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3 tips for secondary income suites

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Buying a home with a secondary income suite, or with the intention of installing one, can be an effective way to offset steep mortgage costs in some of the hottest Canadian real estate markets. And it should come as no surprise that they’ve become a widespread practice in Toronto and Vancouver, where the average price for a detached home now exceeds $1 million.
 
Considering rental vacancies are incredibly low in both cities – 1.6  per cent in Toronto, and 0.6 per cent in Vancouver – offering affordable housing seems like a guaranteed money maker. In fact, 80 per cent of rental units outside of purpose-built developments are located in private residences.
 
The Canada Mortgage and Housing Corporation (CMHC) recently recognized how secondary suites help alleviate the affordable housing crunch in Canada, and has introduced new regulations to make them more affordable than ever; as of last July, 100 per cent of rental income from a suite can be factored into a mortgage qualification.
 
“Secondary rental suites are recognized as a source of affordable housing offered at a cost that is often lower than those for apartments in purpose built rental buildings,” states the Crown Corporation.
 
But building and maintaining a secondary income suite – not to mention assuming the role of landlord – isn’t a simple task. And while there are a number of resources available, it’s up to newbie landlords to understand their legal responsibilities, or face the financial consequences.
 
Here are the top challenges would-be landlords should consider before making the plunge.   
 
1. Make it legal
 
There are a number of regulations, safety codes and bylaws that must be adhered to in order to have a secondary suite. This means you’ll be on the hook for any required fees, permits and inspections if you’re building your suite from scratch. If you’re purchasing a home with a secondary suite included, there’s the chance it may not be up to code and will need to be retrofitted.
 
While it may be tempting to skip all of the legal legwork and operate your suite under the radar, doing so puts you at risk for huge financial penalties if you’re caught. Anyone can call in an inspection to the city and you could be forced to remove any work done and convert the home back into a single-family dwelling. You will also be liable in case of accident or death of an unreported tenant, and could even void your own home insurance coverage.
 
According to the Second Suites Guide prepared by the Ontario Provincial Government, a secondary suite must include the following to be legal:

  • The residence must be at least five years old
  • The house must be detached or semi-detached (different regulations exist for adding suites to rowhomes)
  • The exterior of the home cannot be significantly altered
  • The secondary suite cannot be larger than the rest of the home
  • It must have its own separate entrance, bathroom, kitchen and living facilities
  • It must be up to fire code, have a minimum 15-minute fire rating, and at least two escape routes, one of which must be a door leading to the outside
  • It must meet municipality parking requirements

The CMHC has additional requirements for those looking to use their suite to qualify:

  • The residence must be owner-occupied
  • The home can only have two dwelling units (the primary unit and the secondary suite)
  • Existing suites must have two years’ worth of rental history
  • The suite must have legal status

 
2. Obtain the right permits
 
Many homebuyers make the mistake of assuming they can build or expand an income suite in their home without researching the required permits. According to the Second Suite Guide, formal permission is required to make any significant structural changes to your home.
“If you start construction but do not have the necessary permits, you may be ordered to stop work, prosecuted, and even ordered to remove work already done. If you are uncertain as to whether you need a permit for your project, contact your local civic centre directly,” it states.
A permit is required in order to:

  • renovate, repair or add to a building
  • demolish or remove all or a portion of a building
  • change a building’s use
  • install, change or remove partitions and load-bearing walls
  • make new openings for, or change the size of, doors and windows
  • build a garage, balcony or deck
  • excavate a basement or construct a foundation
  • install or modify heating, plumbing, air conditioning systems or fireplaces

3. Know your responsibilities as a landlord

Being a landlord is no easy task – you’ll be required to handle every aspect of the suite, including marketing it and selecting prospective tenants, collecting the rent, and maintaining the property. Your responsibilities and your tenants’ rights will be governed by Tenant Protection Act in your province. It’s important to review the Act in depth, but it generally covers:

  • You have the right to collect rent on time, to not have your property damaged, and to not be harassed or disturbed by your tenant.
  • Your tenant has the right of security of tenure, meaning, they can occupy the suite until there are valid, proven grounds for eviction – even during an ongoing dispute.
  • Your tenant has the right to live in a suite that is habitable, safe and properly maintained
  • Your tenant has the right to reasonable enjoyment, meaning they can have overnight guests, cook foods of their choice, and come and go as they please.

Penelope Graham is a managing editor at Zoocasa, a real estate brokerage based in Toronto. 

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate


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Victoria real estate agent disciplined for false advertising, encouraging cash deal to avoid taxes

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A Victoria real estate agent is facing $9,000 in fines and a 60-day licence suspension after breaking several professional rules during the sale of her father’s half-million-dollar property, according to a decision by the Real Estate Council of B.C. 

Whitney Garside’s missteps — outlined this week in a disciplinary decision posted on the council’s website — included falsely advertising the property as being almost twice its actual size and advising the buyer they could avoid the property transfer tax if they paid cash directly to the seller.

The property on Burnett Road in Victoria was being sold in 2016 by the real estate agent’s father. That relationship was disclosed and isn’t among the reasons she has been disciplined.

According to the disciplinary consent order, Garside told the buyer — whose name is redacted — that by paying $42,000 cash on the side, the value of the property could be reduced to avoid paying the property transfer tax.

That cash arrangement was not shared with Garside’s brokerage, Re/Max Camosun, a failure that contravened the Real Estate Services Act.

The council also ruled that she “failed to act honestly and with reasonable care and skill” when she advised the buyer the property transfer tax could be avoided by paying cash directly to the seller. 

The council’s discipline committee also found that Garside committed professional misconduct when she failed to recommend the seller and buyer seek independent legal advice, specifically regarding the property transfer tax and the cash agreement.

Another issue the council considered professional misconduct involved the size of the property in question.

The council ruled that Garside published false and misleading advertising and failed to act with reasonable care and skill when the property was advertised as 8,712 square feet, when in fact a portion of the lot belonged to the Ministry of Transportation, and the actual size was just 4,711 square feet.

The discipline committee ordered Garside’s licence be suspended for 60 days, which will be completed Jan. 3, 2021.

She has also been ordered to complete real estate ethics and remedial classes at her own expense.

Garside was also fined $7,500 as a disciplinary penalty and $1,500 in enforcement expenses.

She agreed to waive her right to appeal the council’s discipline committee’s decision in September.

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Frisco apartment community sells to Canadian investor

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A Canada-based investor has purchased a Frisco apartment community as part of a larger Texas deal.

The 330-unit Satori Frisco apartments opened last year on Research Road in Frisco.

BSR Real Estate Investment Trust bought the four-story rental community that was built by Atlanta-based Davis Development.

Satori Frisco was more than 90% leased at the time of sale. The property includes a two-story fitness center, a car care center, a dog park and a resort-style swimming pool.

The Frisco property sold along with Houston’s Vale luxury apartments in a deal valued at $129 million.

“BSR recently exited the smaller Beaumont and Longview, Texas, markets and also sold noncore properties in other markets,” John Bailey, BSR’s chief executive officer, said in a statement. “We are now using our strong liquidity position to invest in Vale and Satori Frisco, modern communities in core growth markets with the amenities our residents desire.”

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House prices on Prince Edward Island continue steady climb

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Residential real estate prices on Prince Edward Island continue to climb at a rate higher than the national average, according to the latest report from a national organization. 

The Canadian Real Estate Association released monthly figures for November 2020 on Tuesday.

They show that the average price for a resale home on P.E.I. is about 21 per cent higher than it was a year earlier. 

Only Quebec had a bigger year-over-year increase, at about 23 per cent. Overall across Canada, prices were up 13.8 per cent year over year in the ninth month of the COVID-19 pandemic.

“For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019,” the report noted.

“Meanwhile, an ongoing shortage of supply of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.”

That lack of houses coming onto the market compared to the demand means that in those provinces, there is “increased competition among buyers for listings and … fertile ground for price gains.”

There have been anecdotal reports for months that Prince Edward Island’s low rate of COVID-19 infection and looser rules around social activities have been encouraging people to buy homes on the Island. 

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