Real estate prices in lower Vancouver Island are some of the highest in Canada, hence, the abundance of houses with a “mortgage helper,” or what is officially called ‘additional accommodation’ in the MLS.
Here are three things buyers should know before and during the process of purchasing a home with a suite.
Firstly, what are your lender’s requirements? Does the suite need to be tenanted with a minimum amount of rental income or can the suite be vacant? How much of the rental income will be used to qualify? Some lenders use 100 per cent while others accept much less.
Also, does the suite have to be legal or is ‘illegal’ acceptable? Does a basement area that just needs a kitchen to make it a suite, qualify?
Knowing such details is critically important, as is illustrated in a sale I was involved in a few years ago. I had a property listed with an empty, full-height basement. It was a perfect candidate for the creation of a suite. Several times I asked the agent representing the buyers whether they were financially qualified to purchase the property. The agent insisted they were and on that basis the offer was accepted.
However, it was discovered that, although it was within their price range, neither the buyers nor their agent had made themselves aware that their lender required the home to have an existing suite. It was a waste of time and disappointing for everyone involved.
Secondly, the Residential Tenancy Act has very specific rules regarding the sale of a home where tenants occupy a suite. Buyers may not legally ask for vacant possession of a suite simply because they want to put their own choice of tenant in the suite. Buyers may only request a seller to end a tenancy agreement under the same circumstances that a landlord can do so.
The most common reasons are: a) if you want to use the entire home for yourselves or if you are prepared to leave the suite vacant for 6 months, b) if you intend to rent it to a member of your immediate family, meaning parents or children, or c) if you plan to do major renovations.
Painting and other minor things don’t count. You are required to produce permits to prove your renovations are major.
Thirdly, if none of the three scenarios above are applicable, then you must accept that the tenants come with the property. If this is the case, they are either an asset or a liability and need to be investigated. In the conditions of a purchase agreement, you should require a copy of the rental agreement as well as an opportunity to interview the tenants before removing your conditions. For instance, if you are allergic to cigarette smoke or cats and the tenant smokes and /or has a cat, both of which may be allowed under the existing rental agreement, you may not wish to proceed.
Otherwise, be prepared to go to arbitration to receive permission to give your tenant notice to vacate. There is no guarantee you’ll win, because you knew or should have known the situation before you purchased the property.
Another scenario is if the rent is significantly below market. If the tenants remain, it will take years to raise it to market standards, because the annual rate of rental increase allowed by the Residential Tenancy Act is quite minimal.
Suites are a great financial boost but there is more to being a landlord than collecting rent cheques. Doing your due diligence will help you avoid the pitfalls and reap the rewards.
Valerie Edwards is a Realtor with Pemberton Holmes Realty. She can be reached at valerie@valerieedwards.com or by calling 250-478-9141.
Q: What are the benefits of a secondary suite?
Financial benefits are often the most obvious, but there are numerous side benefits of having a secondary suite or purchasing a home with one.
If you are looking to get into the market, securing a mortgage on a property with a secondary suite can make it easier for you, because some lenders appreciate a home with rental-income options.
If you already have a secondary suite, you might have more financial options, including increasing your ability to make higher monthly payments on your mortgage which can significantly decrease the amount of interest you pay long term.
Also, your home’s resale value can rise if you have a ready-to-go secondary suite, especially one already rented to a long- term tenant in good standing.
GREATER VICTORIA MARKET UPDATE » Month to date Feb. 23 COURTESY VICTORIA REAL ESTATE BOARD
» 396 / 412 -- NET UNCONDITIONAL SALES/ TOTAL, FEB. 2014
» 877 / 1,064 --NEW LISTINGS / TOTAL, FEB. 2014
» 3,448 / 3,770 -- ACTIVE RESIDENTIAL LISTINGS / TOTAL, FEB. 2014