Secondary suites versus condo investments

by CRE on 23 Apr 2015
Q: Are single-family homes with basement suites still a good buy? Or should I narrow my focus and buy a condo rental unit instead?

Mitch Collins: Before jumping into real estate investments, it’s very important that you are clear about what your goals and lifestyle requirements are now and in the future. I own both of these types of units and continually add them to my portfolio. However, they can operate quite differently from both a property management and a risk standpoint.
When looking at a suited house, you need to consider the following issues:

1. Is the basement suite legal? Does the zoning by-law allow for secondary suites? If they are not permitted in your target area, seriously consider the consequences and processes if the City should demand that you remove the basement suite.

2. How do the tenants interact? One of the biggest potential issues with suited houses is making sure the home will be desirable to live in. Some options include soundproofing between the units, common entryways, heating systems and laundry space.

3. Who pays the utilities? Most suited houses offer one electrical meter and one gas meter. This leads to battling over who pays what for utilities and much more paperwork. If at all possible, find a property with two electrical meters where you can set utilities up in the tenant’s name. This will make everyone happier and make it more lucrative for you.

4. Does the home have adequate parking? Nothing will hurt your chances of leasing the property to a great tenant more than a lack of parking.
All these things considered, basement-suited homes can offer a very nice cash flow with long-term capital appreciation. I tend to opt for new construction where you can separate all of these issues and build accordingly, including separate utility meters, soundproofed units, adequate parking, separate entry ways, separate laundry, and separate heating and water systems.
When you are looking at condos as an investment, consider the following:

1. What is included in strata fees? Have there been any recent changes or increases in the strata costs?

2. Review the strata meeting minutes. Quarterly, or sometimes yearly, the strata council will meet to discuss the operation of the building. Look at these documents for issues that could have an impact on you. Has there been any discussion about the roof needing to be replaced or elevators needing repairs?

These types of issues, depending on the amount of capital the strata council has in reserve, could potentially lead to a "general" or "special assessment." This means they will ask you to help pay for major expenses in addition to the standard monthly strata fees.

3. What rules have been set by the strata council? Sometimes there is a limit to the number of rental properties that can be in a building. Some people have been unfortunate enough to close on a property and then find out they can't rent the unit.

4. Review the disclosure statement closely. It should have a copy of the insurance policy and other information relating to the common unit entitlement, as well as exactly what it is that you're purchasing.
I've found that properly-built suited houses in the right markets can offer a higher cash flow than condo units. However, in my portfolio, the condos are also some of the most hands-free investments I have.

That said, getting clear on what you want your real estate portfolio to provide to you should help to make your decision. The single most important thing before moving forward is to review the region that you're purchasing in to ensure that it's supported by strong and positive economic drivers, both now and in the future.

Mitch Collins is a real estate agent with Century 21 Energy Results. Contact him at [email protected].

This article was originally published in the August 2014 issue of CREW

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