This is for educational purposes only; it does not guarantee future performance or serve as financial or tax advice.
Toronto has been pushing laneway and garden suites as part of the solution to the housing crisis. It makes sense on paper, right? Extra rental income, added value to your property, and a potentially great investment.
But a recent article raised some serious concerns about whether laneway suites are really as lucrative as everyone thinks. One homeowner spent close to $550K building a laneway suite, only to struggle for months trying to sell. Meanwhile, homes without a laneway suite were selling in just over 20 days. After all that stress, he barely made any profit.
So, is this proof that laneway suites aren’t worth it? Let’s break it down.
The Risks of Building a Laneway Suite in Toronto
First off, the article isn’t wrong—homes with laneway suites tend to sit on the market longer. Why?
Simply put, they’re more expensive. That higher price tag naturally attracts a smaller buyer pool. Not everyone can afford a more expensive home, and not everyone wants to become a landlord. Plus, some buyers actually need their garage space, which a laneway suite might replace. On top of that, laneway homes can’t be severed from the main property due to city bylaws, which makes them harder to market as standalone investments.
So, if you’re expecting a quick sale with your laneway suite, you should be prepared for a longer timeline. But that doesn’t mean they’re a bad investment, just that there are risks involved.
What Went Wrong in This Specific Case?
In this particular homeowner’s case, there were a couple of major factors that contributed to the slow sale and lack of profit. Let’s dive into the specifics.
Development Charges Were Not Waived
This homeowner built his laneway suite back in 2019, before Toronto started waiving development charges (DCs). Instead of waiving these charges, he was granted a DC deferral of $90K, which placed a restriction on the property title. That restriction complicated the sale process. The final buyer ended up demanding that the homeowner pay off the $90K, even though it would’ve been forgiven after 20 years. Had he built the laneway suite today, he wouldn’t have had to deal with this issue since development charges are now waived.
The Location
The house was located right on top of a subway station. While proximity to transit is usually a selling point, this house had a major drawback—constant rumbling and vibrations from the subway. This would be a dealbreaker for many buyers. Location matters a lot in real estate, and this one had a major downside.
What Kind of Value Lift Can You Expect from a Laneway Suite?
Now, let’s talk numbers. The homeowner in this case sold his house for $1.6M, which is $600K more than homes without laneway suites in the area (which go for about $1M). This means the laneway suite added around $600K in value.
However, the homeowner spent $450K to build the laneway suite, plus an additional $90K to deal with the development charges. After all that, he only made $60K—barely enough to cover his costs and interest on the loan.
But don’t let this discourage you. This outcome was unique due to the specific circumstances of the build. If you build a laneway suite today, you’ll benefit from waived development charges, so you won’t have to deal with that extra cost. And if you manage your build costs well, you could see a much better return.
Typically, building a laneway suite will cost you around $300K to $400K per square foot. If you’re building a 1,000-square-foot laneway suite, you could expect around $200K to $300K in value lift, depending on your renovation choices. With the right management, a laneway suite can still provide a solid return on investment.
Rental Income: How Much Can You Expect?
Let’s take a closer look at rental income. Right now, laneway suites in Toronto are renting for about $3,000 to $3,500 per month. Let’s play it on the conservative side and say you rent your suite for $3,000 per month. After factoring in separate utilities (which the tenant pays) and an increase in property taxes and waste fees, your net rent comes out to about $2,700 per month.
If your build costs are around $350K, that gives you a 9% cap rate—a much better return than most Toronto multiplexes, which typically sit around 5%. That’s a solid return, especially compared to buying a $700K two-bedroom condo, which rents for roughly the same amount.
Plus, laneway suites aren’t subject to rent control (since they were built after November 2018), which is a significant advantage.
Financing the Build: What Does It Look Like?
Let’s say you take out a $350K loan at 4% interest. Your mortgage payment would be around $1,700 per month, which leaves you with $1,000 in positive cash flow each month.
That’s a nice little boost to your income, especially considering that your expenses will likely be lower than those of a comparable condo or other rental property.
The Bottom Line: Should You Build a Laneway Suite?
Here’s the deal: building a laneway suite isn’t for everyone.
If you’re thinking of flipping the property for a quick profit, you might want to think twice. Market downturns can eat away at your gains, and the longer time on the market adds more risk.
But if you’re in it for the long term, a laneway suite still makes a lot of sense. The rental income is solid, and you can add a significant amount of value to your property.
If you’re considering a laneway suite as an investment, just be realistic about what you’re getting into. Don’t expect instant returns, and be prepared for a longer selling timeline. But as a long-term hold, a laneway suite can be a great option. Just make sure to keep your costs under control and understand the risks before diving in.
How We Can Help
If you’re interested in exploring laneway suite potential or other real estate investment opportunities in Toronto, let’s chat. We specialize in helping investors make confident, data-driven decisions. Whether you’re looking for a turnkey multiplex or a property with conversion potential, we’ll guide you through every step of the process.
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!
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