Turning a Basement Into a Rental Unit

The latest real estate renovation for investment purposes we completed was a basement suite. More specifically, it was the basement suite for a half-duplex (built in the 1960s) in the inner city. The premise behind the reno was to turn a single unit investment property into a dual unit. The upstairs suite had already been beautifully renovated, so it was time to maximize the value of this property. 

To make it a legal, separate living quarters from the upstairs suite, permits had to be applied for at city hall. Several significant changes to our original design plan were required, and a handful of inspections occurred along the way. 

Thankfully, the city was easy to deal with, as they have a stated goal of creating more affordable housing. Whenever city hall has such an agenda, real estate investors should look for opportunities as multi-unit buildings are a key to cash flow. And although affordable housing may not be sexy, it can be quite profitable and gratifying (by providing affordable housing, real estate investors can help others move from renter to homeowner).

 

Turning a Basement into a Rental Unit

The renovations were not cheap, which had a lot to do with the neglect of the space over the years. Some of the basics, such as electrical, proper fire exits, and plumbing were non-existent or needed significant upgrading. 

There were a few rather costly city hall mandates, such as a separate furnace and HVAC between rental units (upstairs and downstairs), a very expensive support beam between floors, and the moving of two windows. Those items alone were responsible for about 1/3 of the budget. 

However, in the long run, the investment will pay off in spades as monthly revenue should nearly double on the property. Payback on this renovation will be about 4 years.

We were working with somewhat of a blank canvas in this basement, which was nice from a design standpoint. Much of it was an open space…

Prior to starting the reno, there was no kitchen, a rather peculiar closet that ran the length of about 25-30 ft., two bedrooms, which were about 80 sq. ft, and a bathroom that looked awful. The basement also had a drop ceiling with more water stains on it than I could count. We were required to drywall the ceiling (building code requirement).

 

Renovating a Basement into a Legal Rental Suite

Here are some highlights of what we did to transform this fifty-year-old basement into a slick, modern apartment:

  • Took out the odd closet that ran the length of what would become the living room and kitchen. This opened the suite up to create more living space. 
  • Tore down the walls separating the bedrooms and created a master bedroom with a secondary bedroom (about 100 sq. ft.). The master bedroom took up the entire space the previous two bedrooms occupied, and to create a second bedroom we drywalled into the open concept area a little bit. This provides tenant optionality for perhaps a young couple with a child, a single mother with a child, or two college roommates (two universities are nearby). 
  • Designed an excellent, bright kitchen than ran along the walls already in place in the open concept area while adding a useful island for eating breakfast and whatnot. We made sure to add drawers into the island so to maximize storage. One thing to remember when renovating a sub 1,000 sq ft. property is to add closets, cupboards, and drawers wherever aesthetically acceptable. Storage makes the rental unit functional. And functionality keeps tenant turnover low. 
  • Added a ‘sizzle factor’ to this suite by surrounding the fridge with custom cabinetry (see pictures below). 
  • As mentioned, we had to build a separate HVAC, so both suites have their own furnace. 
  • Replaced the windows. It wasn’t necessary to replace them, but if you’re going to invest in your rental property with such a substantive renovation, it’s best to do it all right the first time. The old windows had probably been there since the home was built. They weren’t very efficient. 
  • The flooring was cost-effective and attractive. We installed a light grey vinyl plank which contrasted perfectly with our light and bright cabinetry and paint throughout the unit. 
  • The bathroom was gutted. We made it as bright and modern as we possibly could. Affordable, but elegant (pics below). 
  • Added soundproofing insulation between the floors. It doesn’t matter how beautiful your rental unit is if your tenants are constantly alerted by footsteps or the television upstairs. In the grand scheme of things, soundproofing between floors costs peanuts and makes a rental of this nature more enjoyable to live in. 
  • Several fire safety upgrades (required), although they weren’t all that expensive to implement.

There were many other aspects to the renovation, but pictures say a thousand words. Take a look at the space before, and after:

BEFORE

 

Basement suite renovations

 

Basement suite renovation

 

Basement suite renovation

 

Basement suite renovation

 

Basement renovations

 

bathroom renovation

 

AFTER

 

Renovated basement suite for rent
Open concept from living area to the kitchen.

 

Turning a basement suite into a rental unit
Kitchen to living room area — open concept. Drawers for additional storage on other side of island.

 

turning a basement into a rental suite
Framed the fridge with cabinets.

 

turning a basement into a rental suite
Hallway to bedrooms and bathroom.

 

turning a basement into a rental suite
Simple and bright bathroom.

 

turning a basement into a rental suite
A costly but necessary addition was the additional furnace and seperate HVAC.

 

More often than not, transforming a basement into a rental suite requires permits and approvals from your city (first and foremost, check to see if your property is appropriately zoned to allow for a basement rental), an eye for design, and patience. However, if you’re willing to commit to this type of project, it will likely result in an exponentially higher cap rate on your investment property. All the while, you’ll be providing quality, affordable housing for those who need it.

 

Stay hungry,


 
 

Aaron

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