If you're looking to buy Toronto real estate, unless you're loaded with bags of loot, finding a place that fits your current and possible future needs (like going nuclear and having kids) is a tough order to follow. But if you can pony up the price of entry for a freehold house, I'm a fan of buying a multi-unit dwelling (or one that can be converted to one). In fact, not too long ago I recently sold my loft condo in a converted Movie house after securing an efficient utilitarian 1960s legal duplex in Riverdale, where the income from the second suite offset the increase in acquisition price. Since buying my ugly Swell Dwell, I've embarked on a slow transformation, which I've been sharing in my Tales From Tennis Crescent series.
Whether part of an investment portfolio, or as an opportunity to generate rental income from your principal residence, having a revenue producing property invites you to reduce your mortgage costs faster while building equity. Or, like my case, buying a residence with a second unit allowed me to climb the property ladder from a condominium into a freehold house with the income offsetting my higher costs. However, finding the right property entails some sleuthing, as you'll want to ensure it has some specifics not always found in traditional Toronto housing.
But first, knowing taking this step may push you to the brink of your borrowing ability, read my post, Dear Urbaneer: Should I Seek A Home With Rental Potential; it offers a comprehensive review on the nuts and bolts of rental properties.
Given this type of purchase requires a specific kind of strategy, here are some of my helpful hints.
To start, when viewing properties, select one that can be easily divided for supplementary income to help offset expenses according to your need and strategy.
- a property with a separate entrance to a basement has more value than a house which does not, because it eases creating a lower level suite.
- the staircase should be near the front entry and ideally in a straight-run and not intersecting the space, so that every room on the first level can be allocated to the main level. Some older homes have layouts which render conversion into income more challenging and expensive.
- a dwelling with washrooms on each level are desirable, because each floor can potentially accommodate a unit.
- many vintage houses at one time may have contained multiple kitchens (many immigrant family homes in the downtown had these, although they may have been removed in the distant past). Essentially, properties which offer roughed-in kitchens can help ease the expense of converting a dwelling into multi-units. One other helpful hint. A bedroom next to a washroom often is an ideal location to install a kitchen, providing the washroom plumbing shares the party wall of the bedroom, allowing one to easily access the water supply and drains!
Location, Location, Location
No matter your property, the tried and true mantra of real estate applies to every purchase, but it's even more important if you're trying to both grow your overall asset while generating cash flow. Proximity to public transit, parks, schools, shopping and other amenities is not only a big plus for future buyers down the road, helping position the asset value of your home for growth, they can help boost your cash flow today. Tenants also seek proximity to these amenities, which creates the potential opportunity for higher rent. It will also be easier to draw tenants, period.
Also, while a lot of owner-occupants are resistant to living on an arterial road, houses on busy streets are often discounted by as much as 10% than a similar property on a quiet residential street in the same neighbourhood, making it more affordable. However, tenants are more amenable to living on a busy street which, in fact, offer their own opportunities. For example, I recently sold this two unit property on Dovercourt Road for $876,100, which is right on the 161 Rogers Road bus route that goes north and south from the Ossington Station on the Bloor-Danforth Subway line. This means the tenants can see the bus coming south to the subway station from the front window of the house which, face it, is handy in a thunderstorm or blizzard!
Choosing Your Multi-Unit Property
If you are trying to decide between a duplex or a triplex or whether you are buying a home that you intend to convert to a multi-unit or one that is ready to rent, there are a few criteria that you need to determine as they relate to your own situation.
Firstly, how much space do you and your family personally need? How much privacy do you require? How many tenants would you be comfortable in managing? Is your property meant to house your own multi-generational family or to accommodate your changing lifestyle as you age?
In addition to privacy and space needs, what is your goal for cash flow from your investment? And what’s more, what sort of mortgage financing will you be securing? This will factor into whether or not you secure a property that is rental ready or one that you plan to convert. In some cases mortgage financing is contingent on the ability to generate income immediately. Also, the moment you're financing a property with more than three units, the qualification criteria and down payment required are higher. Speak to your lender to ensure you qualify.
What Are Your Plans?
In an ideal property investment world, a property that provides you with the most flexibility and possibility for the price point is the smart buy.
My personal favourite? The three unit multi-dwelling (or one that can become one). Why? Because the computations and permutations of the layout, lifestyle and income potential are the greatest. A three unit building can even address housing needs that you may not even have considered yet along your tenure as a homeowner. I call these homes “Accordion Dwellings” meaning that they can expand and contract with ease, depending on your need.
If you can score a home with the potential to have units on the lower, main + second/third floors, the possibilities are endless. And if you can secure a home that lets you transform it to suit your needs accordingly, even better. Here's one tale of a young doctor living in a condo, who wanted to buy a house for his future wife and family. He secured this Legal Duplex in Playter Estates which garners top rents, until the time he's ready to transform it into a single family residence in this top notch school district!
If income generation is your main objective, the opportunity to reside in one unit while generating rent from two more units is very appealing and will help defray costs substantially.
If your goal is to have a home that can be the centre of your multi-generational family, a triplex is ideal. You have clear division of space, for the sake of privacy, yet are connected enough to provide support as needed. This is an ideal arrangement for Boomers on the top floor, allowing their elderly parents to age in place on the main floor, while Millennial children still dealing with school or just starting out in their careers independently housed on the lower level.
For couples just embarking on their journey, a home with three units can begin as a residence/income suite and then evolve to house a nanny as their family grows. What this does is save this homeowner a great deal of time and money in saving them a climb up the property ladder as their life needs change.
For friends wanting to buy together, there is the opportunity to reconfigure the dwelling by creating two equal suites, as a co-ownership opportunity. Check out our April 2017 Home Of The Month on The Danforth in East York, which had two equally-sized suites plus a lower level
Lastly, for down-scaling Boomers who are drawn to urban core and the benefits of the pedestrian lifestyle, buying a property with a lower level suite provides the best of both worlds. Like this Contemporary Townhouse in Little Italy which I recently sold! If you're a snowbird, then having a resident in your property to 'keep an eye on things' is always a benefit. First, there's the matter of insurance. Insurers often require someone check on a vacant property consistently in order to keep a policy valid. If you don't and the water pipes freeze, then your coverage could be null and void. Another benefit is having a tenant present to do general operational tasks, like take out the garbage and recycling, water the lawn or shovel the sidewalk of snow. Not only does a tenant keep a property appearing occupied, one can offer the tenant a monthly fee to attend to these matters (which you can write off against the income). Imagine the benefit of having a resident caretaker who pays you a monthly rent that covers your property taxes and utilities. Who wouldn't consider this a 'win-win'?
Does the strategy of owning an Accordian Dwelling in a prime location represent an attractive opportunity for your life stage and objectives? If the answer is 'Yes', check out a (now sold) listing we called Mid-Century Magic On Sorauren In Parkdale which invited transformation into two or three suites!
If you're interested in reading more about renovating an income property, I've also shared my journey transforming a vintage manse in Charlottetown, PEI. Here's my Tales Of Upper Hillsborough, which includes a fully accounting into a luxe furnished vacation rental!
And here's some additional posts on income properties posted on Urbaneer!
For those considering a real estate purchase, there's no question the storyline in Toronto’s property market - with numerous influences and sub-influences - is complicated. My objective as a realtor, is understanding its layers and the context of the market momentum as it relates to your own particular circumstance and what your position is on the property ladder. Plus, I believe it's prudent to think about the future and what an investment now might mean for your finances down the road. Whether you are buying or selling, this market requires a well-thought out strategy derived from data, comprehension and observation and knowledge gleaned from experience. My team and I are here to help!
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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