Converting a Toronto Single Family Home into a Triplex Plus A Laneway Suite!
Introduction
We’re going to walk you through a real project here in Toronto, where our client, Ken, is taking on the hottest missing middle priority projects that Toronto has introduced: Multiplexing and Laneway housing.
Ken is almost done with his multiplex conversion in his main house, has submitted permits for a laneway suite, and is about to tackle that next.
The Layout
The Timeline
Capital Investment
Ken bought this house at the end of last year during the market lows. There was low confidence in real estate in general, and the holidays were just around the corner and so buying demand was even lower, which both helped him as a buyer.
On top of this, big projects were not receiving as much attention. We see this on a daily basis when looking at deals, and now data from the GDP side is also validating this. What this means is that you end up getting even better deals if you’re willing to take on the work, and that’s why Ken bought this property for an amazing price of $850,000.
Then, Ken spent $130,000 on renovations to convert it into three units. This was also on the low end of the spectrum, and there were a couple of reasons:
- He’s quite handy and did some of the cosmetic upgrades himself, which I’d value at around $25,000.
- He kept some existing things like a bathroom and most bedrooms unchanged.
The project took 9 months to complete, and that’s another $45,000 in carrying costs. So, if we add this up, the total cost is around $200,000 for the conversion.
Rental Income & Cash Flows
On the rental side, Ken also got lucky with the timing difference between purchase and leasing.
Over the nine-month period, rents skyrocketed to his advantage, which now gives him close to $2,000 of positive cash flow per month or a 6.8% cap rate on purchase + construction.
If we were to run it based on today’s purchase price, which has come up by around 10%, plus construction costs, this is actually closer to a 6.3% cap rate.
The reason Ken bought this property is to maximize the yields on the home with a backyard house. It’s definitely a big investment, but the numbers work well for someone looking for the best cash flows.
You’re looking at around $3,500 of rental income on a two-bedroom house with a $400,000 build cost, so that’s a 9.5% cap rate on its own.
Once you combine that with the main house, it’s a true cash cow generating over $5,000 of cash flows or an average 7.5% cap rate based on purchase plus construction costs.
How We Can Help
What Ken is doing would have been very popular when borrowed money was practically free a few years ago. But now, carrying costs are much higher, and it’s just harder to borrow money for projects in general.
Demand has definitely dropped, and it worked to Ken’s advantage because he was willing to take it on.
Ken got a deep discount on the purchase price and a big bump in rents. So, from a cash flow standpoint, cash flows actually look better than a few years ago.
If you want to take a closer look at these opportunities and have an expert guide you through this conversion process, our team is here to help.
We’re a real estate sales brokerage that focuses on investing in freeholds in Toronto, and we’re happy to chat more about this. Just take the first step to book a Zoom discovery call with us!
Want To Get Started With Real Estate Investing In Toronto?
We’d be happy to learn more about your situation and help you find the best investment opportunities for you.
