How To Build A Toronto Basement Unit! Investment Breakdown & Tips For Secondary Suites

We’re going to be going through a basement secondary suite conversion in Toronto.

This is actually the final phase of a 3 part project: the first being the main unit upstairs, second being the laneway suite. And finally, it’s showtime for the Toronto basement apartment unit!

We’ll break down what you need for Toronto basement secondary suites, how the investment numbers are like, and extra tips to help you maximize your success if you take on a project like this.

What Is A Toronto Secondary Suite?

it’s a fully self-contained unit nestled within a Toronto single-family home, complete with its own kitchen and bathroom.

We started by giving the main house a makeover, followed by constructing the Toronto laneway suite. 

And why did we save the basement apartment for last? We needed it empty while building the laneway suite for servicing reasons. Plus, it made more sense for cash flows and capital to rent out the laneway first before tackling the basement apartment.

Tour Of Toronto Basement Apartment Unit

This Toronto basement apartment unit is a one-plus-den layout to maximize rentable space:

  • Smaller Appliances and Clever Design: To make efficient use of space and maximize the number of bedrooms, we utilized smaller-sized appliances and employed smart design solutions. By carefully planning the layout and selecting appropriately sized fixtures and appliances, we were able to create a functional living space without sacrificing comfort or convenience.

  • Modern Bathroom Finishes: The bathroom in the secondary suite boasts modern finishes to enhance both aesthetics and functionality. Features such as an LED mirror with a heated feature not only add a touch of luxury but also offer practical benefits like preventing fogging during showers. Additionally, large tiles on the floors and walls contribute to easy maintenance and cleaning, minimizing upkeep efforts for tenants.

  • Spacious Bedroom with Closet: The primary bedroom within the suite was designed to prioritize comfort and storage. It offers ample space for a comfortable sleeping area and includes a closet for storing clothing and personal belongings. This thoughtful inclusion of storage solutions enhances the livability of the space and adds value for tenants.

  • Crucial Mechanical Room: The mechanical room plays a vital role in ensuring the safety and functionality of the secondary suite. It houses essential systems and equipment, including a duct smoke detector, which detects smoke within the HVAC ducts and triggers safety measures to prevent the spread of fire. These safety features contribute to the overall well-being and security of the tenants, underscoring the importance of proper mechanical room design and maintenance.

Tips On Basement Secondary Suites

When you’re thinking about adding a secondary suite to a property, there are several important factors to consider:

  1. Ceiling Height: The height of the basement ceiling is crucial. A minimum ceiling height of 6 feet 5 inches is typically required for legal habitability. If the ceiling height falls below this threshold, significant and costly underpinning work may be necessary to increase the height. Therefore, properties with adequate ceiling height can avoid these extra expenses and complications.

  2. Separate Entrance: Having a separate entrance to the basement is highly desirable for a secondary suite. It offers tenants privacy and convenience, and it also simplifies legal and safety requirements. Retrofitting a property to include a separate entrance can be challenging and expensive, so properties that already have one in place are advantageous.

  3. Window Size: Building codes often mandate specific window sizes for bedrooms and living areas in secondary suites. These requirements are primarily related to fire safety and ensuring proper ventilation. If the existing windows don’t meet these standards, enlarging or adding windows can be costly and may require modifications to the structure.

  4. Basement Size: The size of the basement directly impacts the potential layout and number of bedrooms in the secondary suite. Larger basements offer more flexibility and allow for the creation of additional bedrooms, potentially increasing rental income.

When Should You Add Secondary Suite vs. Going for More Units?

Creating a secondary suite is not only cheaper and quicker but might be your best option if your capital is limited. It’s a popular choice as it appeals to a wider audience, including homeowners seeking extra rental income and investors.

Another factor to consider is the classification of the property. With two units or fewer, it’s considered a “house,” but once you venture into triplexes or larger, they’re classified as “buildings,” subject to stricter regulations. 

For example, exit requirements are more stringent, with each unit needing one separate exit or two shared exits. Secondary suites within houses can use egress windows, but in buildings, a door is required, limiting flexibility.

When it comes to the financial aspect, there’s no one-size-fits-all approach. It depends on your investment goals. If maximizing cash flow is your priority, adding more units makes sense. 

For instance, you can command $2,500 per two-bedroom unit or $3,600 for a four-bedroom unit, boosting overall rental income.

On the other hand, if you’re aiming for higher ROI potential, opting for two units might be preferable. This strategy attracts both investors and end users, offering a wider market appeal. 

In a competitive market, end users may be willing to pay a premium, enhancing your long-term returns on investment.

Investment Breakdown: 2 Unit vs. 3 Unit Rentals In Toronto

To give you a better idea of how the numbers compare between a secondary suite conversion of a triplex conversion in Toronto, let’s go through this example. 

Picture this: we buy the same single family home for $1,000,000. With the secondary suite conversion, construction costs are lower if there’s no need for major structural work. It may cost around $50,000 to add a basement apartment. 

If you’re efficient, the timeline involves one month for drawings, one to two months for permits, and three months for construction. Once it’s completed, you can rent out the main and basement units for a total of $5,300 a month. After covering mortgage payments and operating expenses, you’re just slightly above breaking even each month.

For the same house done up at the time of purchase, market comparables are around $1,200,000, so you end up with a value-add gain of $150,000. Let’s say you hold onto this investment for five years and then sell – you’d be looking at a total return of $370,000 on a $285,000 investment, resulting in an ROI of 129%, and potentially higher in a hot market.

Now, if you convert the property into three units, expect higher renovation costs and a longer construction timeline. However, the rents are better, totalling $6,700 a month, with a cash flow of $1,400 monthly. 

Realistically, market comparables remain around $1,200,000, resulting in a lower value-add gain but better rental income. Total returns come in at $395,000 on a higher investment of $335,000, which gives you a slightly lower ROI. 

So as you can it, it boils down to whether you prioritize immediate, reliable cash flows. In that case, we’d go with the triplex. If you want to aim for better long-term potential, you might go with the secondary suite option.

How We Can Help

If you’re considering diving into Toronto real estate investing and taking on a renovation, our team has your back.

Our brokerage specializes in Toronto house investments, so we understand what it takes for a successful renovation.

When you buy with us and embark on a renovation project, although you manage it yourself, we assist in planning, connect you with trusted tradespeople, and offer guidance and troubleshooting as needed.

Moreover, we’re well-versed in numbers and can help you forecast investment capital and returns, reducing risk and maximizing profits.

To discuss your real estate situation privately, click the link below to schedule a chat with us!

What Toronto Real Estate Investment Is Right For You?​

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