The affordability of rental housing in many Canadian cities continues to decline. As a result, many municipalities are changing their building codes to allow for the construction of more creative types of housing. It’s part of a concerted effort to help address the nation’s affordability crisis.

If you’re looking for a relatively easy, low-risk residential investment opportunity, it’s well worth your time to consider the development of a secondary suite.

A look at secondary suites

Secondary suites are rental income units either attached to your primary residence or situated on your home’s lot. Secondary suites are often more affordable than apartment buildings for renters. Plus, they present real estate investors with a much lower barrier to entry, compared to purchasing an entire apartment building or even a single-family home as a rental income property.

Secondary suites are self-contained residences, meaning they include kitchens and bathrooms, but they may share common areas, like yards and laundry facilities with the primary home. Common types of secondary suites include basement suites, garage flats, garden suites and more.

Because federal and local governments recognize the important role secondary suites play in solving the nation’s affordable housing crisis, many provincial and municipal financing programs exist to assist with securing the funds necessary to install them.

Secondary suite codes and zoning

If you believe building a secondary suite is in-line with your investment objectives, ensure the suite you build is within the bounds of the law. Rules regarding secondary suites vary widely from province to province and municipality to municipality. Because of this, it’s often advisable to consult with a local zoning official prior to building your secondary suite.

Get familiar with your region’s zoning and building codes before you begin building or renting a secondary suite. If you rent out an illegal secondary suite, even inadvertently, you could be opening yourself to significant legal liability.

While the rules vary, here are a few examples of the requirements surrounding secondary suites in Canada’s hottest housing markets:

Coquitlam: Secondary suites are permitted in Coquitlam, British Columbia, so long as they don’t exceed 40 percent of the primary residence’s floorplan. Additionally, investors in Coquitlam hoping to install a secondary suite in their homes will have to provide renters with a separate parking space.

Kelowna: In Kelowna, British Columbia, there can only be one secondary suite per primary residence. Additionally, secondary suites are only in areas zoned with an “S” designation. Homeowners hoping to install secondary suites in Kelowna will also need a minimum of three off-street parking spaces.

Calgary: Secondary suites in Calgary are famously complicated – rules can differ from neighborhood to neighborhood, and even from street to street. Thanks to zoning reform passed in 2008, it’s now easier to build secondary suites in some Calgary neighborhoods. It’s best to consult with a land use attorney before building a secondary suite on your Calgary property, however.

Toronto: Proposed changes currently before Toronto’s city council could make it much easier to construct secondary suites. Legal since 2000, Toronto allows the construction of secondary suites in downtown townhomes, but prohibits them in suburban neighborhoods. The proposed rules would unify secondary suite policies across the city, and eliminate the requirement primary residences need to be at least five-years-old prior to the construction of a secondary suite.

Incentive programs

More than just being a great source of rental income, there are also incentive opportunities associated with building secondary suits. As municipalities encourage more affordable renting options, your secondary suite could net you some great incentives, depending on where you’re investing:

Federal First Nations grants: If you live on a First Nations reserve, you may be eligible for a federal program issuing up to $60,000 toward the construction of an affordable secondary suite rental attached to your primary residence. The funds are issued as a fully forgivable loan that doesn’t need to be repaid if you follow the program conditions. Communities in the far north are eligible for as much as 25 percent more financing.

Edmonton Cornerstones II program: The City of Edmonton will issue you as much as $20,000 toward the construction of eligible secondary suites. The city will match 50 percent of your secondary suite’s construction expenses, so long as you sign a five-year commitment to lease the suite to low-income Edmonton residents.

Lethbridge Pre-Existing Secondary Suite Grant: The City of Lethbridge, Alberta offers a special program designed to bring secondary suites built prior to 2006 up to current codes. If you bring your suite up to code and have it inspected, you’ll receive 50 percent of the remodeling costs, up to $2,500, of the cost repaid by the city.

Manitoba Secondary Suites Program: Manitoba residents are eligible to have 50 percent of the construction costs of their secondary suite – up to $35,000 – covered by a forgivable loan issued by the provincial government. To receive the funds, you’ll need to enter into a 10-year agreement with the province. In addition to in-home suites, the Manitoba funds cover carriage houses and garden suites.

Niagara Secondary Suites Program: If you own a home in Ontario’s Niagara region, you may be eligible for the Niagara Secondary Suites Program. If you commit to rent your secondary suite to a qualifying low-income Ontarian, you could reap as much as $25,000 in the form of a 15-year forgivable loan. If you’re building an accessible secondary suite, you might qualify for an additional $5,000.

These are just some of the current active programs designed to assist homeowners with the development of secondary suites. In addition to cash and loan incentives, a number of municipalities, like Calgary and Saskatoon, rebate or eliminate the permitting costs associated with the construction of a secondary suite.

Building a secondary suite in-line with local codes and municipal guidelines is a cost-effective way to create your first rental income property. Leveraging a provincial or local program to partially finance the creation of your secondary suite can go a long way toward improving your profit margins. With the right research and action, these programs are a great way offset the initial investment required to build your secondary suite.