I am having a dilemma here and in need to have different perspectives on this so I can make a better judgement call. I am planning purchasing a Single family rental property in Calgary (more specifically, Airdrie). Here's the dilemma:

In Calgary, there are a lot of illegal 2nd suite units (basements), but that's not something I want to do. Not only it costs about 30k to complete the basement, the illegality of it risks the chance of being reported by the neighbors ($$ fine). However, by doing so, I can increase my rent/total value from about 0.5% to 0.7-8% (which is not bad in the area). I also think by renting it to one family is better in terms of living quality, hence a better market. But again...I'll be losing at least $500 monthly cash flow if I rent it to one family.

What do you think/know? Thanks in advance :)!

If it's illegal, don't do it. Simple as that.

Originally posted by @Jason Turgeon :

If it's illegal, don't do it. Simple as that.

I understand how that sounds bad, but most of the Calgary's rental properties have that. It's basically a norm for them. Thank you for your opinion tho, that's why I don't really want that either.

@Jonathan Yeh it doesn't matter what most other people are doing. It matters what is legal. You are in business now, operating as a professional. It's your responsibility to act professionally and ethically. There are valid reasons why basement units aren't legal. The neighbors don't want additional units (that's why you are worried about getting turned in). There are certainly insurance implications for renting an illegal unit. There may very well be safety problems, too.

If you want a way to use that basement space that adds income, find out what you are legally allowed to do and do that. If there is space for another unit, there is space for more bedrooms/home office/game room/luxury bathroom/kids playroom/media room/wine cellar/etc. Maybe you won't get the full amount you want, but you can get something, and probably for less than the $30k you were thinking of putting out.

If you can't make money legally, don't buy the property. There is no wiggle room on this.

Originally posted by @Jason Turgeon :

@Jonathan Yeh it doesn't matter what most other people are doing. It matters what is legal. You are in business now, operating as a professional. It's your responsibility to act professionally and ethically. There are valid reasons why basement units aren't legal. The neighbors don't want additional units (that's why you are worried about getting turned in). There are certainly insurance implications for renting an illegal unit. There may very well be safety problems, too.

If you want a way to use that basement space that adds income, find out what you are legally allowed to do and do that. If there is space for another unit, there is space for more bedrooms/home office/game room/luxury bathroom/kids playroom/media room/wine cellar/etc. Maybe you won't get the full amount you want, but you can get something, and probably for less than the $30k you were thinking of putting out.

If you can't make money legally, don't buy the property. There is no wiggle room on this.

That's true. Thanks for the explanation!

@Jonathan Yeh

What kind of rent do you expect to get from the basement suite? I know here in Edmonton we have a few that average around $1200/ month. For a 30k investment I can get an extra $14400 annually back. If you plan on keeping this property longer then 2 years I would say it's worth it to put the legal suite in. We did have one house with an illegal secondary suite in it but it was a nightmare to deal with and way more tenant complaints between units. An added bonus of having a legal secondary suite is when you re-finance the banks will typically give you an higher assessment then if it were a "nanny suite". I would stick with legal suites only, if you wanted to save a bit, keep it a sfh and add more bedrooms.

Originally posted by @Jonathan Yeh :

I am having a dilemma here and in need to have different perspectives on this so I can make a better judgement call. I am planning purchasing a Single family rental property in Calgary (more specifically, Airdrie). Here's the dilemma:

In Calgary, there are a lot of illegal 2nd suite units (basements), but that's not something I want to do. Not only it costs about 30k to complete the basement, the illegality of it risks the chance of being reported by the neighbors ($$ fine). However, by doing so, I can increase my rent/total value from about 0.5% to 0.7-8% (which is not bad in the area). I also think by renting it to one family is better in terms of living quality, hence a better market. But again...I'll be losing at least $500 monthly cash flow if I rent it to one family.

What do you think/know? Thanks in advance :)!

 There are thousands of these illegal suites in Toronto and they never get reported. There will be a rental crisis beyond what it already is

Originally posted by @Cody Hill :

@Jonathan Yeh

What kind of rent do you expect to get from the basement suite? I know here in Edmonton we have a few that average around $1200/ month. For a 30k investment I can get an extra $14400 annually back. If you plan on keeping this property longer then 2 years I would say it's worth it to put the legal suite in. We did have one house with an illegal secondary suite in it but it was a nightmare to deal with and way more tenant complaints between units. An added bonus of having a legal secondary suite is when you re-finance the banks will typically give you an higher assessment then if it were a "nanny suite". I would stick with legal suites only, if you wanted to save a bit, keep it a sfh and add more bedrooms.

Thanks for the suggestion. There are several conditions to have the basement suite legalized. I find that the hardest one is to have a triple garage. Do you mind elaborate on the "nightmare" when the tenants complain against each other? Thanks a ton for your time man. 

Originally posted by @Hai Loc :

Originally posted by @Jonathan Yeh:

I am having a dilemma here and in need to have different perspectives on this so I can make a better judgement call. I am planning purchasing a Single family rental property in Calgary (more specifically, Airdrie). Here's the dilemma:

In Calgary, there are a lot of illegal 2nd suite units (basements), but that's not something I want to do. Not only it costs about 30k to complete the basement, the illegality of it risks the chance of being reported by the neighbors ($$ fine). However, by doing so, I can increase my rent/total value from about 0.5% to 0.7-8% (which is not bad in the area). I also think by renting it to one family is better in terms of living quality, hence a better market. But again...I'll be losing at least $500 monthly cash flow if I rent it to one family.

What do you think/know? Thanks in advance :)!

 There are thousands of these illegal suites in Toronto and they never get reported. There will be a rental crisis beyond what it already is

 True. I just don't want to be reported and have to deal with all of that. Trying to come up with creative ways to make it work.

@Jonathan Yeh

Yikes a triple car garage! I know here we just need enough parking for the secondary suite but it does not need to be garage parking. Having a double car garage and a pad was more then adequate.That was one of my headaches with the illegal suite we had, not enough parking. Seemed to always become a fight of who got to park infront of the house. Another big one was heating and venting. I noticed a world of difference when we added a second furnace. Since the basement is inherently always colder it became a struggle trying to get both suites to compromise on a set temperature. The second furnace also cut down on noise between suites which travelled through the vents.

One item I would stress you do comply to, regardless the route you take, is proper fire separation between units. I saw this first had with my one friends tenant who experienced a nice kitchen fire in his basement suite. Luckily he had a legal suite and the fire was contained to just the basement. Had he not had a legal suite I don't think his insurance would have covered the damage and who knows how much further the fire would have travelled.

Originally posted by @Cody Hill :

@Jonathan Yeh

Yikes a triple car garage! I know here we just need enough parking for the secondary suite but it does not need to be garage parking. Having a double car garage and a pad was more then adequate.That was one of my headaches with the illegal suite we had, not enough parking. Seemed to always become a fight of who got to park infront of the house. Another big one was heating and venting. I noticed a world of difference when we added a second furnace. Since the basement is inherently always colder it became a struggle trying to get both suites to compromise on a set temperature. The second furnace also cut down on noise between suites which travelled through the vents.

One item I would stress you do comply to, regardless the route you take, is proper fire separation between units. I saw this first had with my one friends tenant who experienced a nice kitchen fire in his basement suite. Luckily he had a legal suite and the fire was contained to just the basement. Had he not had a legal suite I don't think his insurance would have covered the damage and who knows how much further the fire would have travelled.

 So a separate furnace and fire protection for the basement. How much would that normally cost? 

By the way, thanks a ton for talking about this with me man, cannot stress how much I appreciate this. 

@Jonathan Yeh

New furnace is between $6000-$8000

plus...

Fire protection which includes;

Fire supression between the units

Fire alarms and carbon monxide detectors

Egressed windows

Making sure electric is to code.

*Not worth it in my opinion

It would probably cost you approx. $50-60k to have it a basement developed professionally

permitted. Then have two sources of income without the stress or liability.

@Jonathan Yeh

Really hard to say depending on the basement, size, and contractor you use. I did one which we did a good deal of the work and hired out what we were not comfortable with (I am a millwright and electrician so I am very comfortable doing my own work). That one cost me 20k to finish, but once again, very hands on. Was our first one and I didnt have the money so sweat equity was our only choice.

I just did another one last summer which came to 32k for a fully legal suite, professionally done. The permits were pulled prior to me doing the work and the basement was empty. This was about 800sqft and only a 1 bedroom.

I would agree that 50 -60k is a pretty average cost but it really depends if the basement is empty, size and finishes you get done. The big thing here is DO NOT PAY MARKET PRICE FOR THE HOUSE. I usually try and find houses where the upstairs needs minor work and I can add value through the secondary suite. But the property needs to be at the right price point where I can re-finance to get some if not all my investment back.

Originally posted by @Andrew Joseph :

@Jonathan Yeh

New furnace is between $6000-$8000

plus...

Fire protection which includes;

Fire supression between the units

Fire alarms and carbon monxide detectors

Egressed windows

Making sure electric is to code.

*Not worth it in my opinion

It would probably cost you approx. $50-60k to have it a basement developed professionally

permitted. Then have two sources of income without the stress or liability.

Thanks for the information man, I'll need to budget that in for sure!

Originally posted by @Cody Hill :

@Jonathan Yeh

Really hard to say depending on the basement, size, and contractor you use. I did one which we did a good deal of the work and hired out what we were not comfortable with (I am a millwright and electrician so I am very comfortable doing my own work). That one cost me 20k to finish, but once again, very hands on. Was our first one and I didnt have the money so sweat equity was our only choice.

I just did another one last summer which came to 32k for a fully legal suite, professionally done. The permits were pulled prior to me doing the work and the basement was empty. This was about 800sqft and only a 1 bedroom.

I would agree that 50 -60k is a pretty average cost but it really depends if the basement is empty, size and finishes you get done. The big thing here is DO NOT PAY MARKET PRICE FOR THE HOUSE. I usually try and find houses where the upstairs needs minor work and I can add value through the secondary suite. But the property needs to be at the right price point where I can re-finance to get some if not all my investment back.

Good that you are handy, that's something I will need to pick up eventually and try to take up some tasks myself. Thanks for the tips, I'll keep that in mind when I'm purchasing!

@Jonathan Yeh   Once you find out the costs to have the basement suite licenced, it will give you a better idea.  Biggest things are separation and having smoke alarms connected between the units.  As for the garage, have it included with the main floor unit and tell them the single bay (guessing there is a single door and a double door) can't be used for a vehicle as the area outside the single bay is for the basement tenant to park.  The main floor unit would still have the 2 bays in the garage plus the driveway in front of those bays which is more than enough parking space.  They can use the single bay inside for storage or a work area.

Have you thought about looking at duplexes if you want two units?

Originally posted by @Theresa Harris :

@Jonathan Yeh  Once you find out the costs to have the basement suite licenced, it will give you a better idea.  Biggest things are separation and having smoke alarms connected between the units.  As for the garage, have it included with the main floor unit and tell them the single bay (guessing there is a single door and a double door) can't be used for a vehicle as the area outside the single bay is for the basement tenant to park.  The main floor unit would still have the 2 bays in the garage plus the driveway in front of those bays which is more than enough parking space.  They can use the single bay inside for storage or a work area.

Have you thought about looking at duplexes if you want two units?

Your idea is brilliant! Thanks for sharing that, it'll definitely minimize the parking dispute. 

In Calgary, unfortunately they sell duplexes as individual housing units. So I'll be paying for the price of 2 SFH for a duplex. They usually split them into upper floors and basement to make a SFH into a duplex.

Although pricing on the duplex is lower than a detached SFH, but to buy both together it'll cost about 1.5 - 1.75 times more than a detached SFH.