Properties with a Second Unit

Have a look through many MLS listings and you will see terms like: “Secondary Suites”, “Basement Apartments”, “Accessory Apartments”, “Granny Flats”, “In-Law Suites”, “Granny Suites” or “Nanny Suites”.    Whether a buyer is looking for a unit for an aging parent to stay nearby or to make some extra money to help make the mortgage payments or cash flow, a Second Unit can be a great solution.

What are Second Units?

Second units are self-contained residential units with a private kitchen, bathroom facilities and sleeping areas within a single family or semi-detached home.

Benefits of Second Units

In addition to increasing the amount of affordable rental accommodation in an area, second units benefit the wider community in a number of other ways. They:

• provide homeowners with an opportunity to earn additional income to help meet the costs of home ownership
• support changing demographics by providing more housing options for extended families or elderly parents, or for a live-in caregiver
• maximize densities and help create income-integrated communities, which support and enhance public transit, local businesses and the local labour markets, as well as make more efficient use of infrastructure
• create jobs in the construction/renovation industry.

The Canadian Mortgage and Housing Corporation (CMHC) recently announced that in order to facilitate affordable housing choices for Canadians, it would be making some policy revisions on how they consider income derived from secondary suites. Considering the last 4 years have been nothing but tightening of rules, making it harder for Canadians to secure mortgage financing, this news is certainly welcome!

Cautions about Purchasing a Property with a Second Unit

1. Regardless of where they are located, second units must comply with health, safety and municipal property standards, including but not limited to, the Ontario Building Code, the Fire Code and municipal property standards by-laws.  In addition, a building permit may be required to establish a second unit depending on whether alterations to the house are needed.  As such, buyers considering purchasing a property with a Second Unit or homeowners considering establishing a second unit should contact their municipality prior to doing so.
2. In many cases, illegally-operated secondary suites also go unreported to insurance providers. If a Secondary Unit is not reported to your insurance provider you run the risk of not being covered in the event of a loss.
3. In addition, your lawyer will be required to order a work order search since you are technically purchasing a multi-unit residential property. This results in a longer timeline, a few more dollars and, possibly, some setbacks to deal with in order to close on the anticipated closing day.
4. Be sure to speak to your accountant if you will be receiving rent from the second unit. There are several tax implications for receiving rental income not the least of which is having to claim Capital Gains on the sale of your personal home.
5. A final word of caution, if one (or both) of the units are currently tenanted, be sure to ask for vacant possession of the unit that you will be living in.  If the tenant in the extra unit is staying, be sure to ask for a copy of the lease to make sure your rights are protected.  If the tenant in the second unit is also leaving, make sure you require vacant possession of that unit as well.  Banks will no longer allow the flexibility of a tenant to “move out in 60 days” in order to qualify for a residential mortgage with 5% down payment.  On closing day, the discovery of a “Rent Adjustment” by your lawyer will immediately cancel your mortgage if the lender was not aware that a tenant would be remaining in any of the units.

So What Does This Mean for You?

If you would like to discuss how much mortgage you qualify for and look at different scenarios of qualifying with a secondary suite rental income, I would love to have an in depth look at your finances and provide you with mortgage options!