VANCOUVER — Faisal Yonadim doesn’t mind sharing his home with strangers — as long they aren’t loud, don’t party all night, and are considerate of his neighbours.
And the extra income he banks every month for renting out his two-bedroom basement suite doesn’t hurt either.
“It doesn’t matter (who they are) as long as they are noiseless,” he said.
In Metro Vancouver — where the average price for a typical single-family home tops $923,700 — the prospect of having some form of secondary suite to rent out to help with the mortgage is downright seductive.
Especially when the region’s apartment vacancy rate, as measured by Canada Mortgage and Housing Corp. (CMHC), is at an extremely low 1.8 per cent and renters are often scrambling for options.
Yonadim renovated his basement suite nearly six years ago after his children moved out to make extra money to cover the mortgage on his Coquitlam home. He has been lucky so far. His first tenants were a working couple who met all the requirements on his checklist, and are only now moving out after buying themselves a condo.
“The were very cooperative and understanding,” Yonadim said. “We communicated a lot about what they wanted and what we wanted. Communication is important. After (tenants) move in, that’s when the problems (can) start.”
Most B.C. landlords, like Yonadim, are fortunate enough not to encounter major issues when renting out their basement suites. But a small number of landlords have horror stories to tell.
Recently, one landlord temporarily, and unknowingly, rented out her basement suite at Shawnigan Lake to a meth addict and couldn’t immediately evict him. Others have had tenants skip out on the rent, change the locks on the house without permission, or rented to tenants who felt they had a say in household operations.
Many homeowner landlords are afraid to talk about such difficult tenants.
“They’re concerned that by describing a specific situation they may open themselves up to liability — being sued by a tenant,” said Amy Spencer, president and chief operating officer of the Rental Housing Council of B.C.
Other issues include tenants who smoke marijuana or cigarettes in a non-smoking home, or sneak in pets, Spencer said. The biggest issue recently appears to be the use of drum kits in basement suites.
Yonadim, who is now seeking a new tenant for his two-bedroom, $900-per-month ground-level suite, is among the majority of landlords who manage to land reliable tenants for their suites.
He is looking for a student this time, but the stipulations remain the same: “No pets. No smoking inside. No noise or parties.”
While renting out a basement suite sounds like an easy process, adding landlord to the title of homeowner comes with considerable legal obligations, not to mention raising the financial risks if a rental falls through.
Canada Mortgage and Housing Corp. estimated that in 2012 there were 39,307 secondary suites in Metro Vancouver homes.
In Vancouver proper, a 2009 city estimate found there were at least 25,000 homes in single-family zones containing some form of secondary suite.
On the side of financial benefits, depending on what bank you are dealing with, a would-be homeowner can count up to 90 per cent of a suite’s rent against the income they need to qualify for a mortgage, said Ryan McKinnley, mortgage development manager at Vancity credit union.
That, he added, is a big factor in moving a couple with a modest income from being unable to afford a home to being able to buy the house they want.
He used a set example to demonstrate how much of a difference a rental suite can make:
If a couple was looking at an $800,000 home, with a 20-per-cent down payment, they would need an annual family income of $122,000 to qualify for the $640,000 mortgage on a fixed five-year term at the current 3.69-per-cent rate.
However, if the house in question had a basement suite that could be rented for $1,500 a month, the $1,350 in monthly rental income that the couple could apply to their mortgage application would reduce the required family income to $72,000 a year.
To stretch the example even farther, if the couple was willing to live in the basement suite themselves and rent out the rest of the house at $2,500 per month, the $2,250 they could apply to the mortgage means the $800,000 property would be in reach with a family income of $45,000.
“It’s very common — and it’s often that one piece that actually allows (a homebuyer) to purchase the house that they want,” McKinnley said.
However, McKinnley said homeowners need to have a plan going into the process, with contingencies covering off all the “what-if” scenarios. Such “what ifs” include being able to cover the full mortgage cost if the suite is vacant for a month or two, as well as the cost of repairs and proper insurance.
Setting aside a couple of months rent in a savings account — as a cushion against an unforeseen vacancy — allows a homeowner to take time to find a good tenant rather than rushing to rent it out. That contingency “will give you peace of mind,” McKinnley added.
“Whenever you’re dependent on income that could potentially not be there for a month or two, it’s important to look at that,” McKinnley said.
Then there is the issue of whether a suite is legal.
Discouraged for decades as a nuisance, most Metro Vancouver municipalities now do allow secondary suites. Only Burnaby restricts suites to relatives of a homeowner or in-home caregivers.
The City of Vancouver, for instance, passed a bylaw legalizing secondary suites in all single-family zoned areas of the city, and in 2009 estimated that 25,000 houses in these zones did have a suite.
However, to be legal, secondary suites have to pass building inspections — which means renovations to bring suites up to building codes — and meet specific requirements. In most municipalities, suites are subject to certain fees, which vary from jurisdiction to jurisdiction.
Surrey, for instance, allows each single-family home to have one suite that meets B.C.’s building codes and passes inspection. Fees, ranging from a secondary-suite services fee to additional charges for garbage, water and sewer usage, add up to $1,288 a year for suites in un-metered homes. For metered homes, fees are based on water consumption.
In Vancouver, suite owners require a business license, which is $62 per year with a one-time $50 new-applicant fee at the start. One-time fees for building inspections and permits add up to $1,194 or more. Annual fees — on top of the business licence — total $330.
The Real Estate Board of Greater Vancouver maintains a list on its website of which municipalities allow secondary suites, and outlines most requirements that homeowners must follow.
The least risky situation is to have a secondary suite registered in order to have certainty over matters that involve insurance or financing, said Larry Buttress, deputy executive officer for the Real Estate Council of B.C. However, Buttress added there is a risk in registration in that a suite might not be approved.
“So it’s a little bit of a Catch-22,” Buttress said.
For financing, McKinley said buyers with only the minimum down payment who need CMHC mortgage insurance have to make sure suites are legally registered to qualify.
Otherwise, banks and financial institutions have other ways to test income-generating potential of suites, such as a rent report conducted by an appraiser or examination of the rental income claimed by previous owners on tax returns.
Matters of financing and registration come before perhaps the toughest part of renting out your suite: the ongoing legal obligation of being a landlord.
“Renting a basement or secondary suite is a business, and business owners need to understand the rules,” said Spencer.
To start with, Spencer said homeowners have to understand their operations are governed by the Residential Tenancy Act, which sets out their responsibilities to their buildings and the rights of tenants.
Landlords have to make sure their suites meet health, safety and housing standards; they have to provide emergency repairs; and they need to understand what is meant by emergency (that the tenant’s health and safety is in danger).
“Education is the key,” Spencer said, adding she recommends homeowners join a professional association to get the backing of a larger group, particularly when it comes to acquiring legally enforceable rental application forms and rental agreements.
“Almost everything about being a landlord is regulated, from how you enter into a tenancy, how much you can charge for security and pet deposits, how you deal with rent increases, nonpayment of rent, and evictions,” Spencer said.
And landlords need to understand their obligations for repairs and maintenance, how they are allowed to access the suite, dealing with sublets, and what constitutes discrimination, she added.
For all of these reasons, Spencer said, landlords need those specific and legally enforceable forms