This is for educational purposes only; it does not guarantee future performance or serve as financial or tax advice.
We’re at a single-family detached home in Toronto, where our clients purchased the property for under $800,000. Their goal? To convert this home into five legal units, with plans to invest around $600,000 in the conversion process. When all is said and done, they’ll be generating approximately $11,000 in rent per month and will be able to refinance commercially with the CMHC MLI Select program.
To take us through this incredible project, I have Victoria from Build X Design with me. She’s the architect behind this conversion and will be giving us a tour of the property, sharing cost-saving strategies for fourplex conversions, and offering key lessons learned from her experience.
Mechanicals – Lower Cost, More Control & Energy Efficiency
The unit is heated by a ductless heat pump, which is perfect for this kind of conversion. This system allows each unit to control its own heating, making it more efficient and tenant-friendly. When paired with an HRV (heat recovery ventilator), the heat pump also ensures natural ventilation.
One of the main reasons we went with heat pumps for this retrofit is that they don’t require ductwork. Retrofitting an older home with heat pumps is easier than tying into old systems, which keeps renovations simpler and cleaner. Plus, heat pumps allow tenants to control their own heating and cooling.
Additionally, each unit has separate electrical meters, so each tenant can pay their own electricity bill, which keeps things fair and avoids added costs for the landlord.
Energy Efficiency & CMHC MLI Select
Energy efficiency plays a huge role in the financial side of this project. The CMHC MLI Select program offers commercial financing for properties with five or more units. The program also rewards energy efficiency improvements with extra points.
There are a few key areas to focus on for energy efficiency: insulation, windows, and mechanical systems.
Older homes in Toronto often have very little insulation, with many being double-brick construction with just plaster walls. In this case, we stripped the entire house down, added insulation, reframed it, and refinished everything. While this is a lot of work, it’s worth it for the long-term benefits, including better financing and lower interest rates.
Upgrading to double or triple-pane windows and replacing outdated mechanical systems with energy-efficient heat pumps are also crucial improvements that will make a big difference.
Electrical Upgrades – 200 Amps vs 400 Amps
Electrical upgrades are another key consideration in this conversion. Upgrading from a 200-amp to a 400-amp system can be both expensive and complex.
A 400-amp system requires underground wiring, which means trenching and coordinating with the city. A 200-amp upgrade typically costs around $2,000 or more, while a 400-amp upgrade can range from $50,000 to $90,000, depending on how much work is required from the city.
To keep the system under 200 amps, consider using gas stoves instead of electric ones, opting for shared laundry, and using gas dryers instead of electric models. These adjustments help reduce the electrical load and keep your project on track without needing the costly upgrade.
Phase 2: Adding an ADU
Once the fourplex conversion is complete, we’re moving on to phase 2: turning the existing garage into a one-bedroom garden suite.
The garage is in good shape, and because it was legally built, its setbacks are grandfathered in, so we can maintain the existing structure without needing new zoning approvals.
The reason for splitting this project into two phases is to avoid development charges (DCs). In Toronto, development charges are waived for up to four units, but if we build the garden suite at the same time, we’ll have to pay DCs for all 5 units.
By completing the fourplex first, we can avoid paying DCs here and defer DCs on the ADU once the fourplex is complete.
Timelines: Design, Permits, & Construction
For a project like this, the design phase typically takes about 6 to 8 weeks. Once the design is complete, we submit for fourplex building permits, which can take anywhere from 6 to 12 weeks, depending on the city examiner. After permits are granted, the fourplex conversion construction usually takes around 8 months.
The garage conversion will have its design completed alongside the fourplex, and we’re hoping to fast-track the approval process for the garden suite. Toronto’s Fast Track program can approve permits in as little as 2 to 4 weeks, which will help keep the project on schedule.
Rents & Cash Flow
Once the fourplex (phase 1) is up and running, it’s estimated that the combined rents from all four units will bring in about $8,,000 per month. After operating expenses and mortgage payments, the property should generate around $4,000 in positive cash flow each month.
Exit Strategy & Refinancing
The exit strategy here is to refinance commercially with the CMHC MLI Select program after phase 2 is complete. This will allow the owners to pull out their initial capital and continue to cash flow positively every month.
Fourplex vs Triplex: Which is Best for You?
A fourplex conversion can be more complicated and costly than a triplex, but it can also generate higher rents and offer better financing options through the CMHC MLI Select program.
That said, a triplex plus a garden suite (a 3+1) can also be a great option with its own set of advantages. Ultimately, the best choice depends on the property’s layout, your investment goals, and your risk tolerance.
How We Can Help
If you want to learn more about buying investment properties in Toronto that can be converted into multiplexes, feel free to reach out to us at Elevate Realty.
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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