To have or Not to Have: The Basement Apartment

on General, investment property, Landlord, real estate investment, rental, tenant, Toronto April 12th

rental houseWhen and where are basement apartment a good idea?

If you are a first time buyer and you want to use the extra income from a basement apt. to help pay down your mortgage, a basement apt can be great.

If you have purchased an investment property in a trendy downtown location that has a basement apt that will attract good tenant then this will also work. The apt is likely close to public transit so parking is not an issue. There will be a choice of tenants applying so you can choose one that has good credit without having the unit vacant for a long period of time.

In these two scenarios that basement apartment can really work for you.

In less desirable locations a basement apartment can drag down the value of the upstairs unit so you could end up with two less than desirable tenants! This often happens in even slightly more suburban locations.

In this type of location you will often have difficulty with finding quality tenants for your basement apt and this can translate into lost rental income and legal costs when you need to evict tenants who cannot pay their rent.

Basement apartments, by their nature, attract shorter term tenants. Each time there is a change in tenancy there are costs involved: advertising and showing the unit, cleaning and repairs to get the apartment ready for the next tenants.

When you have more then one apartment in the same building sharing heat and electricity systems that are not metered separately, these costs should be included in the rent. When the tenant is not paying for the utility bills they may not consider the costs to the landlords and will not be conscientious about how much they use. The result being higher then usual costs to the landlord.

When you factor in the lost rent, time and cost dealing with turnover and legal fees and the cost of utilities, any additional income from a basement quickly disappears.

My recommendation for renting houses that have basements apartments (except in the first two scenarios) is to rent them as a house that includes an in law suite. You will get slightly less rent but you will save on utility costs because you have the tenant set and pay their own utility accounts and you will have a better quality tenant and more consistent income from you investment property.

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