I made $18k/year by converting my bilevel into a legal duplex!
I had been dreaming of real estate investing for years, and when I set out to buy a home in 2016, I knew exactly what I wanted. I needed a place that I could somewhat easily convert into a legal duplex. I was determined, I wanted to rent out the basement and get my start into real estate investing.
Some people call this house hacking, where you rent out a portion of your home and effectively cut your living expenses. In my opinion, it is the absolute best way to get started in real estate investing.
Why spend the money and time to do it legally?
I won’t sugar coat this one. It will cost you MUCH more to create a legal basement suite that meets the code requirements. However, it is really the only way to go. To create a legal basement apartment here in Calgary, there are a number of code requirements you must meet (as in most municipalities). There are a few reasons that I would recommend you always do the conversion legally:
Your neighbours. It can only take 1 complaint from a neighbour to have the city looking at shutting you down. Prevent this first by doing things right - follow the code requirements to a T. Second, talk to them beforehand! Let them know what you are thinking, ask them if they have any concerns and how you might be able to mitigate them in advance. Usually, the big ones are parking and having less permanent residents in the area. Talk to them about your plans before you get started.
Future valuation. If you plan to pull equity out in the future, you will likely not get credit for your basement suite unless it is legal and registered with your municipality. Make sure you get the highest possible appraisal by doing things on the up and up.
Safety (most importantly)! As a landlord, it is your responsibility to ensure the housing you provide is safe for your tenants. Follow the code, make sure windows and doors meet egress requirements, you have the proper fire and carbon monoxide detectors, and ensure fire barriers are in place where required. This is one area that you can not skimp on - it is literally a life and death responsibility. Not to mention a lawsuit waiting to happen.
What is involved in a legal conversion?
Your city will have its own requirements, however here in Calgary we have a few important considerations (check your city planning department for the details where you live) Here are some of the biggies:
Separate heating source. For us, this meant fully separate furnace and HVAC system.
Windows and doors must meet egress. One of the most important safety considerations - no skimping!
Fire/CO detectors in all bedrooms & common areas. Straight forward, but have to be interconnected with the upstairs units.
Ceiling must be 1/2” drywall. Provides a fire barrier for one, but I’d recommend going further with sound insulation and resilient channel to keep noise transfer to a minimum.
Mechanical room must have fire barrier. This one is tricky, and meant every inch of the mechanical room had to be drywalled and sealed.
Those are the big ones, however by no means complete. For details on your area, remember to check with your city planning department. If you are working with a contractor, make sure they know the requirements too!
Our duplex!
We chose a bilevel split house for one big reason - the large windows and natural light! We did not want it to feel like a basement, and it certainly doesn’t. Let us know what you think in the comments!
Drumroll…what did it cost?
First a bit of a caveat - we did not try to do this on the cheap. As mentioned, this is done 100% legally, to ensure I got the best market valuation afterwards. So here are the numbers!
Total Cost: $90,000 CAD (~$71,000 USD)
Monthly rental income generated: $1,500
Even without diving into other creative ways we were able to leverage and refinance after the fact, that is an INCREDIBLE 20% rate of return on our very first real estate investment! Yes, the numbers do change slightly to factor in insurance, vacancy, capital expenses & repairs, but even with those in mind this will be a home run especially in the long run. Not to mention, we have since been able to rent out the upstairs, pull additional equity out to finance other projects, all while earning positive cash flow.
This return was an absolute game changer for me once I saw the numbers. It continues to perform extremely well with minimum intervention. Have you ever thought about converting your basement into a duplex? Have you rented out your basement at all? What have your experiences been like? Would love to hear from you in the comments!