Updated: Jun 16, 2021
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In the past few years, you may have heard of the new movement regarding Laneway units. For homeowners and investors, owning a property to rent is a great way to earn passive income. However, it can be difficult to decide whether to purchase a condo or other forms of housing units.
What are Condos?
Condominiums, also known as condos, are privately owned residential units which could be rented to tenants. Condos are often situated in a residential building, and unlike apartments that are owned by a corporation, are owned by individual landlords. Since the rental process is dictated by the landlord, the decision of who can become a tenant is a matter of personal observations. The landlord would only be on-site if they also live in another condo nearby.
What are Laneway Suites?
The most well-known backyard units are Laneway Suites. Simply put, they are independent residential units situated on the same property as the detached house, semi-detached house, townhouse, or other forms of low-rise residential buildings. A Laneway Suite is usually established in the back of the yard next to a public and accessible laneway, and is often built at a smaller scale and is entirely separate from the main house.
How are Laneway Suites more Beneficial than Condos?
When it comes to owning a property to rent, condos are often more costly at both the purchasing and maintenance stages. In the growing real-estate economy, the value of condos grows at a slower pace and can become stagnant due to age. While the value does not grow exponentially, the monthly maintenance fee is continuous and will be increased overtime due to the aging of the building. Additionally, unless you have accessible funds, the price of a condo can be anywhere between $500,000 to $1,000,000, meaning you would most likely have to get a mortgage and pay a downpayment. On average, condos are at most 1000 square-feet, meaning you are paying much more for a smaller space. Furthermore, it is not guaranteed to be able to profit on a monthly basis as the recurring expenses (maintenance fee, vacancy, insurance, property taxes, and mortgage) can cancel out all the rental cash flow.
In comparison to condos, Laneway suites offer financial benefits for homeowners that don’t require a resale. Laneway suites cost significantly less than condos, from the beginning of construction through to the rental stage. On average, it can cost between $200,000 to $300,000 to finance the construction of the units. Homeowners are also able to defer payment of development charges as per the City of Toronto. At an average of around $400 per square foot to build a Laneway suite, you are getting much more space for a lower price than the average condo which is over $1000 per square foot in Toronto. Finally, putting a Laneway suite on your property can increase the property value due to its income generating potential.