Rich Danby, President of Rich Ottawa Investments, says “that investors can benefit from this strategy because over the past ten years the Ottawa real estate market has appreciated 65%, but the rents have only increased approximately 20%”. As a result, Danby explains “that investors may need to use their own funds to cover the shortfall of expenses not covered by rents. If you buy a typical bungalow in Ottawa for $350,000, the average rent is approximately $1800 per month, depending on the condition and location. However, if you add a second unit by converting the basement to a legal secondary suite you can significantly increase your rental income. The additional income not only covers all the expenses of the property, it also provides you with extra income every month.”
Here are a few items to consider before attempting this strategy.
a) Ottawa’s secondary dwelling unit rules are currently very favorable for investors. For example, the city allows the addition of one unit in a detached dwelling, one in each half of a semi-detached building, and one for the whole of a duplex. Note that secondary dwelling units are not permitted in the former Village of Rockcliffe Park or in duplex dwellings located in the Queensway Terrace North community.
b) You need building permits before starting the work. “Many people add basement units without involving the city because they’re concerned it will cost more or the city may not allow it”, adds Danby. “Proceeding without permits could come back to haunt you, especially if there’s ever a fire and somebody gets hurt. You also run the risk of being shut down if the city finds out you added an illegal dwelling”, explains Danby.
c) Adding a secondary dwelling unit is a great way to increase value of a home. However, modifying a property could trigger an increase in property taxes. Also, anyone who owns a property with a secondary dwelling unit should ensure they have adequate property insurance coverage and are familiar with Ontario’s landlord and tenant laws.
Anyone who is interested in adding a secondary dwelling unit should consult with the city’s planning department and become familiar with the related by-laws before beginning the conversion. When done right, secondary dwelling units can offer safe and affordable housing to renters while helping investors increase their cash flow and property values at the same time.
Ottawa Sun - May 29, 2015