Benefits: Laneway House

Cash-flow and benefits from A laneway house

The financial incentive to build your laneway house is attractive. You can get superior rental income from your laneway house. The rental return from your laneway house far out weighs your cost to add a laneway house to the back of your house.

The low vacancy rate in Vancouver and preference by renters for new rental housing, makes adding a laneway house to your primary home a very attractive financial investment. From rental rates home owners are able to get for their laneway house, the rental income from their laneway houses produce net positive cash-flows  to the home owners.  You can view the photos of some laneway houses posted on the City of Vancouver website by following this link.

Below are 2 scenarios, one for a 644 sq ft laneway house, and the other a 760 sq ft laneway house:

644 sq ft laneway house:

* A lot with 33′ x 122′ is eligible to build a laneway home of 644 sq ft, say at $225,000.
* Mortgage financing at 80% is $180,000.
* At a mortgage interest rate of 2.34%, 25 yr amortization the monthly P&I mortgage payment is $792.08 (interest cost is $351.00 a month)
* Monthly rental income is $1,500 to $1,800

760 sq ft laneway house:

* With 38′ x 125′ lot at a buildable ratio of 0.16, the laneway house that can be built  is 760 sq ft
* Cost of laneway home is $265,000, and if financing is 80%, the loan amount is $212,000.
* At 2.34% interest rate, 25 yr amortization the monthly P&I mortgage payment is $932.89 (interest cost is $413.40 a month)
* Monthly rental income is over $1,800

You will find that you can enjoy a healthy net income after mortgage payment. The increase in property tax will be small relative to the rental income from renting out your laneway house.

*Some experienced contractors are confident that they can build more affordable laneway houses at between $150 to $175 a sq ft.

Follow this link for details on the City of Vancouver’s laneway house regulations.

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