Ask The Expert: Should I Convert My Garage into a Rental Suite?

Owners planning to sell their homes will often make major changes to increase resale value – but it comes with risk, says local agent Barry Magee

By
Macdonald Realty
December 13, 2016






Ask the Expert Barry Magee

Q: I’ve heard of people in my neighbourhood converting the garage in their Vancouver Special to a suite. Is this a good thing for resale value?

A: Ah, the Vancouver Special. A staple of the landscape on any street in the south or east of our city. Even back when they first arrived, it was recognized that the true value in local real estate was in the land, therefore you’d better make full use of the value to pay the mortgage. A typical Vancouver Special will be zoned for two residences within the structure, one on top and one on the bottom.

Go to any open house at one of these homes and you could easily find two or three rental suites, usually in the basement. After all, if you can get one rental income out of the property, why not get three, right? On the surface this might seem appealing, but it’s not always all it’s cracked up to be. As with many decisions in the real estate market, it’s a case of risk vs reward.

Turning a garage into a suite can be very expensive and comes with all sorts of question marks. How will you provide heat to the unit? Will the tenant like the idea of living next to a parking space? Will adding an extra kitchen put too much strain on your current electrical setup? How many units is your property zoned for? What if the City discovers your property is over your unit limit? Will all of these questions answered, is the risk worth the reward?

Safety

The first consideration has to be safety. With three or four kitchens in the home instead of two, this increases the risk of fire. From the City’s perspective, this is why some homes are zoned for two suites and not more. Increased fire risk can put extra strain on emergency services after all.

You can always apply to change the zoning of your property, but your renovations are subject to city approval and the process can be quite lengthy. You’ll also be subject to higher insurance costs, a sure sign there is a safety risk involved.

Cost

It can be extremely costly to make renovations of this nature. As noted earlier, how are you going to provide heat to the unit when it used to be the garage? You are looking at an investment of tens of thousands of dollars so you need to make sure this cost going to translate into an increased value when you sell.

Then you will have to deal with the various contractors and time it takes to do the renovations. If you don’t have experience with this previously, it can be very challenging. So you need to make sure this is something you are willing to take on knowing the risk involved.

Legal Risks

If the City of Vancouver discovers you have four suites in a property that is only zoned for two or three, they can force you to revert the property back to its original form. It doesn’t happen often, but the home owner is at risk if the additional, unauthorized suites are discovered. Once discovered, the penalties can be quite stiff and unforgiving. If you’re selling your home, is your buyer aware of the risk?

The most likely risk can arise if there is a strained relationship with a tenant who decides to report the property to the City. Many people find being a landlord daunting, and this adds another layer of uncertainty. So if your buyer is aware of the risk and can’t handle the uncertainty it brings, they will likely walk away.

Return on Investment

This all comes down to whether or not your buyer values the revenue that adding a rental suite will bring. A house price of $1.8 million with 20 per cent down brings a mortgage payment of around $6,500 per month if amortized over 25 years. There aren’t too many people who can afford that payment monthly, so if there is $2500 in monthly rental revenue coming out of the rental suites, will that make the difference for your buyer? If it does, this can increase your return on your investment.

Recommendation

If I had been asked this question in March, when the market was very hot, I might have leaned towards yes, but these days I don’t think this is a smart investment. I don’t think it will increase your market value – in fact I think it could very well decrease the value of your property, given the current market conditions. The demand for single family homes is dropping currently in all parts of the Lower Mainland, so you’ll want to make sure you have access to every available buyer.

And why make the decision for your buyer? There are plenty of buyers who just want a family home for themselves, absent of multiple suites in the property. If they want to divide the home into suites for rental revenue, that’s fine – let them do it themselves. A large part of the allure of owning real estate is that you have control over your property and its future. Taking this control out of the equation will likely decrease your pool of interesting parties. 


Barry Magee is a Vancouver-based REALTOR® with Macdonald Realty at 4387 Main Street, Vancouver. He has an extensive background in marketing, and brings a consultative approach to the table for his real estate clients.
© Copyright 2017

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