Real Estate

10 Things to Consider When Installing an Income Suite

Provide long-term income and boost your home’s value with an income suite or rentable accessory dwelling unit.
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Installing an independent housing unit at your property can be a big investment, but if planned well, an income suite (also known as an in-law suite or accessory dwelling unit), can be a terrific way to pay down a mortgage faster, build equity in a home, and increase its resale value. However, there are 10 important things to consider before installing an income suite in your home or property to ensure that you and your tenants have a positive experience.

RELATED: 5 Things to Know Before Adding an Accessory Dwelling Unit to Your Property

1. Do you want to be a landlord?

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Whether your plan is to have a long-term or short-term rental, being a landlord requires work and effort. Plus, a landlord’s duties often come at short notice or inconvenient times. Tasks can include screening potential tenants, performing regular maintenance work, handling repairs, and dealing with disputes or rental payment problems. Think about whether you are willing to put in the work yourself or if you might prefer to hire a property manager to care for your rental management duties.

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2. What are the laws regarding landlords and tenants in your area?

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Familiarize yourself with the laws governing residential tenants and landlords in your area. By knowing your rights and those of your tenant and understanding each person’s obligations, you can start the landlord-tenant relationship off on the right foot, avoid missteps, and have a plan in place for dealing with any potential disputes or legal issues.

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3. How will rental income affect your taxes?

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Rental income can be a great way to increase your household revenue, but it’s not “free” money. The rent money you earn is subject to income tax. When you file your taxes, you can deduct from your rental income expenses incurred, such as repair costs, operating expenses, and utilities. You should also be aware that capital gains tax may apply if you sell your home, depending on how much rental income you earned while you owned it.

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4. What will you be giving up?

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Installing an income suite in your home or property may mean giving up more than just extra living space. Having tenants may also mean giving up a portion of your privacy, storage space, and perhaps even some peace and quiet. Consider how having tenants within your property may affect your daily life, and make sure you can live with the inconveniences that may be involved.

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5. What are your local ordinances?

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Before drawing up plans, research your local zoning laws and building codes. Some municipalities do not allow for certain types of accessory dwelling units, and many have very specific requirements on what constitutes a legal suite.

Your local zoning office can supply you with your jurisdiction’s requirements on things like ceiling height, windows, fire safety, and emergency exits. Make sure you know what you can and can’t do before you apply for building permits.

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6. How much will the project cost?

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Installing an income suite is a major project that can take a significant amount of time and money. Expect to spend anywhere from $40,000 up to $150,000 or more, depending on the size of the space, whether structural work is needed—such as digging out and underpinning a basement—and whether the suite is a standalone structure or within an existing home.

Resist the temptation to take shortcuts to contain costs. Protect yourself and your future tenants by including the time and money in your budget to do everything legally.

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7. How will you access shared utilities?

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Many houses have utility access in the basement, which could be a problem if you’re planning on renting the space. If possible, try to place utilities such as the furnace, electrical panel, and water shutoff in a shared space outside of the rental unit so that maintenance tasks and emergency work can happen without having to coordinate access to the unit with the tenant.

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8. Will you share an HVAC system?

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While most building codes allow for a single furnace to heat an entire house with more than one dwelling unit, you might want to consider installing a separate HVAC system for each unit. Sharing air ducts will likely mean also sharing cooking smells, scents, dust, and noise. Plus, having one thermostat controlling both units may be problematic if you and your tenants have different preferences for temperature.

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9. Will you hire an architect or a contractor first?

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If contractors in your area tend to book up quickly, you may be tempted to find one before you get an architect to draw up the plans. But hiring an architect first is almost always the wisest course, as the money you spend upfront for an architect can be balanced out by bids from builders that are more accurate and easier to compare.

If you’re not interested in bidding out your project, consider working with a design-build firm. By hiring an architect and contractor at one firm, it may also help smooth the permit and inspection processes.

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10. If you were your tenant, what would you want?

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Not only do you want your rental unit to be up-to-code and above-board, but you also want it to be comfortable and a pleasure to live in. Long-term tenant

turnover zaps rental profit and adds heaps to your workload, so once you find quality tenants, it’s ideal when they stay a long time.

As you design your income suite, think about how you would use the space if you were living there. For example, if the kitchen area is limited, would you rather an 18-inch stove and 24-inch fridge, or vice versa? If you only had room for either a dishwasher or a laundry machine, which would you choose?