Does it make sense to finish & legalise a basement as Additional residential units?

[Chirag Rathod]

Hello everyone,

Me and my wife own a single detached bungalow (~1200 sq.ft) built in 1976 in Woodstock, ON. We have been living it for 2 years now. We purchased the house when the housing market was at its peak(high 700’s). We have 2 different entrances to get into our basement. The city of Woodstock has recently amended their by law that enables all the R1 zoning house to have 1 or 2 Additional residential units. We applied for a permit for 2 apartments in the basement (Unit 1:1 bed apartment & Unit 2: A 2 bed apartment )

The permit has been approved. We are also getting a forgiving loan of 30k for the duration of 10 years from the county for 1 unit if we rent out the 1-bed basement unit to a household with income less than 100k and at the rate defined by the city )(~1183+ utilities) for a 1 bed unit.

I think the 2 bed can easily be rented out for $1450 + utilities in our area.

About the basement: It's partially finished (drywalls and ceiling only) with no bathroom or kitchen.

Since it's a considerably smaller house, I am not sure if this would add significant value to the house if we sell it say 5 years down the line. We will be landlords for the first time in our life.

Estimates we are getting from the contractors to build in 2 legal units is between $110k-$150k. Given the scenario, does it make sense financially? My estimates say if I were to bring in the sub-trades myself I can get this project completed at about 80k.

Seeking feedback from the experts in the group here.

Thanks,

Chirag

[Abel Curiel]

Quote from @Chirag Rathod:

Hello everyone,

Me and my wife own a single detached bungalow (~1200 sq.ft) built in 1976 in Woodstock, ON. We have been living it for 2 years now. We purchased the house when the housing market was at its peak(high 700’s). We have 2 different entrances to get into our basement. The city of Woodstock has recently amended their by law that enables all the R1 zoning house to have 1 or 2 Additional residential units. We applied for a permit for 2 apartments in the basement (Unit 1:1 bed apartment & Unit 2: A 2 bed apartment )

The permit has been approved. We are also getting a forgiving loan of 30k for the duration of 10 years from the county for 1 unit if we rent out the 1-bed basement unit to a household with income less than 100k and at the rate defined by the city )(~1183+ utilities) for a 1 bed unit.

I think the 2 bed can easily be rented out for $1450 + utilities in our area.

About the basement: It's partially finished (drywalls and ceiling only) with no bathroom or kitchen.

Since it's a considerably smaller house, I am not sure if this would add significant value to the house if we sell it say 5 years down the line. We will be landlords for the first time in our life.

Estimates we are getting from the contractors to build in 2 legal units is between $110k-$150k. Given the scenario, does it make sense financially? My estimates say if I were to bring in the sub-trades myself I can get this project completed at about 80k.

Seeking feedback from the experts in the group here.

Thanks,

Chirag

 Hello Chirag!

This is an excellent question. Although I am not in your market, I would say this could be worth it if the comparable sales support it. I'd recommend looking at similar nearby properties that have sold with 1 or 2 adu's. The best comparables will be the most recent but if this type of property is uncommon in your market, you can go back as far as 9-12 months in your 'past-sale' search. A local RE professional should be able to provide this information to you as well.

In New York, we deal with this scenario frequently and oftentimes it does not make sense to legalize ADUs because the permit process is extremely lengthy, the cost is high (sometimes $150-300K for 1 ADU unit), and the potential increase in property valuable is not worth the risk.

If you already have an approved permit/plan and can get your renovation down to $80K, you may want to consider this project if the ARV is say north of $800K.

** You should also look into any potential property tax increases associated with this change. In some suburban counties here in NY, property taxes go up significantly when units are added to a property.

All the best!

Abel