In Vancouver, rental rates are through the roof even with a simmering housing market. This is bad news for renters, but great news for any homeowners with some empty space.
Maybe the kids just moved out for college, or maybe you just haven’t used that spare room or basement in years and the boxes have piled up over your head. If this sounds like you, then you might be sitting on top of a goldmine that could pay your mortgage, add to your retirement savings, or maybe even pay for a nice vacation a couple of times per year.
This guide is going to help you get started on the process of converting some empty space in your home into a rentable suite (or an Airbnb if you prefer a little extra work for a lot more money).
Is converting your basement worth it?
Before you get started, you have to consider if this is really something that suits you. Some people would rather have absolute privacy rather than make some extra money, and others would bend over backwards to make a few extra hundred dollars per month.
Are you willing to put in a little extra work each week, and make a few sacrifices to make some extra money? The best way to answer this question is with another question – How much money?
Because of the advent of the internet and some very smart people, we as homeowners have the option to list our empty space on Airbnb and make more money than we otherwise would by renting it the traditional way.
To get a quick idea of how much you could potentially make, head over to airbnb.ca/host/homes and play around with the calculator. If you have a sizeable basement, you could make over $3,200 per month! No, I’m not kidding.
While this is obviously very attractive, it’s important to note that Airbnb usually takes quite a bit more work to manage than a traditional rental.
In Vancouver, a basement suite could garner you anywhere from $1500 – $2300 per month using the traditional rental method, but it’s mostly hands-off. You don’t have to worry about new tenants moving in every week, you don’t have to do their laundry or buy them shampoo, and you don’t have to clean the unit until they move out (hopefully a long time from now).
So consider for yourself, “Should I just leave my basement as a giant storage closet, or is it worth it to renovate it and find a tenant. If I do rent it out, is it worth it to me to spend an extra 10 hours per month to make an extra $1700, or would I rather take a hands-off approach?”
Once you have this answer, you’re ready for step 2.
How much will it cost?
Now, those big shiny numbers that we mentioned before aren’t the whole picture. It costs some money to set up a rental suite. Most of the time it isn’t in the condition to rent, so you will have to do some renovations. The size of these renovations depends on the state of the suite.
We’ve converted many basements into tenable suites in Vancouver and the costs have ranged from $20,000 for some new flooring, painting, and mould removal (you can see a basement project here), up to $85,000 for everything, including adding a new bathroom and kitchen from scratch, installing all-new lighting, and everything else. PS, if you have trouble guessing how much a bathroom will cost, we have built a bathroom cost-calculator.
Basement remodels in Vancouver range from $50,000 to $90,000, but it really depends on the materials you decide to use, such as the bathroom tile, the vanity, the flooring, the kitchen appliances, etcetera. The average basement conversion in the city is approximately $60,000.
Remodels don’t have to be expensive. For every project, we make a point get multiple bids for each project (we have built a list of over 60 subcontractors). This takes some time to do, but is worth doing, as it allows us to save our customers an average of 25% compared to just going with the first option. If traditional contractors charge $60,000 for a basement conversion, we are able to do it for around $45,000.
This still seems like a large sum to spend on converting your basement into a rental suite! Right, but keep in mind that the value of your property will rise substantially when you have a secondary living space. In most cases, you will return 70% of the amount that you spend on the improvement according to the “Cost vs. Value Report” for 2019.
If you decide to host an Airbnb, you will also need to pay fees for the consumables and cleaning services. According to some Airbnb hosts, these costs can range from between 10-20% of the total rental revenue. That means that your $3200 rental makes between $2900 – $2580, which is still better than renting in most cases.
Now, considering the total cost and the amount that you will make each month, let’s calculate your total return on investment.
So after 7-8 months, every penny from your rental suite will be going towards your mortgage, investments, or vacation. If you use Acoutera Renovations, this timeline is shortened to just over 1 month. This is just an approximation, but if you are seriously considering renting your basement then do the math for yourself and decide if it’s worth it. If you would like help throughout the process, visit our website or email me at email@example.com.
In another post, I’ll outline the process of how to actually get started planning your tenant conversion, and then how to find the right tenants and deal with the legal and tax implications of a rental suite.