$400K in Toronto Real Estate: Garden Suite or Triplex – What’s The Better Investment?

This is for educational purposes only; it does not guarantee future performance or serve as financial or tax advice.

Figuring out where to put your money in real estate can feel overwhelming, like when you’re deciding between building a backyard house (laneway or garden suite) or buying a new investment property in Toronto. 

Both can earn you solid returns, but they pay off differently, with unique risks. Let’s dive into the pros and cons of each, so you can decide what makes the most sense for you.

The Toronto Laneway / Garden Suite Approach

Imagine you have $400,000 to invest. With this, you could build a two-storey laneway or garden suite in Toronto, earning you about $3,000/month in rental income. 

Without borrowing money, your returns are consistent and low-risk. This option provides a steady cash flow, which is excellent for those seeking reliability and lower exposure to market volatility.

Why It Works:

  • High monthly cash flow.
  • Opportunity for value-add gains.
  • Lower overall risk.

The Trade-Off:

  • Limited upside potential from appreciation.
  • Higher income tax on rental cash flow.

The Triplex Investment

Now, let’s say you use the same $400,000 as a down payment on a $1 million property, then invest $200,000 in renovations to convert it into a triplex. 

Once rented, the triplex could generate $6,900/month. Not only are you earning more rental income, but you’re also holding a larger, appreciating asset. Plus, by upgrading the property, you’re adding instant value (also known as a value-add lift).

Why It Works:

  • Higher total returns, combining cash flow, appreciation, and principal paydown.
  • Opportunity for value-add gains.

The Trade-Off:

  • Requires leveraging debt, increasing financial risk.
  • Strong returns depend on market appreciation, which can be volatile.

Levelling the Playing Field: No Leverage

Without leverage, the numbers are surprisingly close. The garden suite offers a higher rent yield, while the triplex has stronger appreciation potential. But since the upfront investment for the garden suite is lower, the value-add lift on the ADU actually looks better.

With the garden suite, you’re getting more reliable returns from cash flow upfront, but that also means paying higher income taxes. The triplex, on the other hand, splits returns between rental income and appreciation. 

This means that in a hot market, you can get higher returns with the triplex, but in a weaker market, the triplex won’t perform as well. However, since more of your triplex returns come from capital gains instead of income, you could be paying less tax with the triplex—meaning you could end up with better net returns after tax.

Other Considerations

Timing is also key when deciding between these options:

  • Now is a great time to buy a property. Prices are lower, and buyer competition has eased. You can negotiate deals without the stress of bidding wars.
  • Backyard suite regulations are improving. Reduced setbacks and fewer restrictions are making it easier to build, and potential government support could further streamline the process.

If you’re thinking about doing both projects, our advice is to buy first and build later—it could actually be the smartest move. Start by purchasing a property that can be converted into a triplex. Once it’s cash-flowing, you can refinance to pull out funds for the garden suite build.

This makes it easier to manage carrying costs since the rents covers most of the property’s expenses and mortgage payments. You’ll see a great value lift from the two projects combined, but with much less capital, risk, and time stress compared to taking on a major fourplex + ADU build from scratch, where you’d also face hefty holding costs on a vacant lot.

How We Can Help

Still unsure which path is best for you? Let’s chat! At our brokerage, we’re not just real estate agents—we’re experienced investors. 

Whether you want a turnkey property or a value-add project, we’ll guide you through every step, from finding the right property to managing renovations and beyond.

Here’s what it’s like to start as a client with us:

  • Initial Consultation: We’ll talk with you to understand your needs and teach you how to invest wisely in Toronto real estate.
  • Market Search & Purchase: We’ll search the market to find the perfect property for you.
  • Renovation Support: If the property needs renovations, our trusted contractors are ready to help, and we’ll coach you as you manage the project.
  • Leasing and Management: If you need help renting out and managing your property, our leasing and management team is here for you.

Ready to get started? Click on the link below, and let’s start working together!

What Toronto Real Estate Investment Is Right For You?

Check out our complete Toronto real estate investment guide for all the details and real-life examples. If you’re ready to dive in, just book a call with us!