With the lack of housing availability in Canada, especially affordable housing, Canada’s housing landscape is evolving, as it must. For two key demographics – first-time home buyers and empty-nesters – this means finding unique solutions when it comes time to buy a new home.
A trend that’s gaining traction is buying a new home custom-built to include a rental unit. For first-time homebuyers looking for new homes for families that need to offset mortgage costs and empty nesters seeking additional income, this could be a game-changer. Let’s dive into the merits of this housing model.
Understanding Built-in Rental Units
A home with a built-in rental unit, often termed a secondary suite, in-law suite, or accessory dwelling, is essentially a property with two separate living spaces. It could be a basement apartment, a garden suite, or even a separate unit built over a garage. These homes are designed to accommodate the owner and a tenant, ensuring both have adequate privacy.
Advantages of a Built-in Rental Unit in a New Home vs. Converting Part of a Resale Home
Among the many other benefits of newer homes are the advantages of buying a home custom-built with the intention of creating a separate accessory dwelling. Here are just a few reasons why, if you plan on buying a home and renting out a portion of it, buying a custom new build can be a better choice than purchasing a resale and undergoing the conversion process.
The Move-in Ready Experience
With a new home already equipped with a rental unit, you sidestep the challenges of renovation. No need to live amidst the dust and noise of construction, or vacate your home temporarily. Everything is set from day one. You also have full control over both living spaces when working with a home builder. This assures you and future tenants that the secondary unit is fully functional and provides privacy to all occupants. Conversely, renovating an existing home requires compromises and working around its current construction.
Modern Amenities and Design
New constructions in Canada often reflect the latest in design trends and are equipped with current amenities. This not only ensures that your empty nester house plans provide a comfortable living space for you, but it also makes the rental unit more attractive to potential tenants, possibly fetching higher rents.
Modern homes tend to be more energy-efficient, incorporating the latest technologies and materials. This can result in substantial savings on utility bills and increase your profit margin. Plus, an energy-efficient rental unit can be a unique selling point for eco-conscious tenants.
Fewer Immediate Repairs and Maintenance
One of the significant drawbacks of older, resale homes is the potential for hidden repair and maintenance issues. With new constructions, everything from the foundation to the roof is brand new, reducing the likelihood of unexpected repair costs in the early years and further driving down your operating costs.
Many new homes in Canada come with builder warranties. These can cover a range of potential issues, from structural defects to interior problems. Having this safety net ensures peace of mind, which is seldom available with older resale homes.
Better Compliance with Current Building Codes
New constructions are built to the latest building codes and regulations, ensuring the built-in rental unit is compliant right from the start. This saves you from the potential legal and financial pitfalls that might arise from converting a part of an older resale home.
The Benefits of a New Home With a Built-in Rental Unit for First-Time Home Buyers
- Financial Assistance. With the soaring prices of real estate in many Canadian cities, managing mortgage payments can be challenging. A built-in rental unit can act as a significant income stream, making those monthly payments less daunting and the dream of homeownership a reality.
- Building Equity Faster. By using rental income to pay down the mortgage, new homeowners can build equity in their homes relatively quickly.
- Efficient Space Utilization. New homes designed with rental units in mind often have optimal space utilization. This means that the main living area will be tailored for the new homeowner’s comfort and enjoyment, allowing them the best of both worlds.
The Perks for Empty Nesters Buying a Newly Built Home With a Rental Unit
- Supplementary Income. With children moving out, many empty nesters find themselves in homes larger than they need. Transitioning to a new home with a built-in rental unit provides all the newest comforts and amenities whilst also generating a steady flow of income, useful in retirement years.
- Company. For those who find the house a tad too quiet post children, a tenant can bring a bit of vibrancy back. It’s not about replacing family but about adding a different dimension to daily life.
- Security. Having a tenant can offer an added layer of security, especially if, when designing empty nester homes, the unit is in or adjacent to the main house.
Is a New Home with a Built-in Rental Unit A Good Investment?
For many, the answer is a resounding yes. Homes with built-in rental units tend to fetch a higher resale value. Additionally, in areas with a high demand for rentals, these properties are incredibly appealing. Even if you choose not to rent out immediately, having the option for future rental income is advantageous. There are several factors to consider beforehand, however.
Important Considerations When Taking on Tenants
While investing in a home that generates income sounds like a no-brainer in the appropriate circumstances, there are crucial considerations to be aware of, including:
Choosing the right tenant is the most important aspect of this endeavour. Use a rental application form, conduct thorough screenings and ask for references that can verify a potential tenant’s income, rent-payment history, and character.
With a rental unit comes the responsibility of upkeep. Ensure you’re prepared for the occasional repair and regular maintenance.
As with any real estate decision, location is paramount. Research rental demands in your desired area. Urban centers or areas close to universities and colleges often have high rental needs.
Do Your Due Diligence
Before seriously considering this, or any other investment, you must look at financial calculations like your net operating income, gross yield, and the cap rate to know if the numbers work and the rate of return on your investment.
Rental income is taxable in Canada. However, you can deduct certain expenses like repairs, maintenance, and mortgage interest. Consult with a tax professional to fully understand the implications of renting out a part of your home.
Stay updated with Canadian real estate trends and the rental market. This knowledge will help you set competitive rents and understand the future prospects of your investment.
New homes with built-in rental units present a win-win for both new home buyers and empty nesters in Canada. While challenges exist, the financial and personal benefits often outweigh the drawbacks. If researched and executed well, it’s a smart and contemporary approach to modern Canadian living.