Thursday, April 2, 2009 4:46 PM EDT
Amidst a sea of hot tubs, ShamWows, and that trace of animal smell that always seems to lurk in every building of the CNE (Canadian National Exhibition), The National Home Show was a great chance for me to catch Scott McGillivray, host of HGTV’s show, Income Property. Scott gave a presentation on how to approach the idea of an income suite in your home, and we chatted after the fact.
Short of getting on the show, Scott answers many of the most common questions about how to approach the project. (See Scott's 7 Reasons and Checklist below!)
Elana Safronsky: What did you talk about today?
Scott McGillivray: A lot of people are asking about how to put an income suite in their homes these days. Not so much how to buy, but specifically how to convert their existing homes. Many have lost their jobs, and some just need the money to make ends meet. We are also going to be starting season two, so I put it out there for people because we’re going to be casting for the show and it’s a nice way to connect to the people.
E.S.: How do you pick?
S.M.: People write in through the website, and our casting team checks them out. We’re looking for first-time home owners mostly, the more dire their situation the better, we look for projects that sound doable, and then we visit the owners and do an estimate.
E.S.: Does the show foot the bill?
S.M.: The show does what it can. Our construction and labour is covered, we pay for the permits, the designers and basically the team – our team. A lot of the big materials we get for free, but we also throw in some great items where we can, like instead of a $99 generic toilet we may throw in a $300 Kholer. But we do want something to be at stake for these people, so usually a put in on average, a third of the cost.
E.S.: Ever had anyone really break the bank where you’ve had to walk away?
S.M.: We have had people on season one who’ve said if I don’t have this done I’m going to be on the streets and will do anything it takes, and I’ll work with them to see if they may have some equity, or can get a line of credit or a small loan – people on our team usually go above and beyond. We’ll dig really deep to get contractors to donate some time and try to get it done. We’ve never walked away and abandoned anyone completely.
E.S.: How did you get into this?
S.M.: I started doing rental properties when I was in university, about nine years ago. I was a renter as a student in University, and I couldn’t find a place to rent to save my life. Then through a school project – we were talking about supply and demand – I took a look at rental properties, and sort of came up with this formula that seemed to work really well. Instead of spending my third year student loan on rent, I used it toward closing costs on a minute down payment on a house. I lived there and fixed it up to rent as well and eventually I did another one, and another, and it went from there.
E.S.: Is there a main ingredient that you need to have to pull off a rental suite in your home?
S.M.: You need to have the space. Almost anything can happen but my rule is if it’s going to cost you more than two years worth of rent, don’t even bother. If you’re spending $24,000 on a place you better get a thousand dollars worth of rent, a month. That way, over two years your space has paid itself off.
E.S.: But that’s a lot - $24,000, no?
S.M.: It’s a pretty big reno, but some people have to lower their basement, put in a separate entrance, etc. All these things could really add up to $60,000. So what, spend $60,000 so you can get $700/$800 a month? Don’t even bother. It’s a math thing more than a space thing, because you can do anything these days.
E.S.: How important are nice fixtures? Wow factor?
S.M.: You definitely have to be able to separate yourself from the project. It’s only a rental property. Don’t spend too much – safety first. In a basement especially, you can’t hang too many lights and fixtures – put in insulated pot lights. But definitely spend more to get some nice finishes; a good laminate instead of a carpet, put in a dishwasher – tenants LOVE a dishwasher! Also, new cabinets – prefab stuff from Home Depot, even – and if you can, enlarge the windows [in a basement]. That’s one we do all the time.
Here's a summary of Scott’s Home Show presentation:
7 reasons why an income suite may work for you
- It helps with the mortgage payments
- You can pay off your mortgage in half the time by applying all the rent to the mortgage
- It increases the value of your home (The return on investment (ROI) is higher than any other home reno project)
- Provides someone to share the utility costs and property maintenance
- It can supplement an income during maternity leave or during a time of unemployment
- There are plenty of tax incentives and government grants to help pay for the renovations
- You want to make more money!
What to look for when you want to buy an income property: A quick checklist of valuable features for identifying a potential income property
- An existing rental unit in the home
- Separate entrances to separate levels of the home
- Ceiling heights of 7ft or more
- Close to shopping and public transportation
- Local rental rates
- Enough space for living/kitchen/bathroom/bedrooms/laundry/storage.
- Parking for you and the tenant