Economics of building a basement secondary suite for rental income?

4/26/2015 at 3:00:06 PM

It doesn't cost $50/sqft. It should cost app. $25000-$30000.

4/26/2015 at 3:48:46 PM

KJD,

The cost would depend on the quality and extras that you may be considering. I agree with Haron that the cost of $50 may be high. I am assuming that you want just a basic suite with no frills. A bathroom that is functional, a kitchen/dining area, and a bedroom. I think the laundry area, if it's in the basement, would be shared.

What you have to consider is the ceiling (I'd suggest some soundproofing ... for your comfort), and the flooring. These two items are where some thought should be given. The ceiling, I'd suggest a dropped ceiling, which is relatively quick and easy to install, and sufficient lighting for each room. The flooring, depends on how level the current floor is and how cool/wet the floor is. It may require a sub-floor, to add warmth and insulate, prior to a floor covering. Then you'll need to decide on lino, vinyl, hardwood, carpeting etc.. Each has it's own merits and degree of pricing.

The kitchen and bathroom both offer choices as to quality but aren't a major issue. Sinks, counter tops and bathroom items range from "economy brands" to high end. I would suggest not going with the cheapest but a grade or two higher would do.

Think of this project in two ways. A source of income, yes but also a value added to your home for future use by you or for resale vaule. Keep it simple but decent quality and you'll do fine.

Regards,

Mark

4/26/2015 at 7:56:39 PM

Dear KJD,

I have finished two basement apartment projects in the past four months. Both were one bedroom apartments (Kitchen, washroom, bedroom and a living room). One was 1000sqft and the other was 1100 sqft. The cost didn't exceed 30K in either project.

4/26/2015 at 8:24:31 PM

Hi,

I am from Toronto. The basement investment and rental income can be compared in different ways.

If you have spare money in bank what is return that you get max say 2% ! Now the same amount of money do a legal Basement apartment.

1) The property value increases or say equity is build in the property ( based on Toronto market) and get more money then what you have spend. ( Good quality work with designer grade finishes and planning reward is always there)

2) In Toronto market you get any where from 900 to 2500$ + Utilities in rent depending on Location, if its a walk out basement, very bright, close to all amenities, kitchen with quality appliances, laundry etc. One Can get better return on investment then money in the bank.

Even if you calculate 900 x 12 = 10800 $ per year your investment of 35 to 40 k can be back in pocket, equity is build and its and income generating property hot to sell.

I have a couple of properties and they are +ve cash flow in current market, all are finished basement and generating income.

I am putting solar on roof this year as other source of income and under Micro Fit Ontario is giving 39.4 cents per Kw. for 20 years. so I have 10Kw system which will generate 3800 $ per year. system is costing 27K will be paid of in max 8 years. so for other 12 years it will give me 36k as profit.

Study your Edmonton market ask your Local Real Estate agent, Mortgage agent, can you rent the place easily, can it be legal, and see how statistic works in your part of the world.

Money in bank does not generate more in fact the buying power of $ is going down ONLY in Real Estate investment one can make money in long run, that is what I have seen in life.

Hope this helps.

4/26/2015 at 11:28:44 PM

Thanks for the replies. I definitely appreciate the gut check!

I thought the $50-$100 sqft range seemed high but I've gotten a couple quotes that are well within the middle of that range. One thought we were going mid-to-high range. The other we clearly specified we wanted base level, IKEA-kitchen-level quality for basement rental and got an $80 per sqft quote.

Our space already has everything roughly loacted where it needs to be, secondary entrance in place, windows/egress requirements satisfied already We thought it'd be straight forward and thought of doing it ourselves but just don't have the time. New home construction, so no potential existing structural or water damage to repair.

Based on the feedback here, I'll wait for a few more quotes and try to have a clearer conversation about our expectations. We have a few upgrades that we thought would only add moderately to the cost but maybe it's more than we expected such as a second furnace (req'd by code?), separate electrical panel for suite (we wanted a mechanical room where we'd only have access to so the tenants would need their own panel), good-but-not-crazy sound proofing.

-KJD

5/3/2015 at 10:20:54 PM

Hi KJD,

Mark only mentioned the fact that your house will appreciate in value probably a lot more than what you put into it. The equity you create by putting in a decently finished and LEGAL rental unit should also be part of your equation. If you actually have a 4, 5, or 6 year payback and 50 K in additional equity, you are doing pretty good in my opinion.

If you are serious, you should check with a real estate agent and your mortgage person to get more financial opinions.

Don't give up on it, just investigate a little deeper.

Good luck with it!

Jim Kuzma

Kettleby Handyman

5/10/2015 at 1:03:03 AM

KJD is dreaming. Compliance in alberta is 2nd furnace, separate entrance, kitchen codes, utility room codes..permits..separate parking area on property (street not allowed. If you do it legally it is at least $50-70.sqft. Guy must do them illegal...$15,000 fine if you get caught and don't comply..my cost alone is over $30-40,000...be careful who you hire!!..it is not profitable unless you plan on living in house 10 years or if it is for family.

5/10/2015 at 1:06:40 AM

Sorry correction I meant "Haron from Calgary"...there are so many fly by nighters in alberta right now it makes me sick...I wish government would crack down on them..we are supposed to be licensed and registered with service alberta..half are not...I get 3 calls a month from people who have been ripped off and it was low initial price in every case and then the contractor usually quit when he milked them for a payment and discovered he would not make a dime with what he quoted....sad AND BAD NAME FOR THE REST OF US GREAT BUSINESSES!

2/15/2017 at 3:44:57 AM

I have just started my journey into renovating my basement and turning it into a legal suite. What...a..can..of..worms.. haha

So I will have spent $30 000 just by putting in a high efficiency furnace, rinai hot water on demand system, A/C, hot water softener, heat return valve, and gas fireplace for the downstairs suite (because you need a separate heat source). That doesn't include the new base I needed built because I moved it to the garage..the leveling I had to do to the floor..because it was sloped..and now I need a fire proof room for it to be housed inside of (within my garage). I also need to upgrade my electrical panel to 125amp because it's a requirement.

My point it... these costs add up exponentially when you start getting into what's required by code within your municipality. And if you want any sort of return on your investment.. you'll want to make it legal. Also, if you go to sell, more people will be approved to buy your house because of the income suite. You have to look at it as a long term investment. No, you might not get your money back within 2 years. But another solution could be that you move to the basement and rent up the upstairs for higher income potential. That's what I might do.

Hope this helps!

11/13/2017 at 11:50:56 PM

I agree with the latter responses. Making a legal suite is alost double the cost of an illegal suite with all the new code requirements. I would expeCT the price to be between 60-70 per sqft. And don't expect it to be paid off in 2 years. Look at the average rent price and if that pays for the mortgage cost of the unit, some maintenance and a little cash in your pocket your doing well. Nowhere could you buy a house for $70k and rent it out for 1k a month. Good luck. PS. References references references for your contractor

4/22/2020 at 8:43:42 PM

Who was telling u that a basement suite should pay for itself in two years? That's crazy..I'm guessing a realtor or the builder? My company specializes in legal suites in Edmonton. For your typical 1960s bungalows where we gut the basement and start new we charge approx 65-75$/sq ft. depending on finishes.

If you're home is newer and the basement is currently unfinished, you're looking at 50-60$/sq ft. People who finish regular basements underestimate the cost of suites all the time, they think its just a basement with a kitchen, but there's a lot more too it. The largest expense is having to add a 2nd furnace and isolate the duct work, thats about 8k, kitchen with quartz counter tops, another 6-8k, soundproofing insulation and resilient channel in the ceiling, 1500$, 2 or 3 solid core doors depending on layout, another 1500-2000$, plus permits are 1600$ and u need some additional drywall and mudding because u need to drywall and firetape the mechanical room, under stairs, etc so the costs add up pretty quick.

4/22/2020 at 8:51:13 PM

By the way, dont do what Mark suggested and do a dropped or Tbar ceiling. This is not allowed and will make your suite illegal. All areas in the basement including your whole ceiling, under stairs, storage room, electrical room etc need to be drywalled and taped. U can just do fire taping or "rough" taping in the unseen areas. Also, check your window wells, if the house was built 4 or 5 years ago u may have 24" deep window wells, if so, they need to be swapped out for 30" window wells. 50$/sq ft is fair and actually more than reasonable. The fellow who said it will increase your resale value is 100% correct, it will help with the mortgage pay down and increase your resale value and make it more attractive to potential buyers when u do sell. The City Of Edmonton also has a cornerstone grant program u can look into, they will reimburse u up to 25k if u do a suite and live in the residence for 5 years. All the info is on the City of Edmontons website.

1/4/2023 at 12:26:52 AM

Having included a legal secondary suite in the basement of my new home when I built it, I agree with the contractors here. A few things of note that I have found through the process. Soundproofing a must. The very best is double 5/8" with staggered joints. Don't waste money on resident channel , spray foam, safensound, etc. Walk out basements are most desirable for natural light. Sunken patios with big windows next. Prospective renters like lots of natural light. Use quality products wherever possible. Cheaping out only means that your place will be beat up in 5 years and you are replacing or it just looks junky, hence your clientele will be affected. Good cabinets, granite, if you can, quality flooring, etc. If building from new, consider in floor heat for basement heating system, forced for upstairs, HVAC for upstairs can then be downsized.