What makes a garden suite a good investment?
Explore how investing in garden suites provides a higher ROI, lower operating costs, and added value to your real estate investment.
Homes with ADUs are highly desirable in the US real estate market and are, on average, priced 35% higher than those without ADUs, especially in larger cities.
National Association of Realtors in the US
Based on Market Cap Rate valuation, if a 2-bedroom ADU generates an annual NOI of $27,000 and a cap rate of 5.5%, its current market value would be $491,000.
A Lucrative Alternative to Condo Investment with Higher ROI and Lower Operating Costs
Garden suites are emerging as an attractive investment option in the real estate market due to their potential for generating higher net operating income (NOI) and return on investment (ROI) compared to traditional investment condo units.
One of the primary advantages of operating a garden suite are the absence of a condo fee and a much smaller property tax, which results in a lower operating cost than an investment condo.
The cost of constructing a garden suite is significantly lower than that of a comparable condo unit, with garden suites priced at approximately 35~45% of a condo with a similar size. With a $150,000 investment, a 25-year amortization period and 5% annual interest rate, a garden suite investment can generate significantly stronger monthly cash flow compared to a condo investment. This makes garden suite an attractive investment option for real estate investors seeking to maximize their rental income and returns.
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(1a). Condo rent data based on the Market Data report published by Rental.ca and Urbanation in Jan 2023. Source: https://rentals.ca/national-rent-report#national-overview. (1b) The rent for accessory dwelling units (ADUs) is determined by using the rent for detached houses as a benchmark, i.e., at 80% of the rent for a detached home. According to both the Rental.ca and Urbanation reports, the rent for a detached house is considered to be 80% of the rent for a condo with the same number of bedrooms.
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Operating Expenses include: Condo fees, Insurance, Property Tax and R&M. Average condo fees are based on a research report published by Gowling WLG LLP in Apr 2020. Source: https://condoadviser.ca/2020/06/comparing-condo-fees-across-ontario-survey-results/condo-law-blog-Ontario
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Finance Cost is based on $150,000 down-pay. Principal and Interest Payment based on monthly blended payment, using 5% annual interest rate and 25-year amortization period
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Upfront Investment include: unit purchase price, land transfer tax and legal cost. Where condo unit purchase price is based on 2022 Q4 Market Report by Toronto Region Real Estate Board. Source: https://trreb.ca/files/market-stats/condo-reports/condo_report_Q4-2022.pdf
How Much Value can a Garden Suite Add to Your Home?
While there are limited data on the value of Accessory Dwelling Units (ADUs) in Ontario, to estimate the value of ADUs and gain insight into their impact on property values, we can...
1. Turn to the United States market as a reference point
According to a study conducted by the National Association of Realtors in the US, ADUs have become increasingly popular in recent years, with an estimated 1.4 million homes having ADUs as of 2019.
The States with the highest concentration of sales listings with ADUs are California, Florida, Texas, and Georgia. The popularity of ADUs is due in part to their ability to address the housing affordability and inventory crisis, as homeowners can earn extra income by renting out their ADUs or using them to accommodate family members.
Moreover, homes with ADUs are highly desirable in the US real estate market and are, on average, priced 35% higher than those without ADUs, especially in larger cities.