coyle said. “Rental supply in Toronto is below one month and there’s a lot of tightening in the rental market. There’s an opportunity for a substantial return on investment, and obviously, it depends on the magnitude of the dwelling that you add, but if you’re simply renovating a basement and adding a new entrance and finishing it, there’s a huge ROI in doing that.”
In fact, according to Coyle’s calculations, a basement rental suite in downtown Toronto can command $1,200-2,500 in rental income, especially if the ceiling is already relatively high. Moreover, the suite will require a finished kitchen and bathroom, as well as some new flooring, the totality of which will cost $15,000-25,000 in renovations.
“If somebody refinanced with a HELOC [home equity line of credit], which most people should do to add these rental properties—and let’s say the renovation is $25,000, the high side—at today’s three-year fixed at 5.59%, amortized over 25 years, that’s going to add $162 to your monthly bill, and if you’re building a suite that’s going to generate even $1,500, it’s a no-brainer.”
Coyle says there’s a major squeeze that low supply has put on renters, who he says is, in many cases, willing to pay top dollar for nicer apartments. And although an estimated 32,000 condo completions are slated to hit the market in 2023, a heavy chunk of which are destined for the rental market, similar prognoses hit the news cycle every year only to fall well short of such lofty figures.
“It’s important to note that number has always been a big number when it’s released in December, January,” he said, “but it’s never accurate because of delays, and due to current supply chains and the limited workforce, we will probably see even more delays than we have in the past.”
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