Play Safe When Buying Suited Homes
October 14, 2010 by Goldilocks Estates
Columnist: Gillian Krol ~ Founder of GoldilocksEstates.com
Just think of all the problems you will avoid by reading these Goldilocks Estates threads regularly! As we all know, knowledge is wealth; and the more you know, the better off you’ll be. Only keep in mind that the world of real estate offers a steep learning curve which is why it’s important you lean on the expertise of a real estate agent. By the time you finish this article you’ll be equipped with the knowledge needed to ask your REALTOR[R] the right questions before purchasing a suited home.
In British Columbia, where I practice real estate, there are a few red flags to watch out for when considering a home with suite. Although I do not hold my license in additional provinces or states, this information will prove useful whenever and wherever you acquire real estate. The first question to ask when looking at these particular homes is whether the home seller has the proper zoning in place to operate a second dwelling out of the existing home. If you’ve bought a home in the”stix”, like my father-in-law in Northern B.C, the legalities of operating suites within your home or on your property may be slack in comparison to larger metropolitan areas like Vancouver or my hometown Kelowna. Finding out if the home seller has followed all local regulations is absolutely necessary before committing to an unconditional agreement to purchase a home.
The reason you should not throw caution to the wind is because the income generated by an illegal, unregistered suite is not warranted if the suite needs to be registered with the city or the zoning code of the land on which the home resides does not support the operation of a rental suite.
In Kelowna, we often see real estate ads that promote homes with an ‘in-law suite’ or ‘mortgage helper’. An ‘in-law suite’ is just a fancier way of advertising a home that contains an unauthorized suite. Although I still assist many purchasers with buying homes with ‘in-law suites’, what they must know before removing all the conditions from their contract of purchase and sale is that there should be a term included in your agreement that states:
“The Buyer is aware that the property contains unauthorized accommodation and has been informed of the consequences of such ownership and the potential loss of income should the rental use be discontinued.”
If you have agreed upon this contract term, this means you are assuming all risk, as the purchaser, to be fined by the city as well as have your suite decommissioned if caught. If this happens you can kiss goodbye the rental income you’ve used in the past to pay a portion of your mortgage. You no longer own a mortgage helper home.
Ensure when you are purchasing a home with an unauthorized suite that you check all records with the municipality. If an unauthorized suite has been targeted by a city official it’s often because of a neighbour calling to complain about the lack of parking or noise created by the tenants occupying an illegal/in-law suite. If there are already a long list of complaints on record with the municipality perhaps you should reconsider purchasing another home; ideally a home with a registered legal suite.
At the end of the day, a home with a legal suite holds higher value than homes without. Therefore, determine if the lower asking price of a home with an in-law or illegal/unregistered suite is worth the risk. Check with the city’s planning department and see if you can add a legal suite to your home. Also make sure you know what permits and expenses to anticipate before starting any construction.
Just remember, all suites are not the same. If the house includes a legal registered suite, you can rely on the rental income to assist with your mortgage payments. This is your safest avenue. I’ve suggested a ‘mortgage helper’ home to several single mothers looking to work less and spend more time with their family. Although some rule out suited homes due to lack of privacy, the demand continues to increase for these types of homes, especially ones which offer a second fully detached home off the backside of the property. In Kelowna, we refer to these homes as carriage houses.
A legal, registered suite within a home is a terrific option for conservative buyers who want to pay down their principal loan sooner and don’t want to fret about making ends meet each month.
Lastly, before you call your real estate agent, make sure your mortgage broker or bank specialist has pre-qualified you to purchase a home. When they provide you with a price range to purchase, ask if this price range would increase or change if you select a home with a legal suite or a home with an illegal/unregistered/unauthorized/in-law suite.
Have fun shopping and please drop me an email if you are looking for a hard-working real estate agent in the Okanagan. All questions can be sent to email@example.com