5 Reasons To Buy A Home With A Legal Basement Apartment
Monday Mar 01st, 2021Share
Let’s explore buying a home with a legal basement apartment. I’ll emphasize the word “legal” because a lot of basement apartment dwellers are living in spaces that are non-conforming according to municipal standards. Basements that are deemed to be legal have been registered with the city and are up to code.
The number one and primary reason to buy and own a home with a legal basement apartment is the rental income generated from the space. Renters will usually pay a premium to live in a basement apartment that is up to the code mandated by the city. With the average price of a detached house hovering around the million dollar mark in the Toronto area, receiving rental income can lower the monthly cost to the homeowner.
For example, a 20% downpayment on a house priced at $1,000,000 would have a mortgage of $800,000. A 3 year mortgage at a fixed rate of 2.14% would be $3,441.90 paid monthly with a 25 year amortization. A legal basement apartment would easily fetch a range of $1500-$2000 per month, basically cutting the homeowners mortgage in half. Another strategy by homeowners is to take the rental income and add it to their current mortgage payment to pay down the mortgage faster, effectively shaving off years from the amortization period.
2. Less Liability Than A Non-Conforming Basement Apartment
Let’s be honest...most basement apartments aren’t registered with the city where the home is located. One of the main reasons is that the property taxes are typically higher as a result of the homes value being assessed higher. For the house to be deemed a legal basement apartment, the city will inspect the home to make sure municipal standards are met, especially the fire code.
One of the worst case scenarios for any homeowner is a fire in the dwelling. If that were the case and there was substantial damage or worst yet, injury or death to a basement tenant, a non-conforming basement apartment would pose significant liability to the landlord/homeowner. Subsequently, an insurance claim would most likely be denied upon investigation. The peace of mind having a legal separate dwelling that meets fire code is worth the higher property taxes. A proper home inspection for a buyer of a home with an existing registered legal basement apartment would ensure that everything has been maintained properly.
3. Property Value Increases
Any substantial renovation on a home will increase the value of the property. The typical renovations that add significant value are kitchen and bathroom renovations. You can also add a basement renovation to that list.
Most homeowners renovate their basement for their personal use. This is an extension of the living space of the home that can be used for recreational purposes like a home theatre, play area or home office/workshop. However, renovating the basement to now have a legal basement apartment is strictly for rental income that can now be generated. Once registered with the municipality, an inspection is done to determine the new assessed value of the home. This is also done to determine the new property taxes to be assessed, because of the legal basement status to be included in the legal description of the property.
For resale purposes, a home with a legal basement apartment will usually fetch a higher sale price than other homes in the area. Prospective buyers always factor in the potential rental income when contemplating purchasing such properties.
4. Suitable For A Multi-Family Dwelling
More families are looking to continue to live under the same roof because of escalating housing costs, whether renting or buying. It’s not uncommon in certain cultures for adult children to get married and start a life together in the home of one of the parents of the groom or bride.
Having a legal basement in the home does create a situation where a couple, family member or inlaw can have some resemblance of privacy. Legal basement apartments have their own kitchen and sometimes even laundry so there can be complete separation while still being close to family.
Builders have recently been voicing their concern that the current zoning laws need to be relaxed or amended to accommodate more construction of multi-family dwellings that have 2 or 3 separate units.
5. An Option For The Homeowners Future Living Arrangement
Life happens...sometimes we change our living arrangement out of necessity. Having a legal basement apartment gives an homeowner the option to occupy the space immediately after the renovation or even down the road.
Imagine a situation where, out of financial common sense or necessity, the homeowner decides to live in the basement apartment and rents the upper portion of the home so they can live “mortgage free”. Technically, yes there is still a mortgage on the property...but the rental income from the larger portion of the home would and should cover most or all of the mortgage cost. This scenario would be even sweeter if the property taxes were covered as well. This scenario isn’t far-fetched. I know of a couple who lives in the basement apartment of their home while they AirBnb the upper portion of the home, sometimes generating up to $3000 monthly in short term rental income.