In Ottawa, converting basements to legal apartments (known as secondary dwelling units in Ottawa) is a strategy that offers decent returns when done properly because it increases the value of the property and enables the investors to command higher rents. Everyday home buyers can also benefit from owning a property with an SDU because they can live in one apartment and use the rental income they collect from the other unit to help pay for part of their mortgages, property taxes, and day to day expenses.
An added bonus is that the city of Ottawa’s SDU rules are currently favorable for investors. For example, the city allows the addition of one unit in a detached dwelling, one in each half of a semi-detached building, and one for the whole of a duplex except for duplexes in the community of Queensway Terrace North. In addition, the entire basement area can be used as an apartment. If the main floor of the home is 1000 square feet, the city allows the SDU to be the same size. For investors, more space means more bedrooms can be included which of course increases the cash flow.
Converting a basement to an SDU or buying a home with one already built clearly has its advantages. So then why do so many people choose to buy properties with illegal apartments? Why do so many people convert their basements to apartments without obtaining city permits? Here are a few reasons why:
- a) The cost of building an SDU is significantly higher than building an apartment without permits.
- b) They believe they can get away with it and won’t be caught or shut down by the city.
- c) The cost of buying a property with an illegal apartment is typically cheaper than buying a property with an SDU.
- d) They claim they didn’t know that permits were required.
Whatever the reasons, there are risks to consider if you decide to buy a property with an illegal apartment. Here are just a couple of risks to think about before making that purchase.
Beware Weekend Warrior Construction
You have probably heard of the term “weekend warrior”. For this article, the term is used to describe people who call their relatives or friends over for the weekend to help with some renovations in exchange for a few cold bottles of Coors Lite and an extra-large pizza. These weekend warriors might have fun working together but the quality of their work is often sub-par and they don’t always complete the renovations in accordance with the various provincial and municipal regulations. As a result, the poor quality of the construction and the lack of adherence to electrical standards and the fire code puts the property and its occupants at risk. Before buying a property with an illegal apartment, be certain to understand the health and safety risks and at a minimum ask the seller if the electrical work was completed by a licensed master electrician.
City Crackdown on Illegal Apartments
Would you believe that approximately 90% of the basement apartments in Ottawa are illegal? Some of my investing friends think the number is actually about 95%. I view a lot of properties with apartments, in-law suites, granny flats, and rooming houses and many of them were built without city permits. The city of Ottawa knows this and there is plenty of chatter about new bylaws coming down the pipe that would crack down on illegal apartments. The crackdown could include a city wide licensing regime for landlords and new rules related to short term rentals. The city might even force property owners to shut down their illegal “bunkhouses” and rooming houses which could cost the investors thousands of dollars. So, be sure to contact the city to find out the latest about new bylaws that involve landlords and illegal apartments before buying any property where the seller doesn’t have the appropriate permits. This simple tip could help save you a lot of money and headaches!
Tony Miller is an award-winning Investor Focused Realtor and investor in Ottawa. He can be reached at firstname.lastname@example.org.