A Secondary Suite: Is It Right For You?
For investors, purchasing a home with a secondary suite can be the difference between a property cash flowing and not. For buyers wanting to get into the most desirable neighbourhoods, purchasing a home with a secondary suite may be the only way to do so without excessive pressure on the household finances as secondary suites are becoming more of a necessity in order to assist buyers in covering their mortgage payment where housing prices are often beyond the grasp of the majority of buyers. With vacancy rates sub 2% and rents on the rise, buying a home with a secondary suite seems to be making more and more sense…or does it???
Firstly, there is no concrete answer, as each buyer will have unique circumstances that will ultimately determine whether purchasing a home with a secondary suite is right for them. While I am a numbers guy and the numbers typically support the virtues of a secondary suite, what I want to primarily focus on today are some of the other considerations you will need to take into account. I have a fair amount of personal experience with secondary suites: I have owned and rented both units in a suited home; I have lived in the main part of the home and rented the suite; I have lived in the suite and rented the main part of the home, and I have also rented a basement suite living below the landlords.
Is It Legal?: Prior to 2005, secondary suites were not legally allowed in Nanaimo. Despite this fact, there were many secondary suites in existence that had not been constructed under a building permit. In order to address this, the city now uses a number of classifications for suites, depending on the circumstances:
- Illegal: Not constructed under a building permit
- Authorized with a notice on title: Existed prior to 2005 and upgraded to address life-safety issues through a Building Permit
- Legal: constructed after Feb 7, 2005 under a Building Permit
- Legal with a notice on title: If a suite was constructed after Feb 7, 2005 under a Building Permit within a basement that was not finished with a Building Permit
For suites that existed prior to 2005, in order to become authorized, consideration will be given to the following: the heating system and whether it is interconnected, smoke alarms, ceiling heights, means of egress, fire separation between units, stairs, electrical system review, other obvious safety concerns.
A suite can exist in both the primary dwelling or in an accessory building, often referred to as a carriage house, as long as the zoning requirements are met. In the primary dwelling, a suite is limited to occupying a maximum of 40% of the dwelling with a maximum of 2 bedrooms.
If you are considering purchasing a home with a suite, make sure it is at least authorized if constructed prior to 2005 or legal if constructed in 2005 or beyond. The City of Nanaimo is currently reviewing illegal accommodation in the city. If discovered, the city could come knocking with a request to inspect the suite. The inspection will then likely produce a deficiency report which you will be required to address within a certain time frame before being able to continue to operate the suite. In this situation, especially in older homes, it doesn’t take long for the list of requirements to be addressed to add up to $10,000 – $20,000 or even more. If you are counting on the rental income and don’t have the cash to cover these upgrades, it can quickly become a pretty dire situation. Recently realtors have been reporting that properties listed with unauthorized accommodation have caught the eye of the city, with letters requesting suite inspections received in the weeks following the properties being listed. To avoid being caught in a vulnerable situation with unexpected costs, rule out homes with unauthorized suites from your search.
Property Management: If both units will be rented and you intend to have the property managed, please be aware that most property management companies will not provide services for unauthorized accommodation. Suited homes often see significantly higher turnover than individual rental units whether that be single family dwellings or rental apartments. Advertising and screening tenants can be challenging and a time-consuming process. If you will be managing your own property, make sure you are well prepared to conduct ample due diligence, understand the tenancy laws in the province, and are prepared for the time commitment required to manage it.
Privacy: Make no mistake about it, sharing a home with someone will impact your personal privacy. Even legal suites built to code will often have noise issues where you can hear music, pets, conversations, and even arguments coming through the other side of the wall or floor. Similarly, sharing a yard can be a challenge. Sun tanning may not have quite the same appeal with your tenant possibly coming around the corner at any moment.
Parking: The city regulations require 2 parking stalls for the main unit, and a third off-street parking stall for the suite. However, even if you have a single occupant in your suite, what happens when they have people over to visit. For that matter, what happens if they have 10-12 people over to watch the game. Are they doing anything wrong? No…Is it impacting the parking situation and disruption in the neighbourhood? Yes.
Animals: While many landlords do not permit pets to live in their units, what happens if a pet temporarily visits? Is it reasonable to completely restrict a visitor from bringing a dog over? That is debatable. If pets are permitted, does the owner clean up their mess? Does a dog bark or cry when the owner is out? Do dogs on either side of the walls bark endlessly at each other? Again, many considerations when pets are involved that you may not be thinking about up front.
Utilities: If you are purchasing a home with a legal suite where utilities are separately metered, then you should be able to avoid utility related issues. However, if tenants are sharing heating, hydro, etc., then how are the costs divided fairly? What if all the hot water is constantly being used by one of the parties? Again, complications that could lead to disputes and excessive turnover of the units.
Disputes: When 2 parties share a property intended to be for a single-family dwelling, whether legal or not, there is a heightened risk of conflict. Aside from the issues outlined above, there are countless additional reasons that disputes could arise. It is one thing when you are the landlord and you carefully screen your tenants, but when you are renting out a fully suited home and you have 2 separate parties living under one roof, the chances of them getting on each other’s nerves leading to fairly rapid turnover is fairly strong.
Bottom Line: If a secondary suite affords you the ability to get into the market, buy in your favorite neighbourhood, or ensure your investment property cash flows, then you should strongly consider it. However, know that the added financial benefits that accompany a secondary suite more often than not will come with a cost. Whether the benefits outweigh the costs are up to you. But please, go in with eyes wide open so you don’t find yourself in a less than ideal situation.
For more information on secondary suite requirements in Nanaimo, click here.
If you are considering a home with a secondary suite for your primary residence or as a rental property, put our team to work for you using our experience and insight to navigate the pitfalls and help you locate a property well suited to meet your needs. Contact us anytime for your complimentary consultation at 250-751-0804 or firstname.lastname@example.org.