Q & A – Laneway House
Questions & Answers On Vancouver’s Laneway Houses
A Laneway house is a small dwelling built at the back lane of a residential lot. Laneway houses cannot be strata titled and they are permitted in Vancouver lots with RS-1 and RS-5 zoning designations.The primary uses for laneway houses are either as a rental property or for family use.
2. What is my income opportunity?
Laneway housing is an excellent opportunity for a home owner to create additional rental income. If the construction is financed with a loan on your primary residence and rent out the Laneway house, you can qualify for tax deduction on the mortgage interest from your loan.
Depending on the size and make up of your laneway house a small one bedroom unit around 500 sq ft may be rented out at $1,500 – $1,700, and a larger 2 bedroom unit around 750 sq ft may fetch $1,800.00 or more.
3. Will a laneway house increase the value of my home?
Your laneway house benefits you by generating good rental income which makes your home more desirable to home buyers. Naturally, it will add value to your home and make it more valuable. Besides the rental income that you received, when your re-sale your home, the interest of other buyers for your property will be much greater than homes without a laneway house.
4. What is the benefit of having a laneway house?
When your laneway house is financed by a loan, you are able to deduct the interest on your loan if your unit is rented out. But, you have to report your rental income is you are claiming interest deduction on your loan. You will not enjoy this benefit, if your laneway home is occupied by your family member(s) when no rent is payable to you.
Most home owners use the extra rental income to accelerate paying down their mortgage, pay tuition fees for their college kids, invest the extra money for retirement, improve cash-flow to enjoy a better lifestyle, travel, etc!
Your investment in a laneway house will also benefit you over the long term when you sell your home. You can expect to get a higher price for your home as buyers are willing to pay more for your home than another home without a laneway house.
5. If I get a loan to finance my laneway house, what will be my net income after deducting my expenses?
Generally, rental income from laneway housing produces a net positive cash-flow to a home owner. Below are 2 scenarios, one for a 500 sq ft laneway house, and the other a 750 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 $180,000.
* Mortgage financing at 80% is $144,000.
* At a mortgage interest rate of 2.34%, 25 yr amortization the monthly P&I mortgage payment is $633.66 (interest cost is $280.80 a month)
* Monthly rental income is $1,300 to $1,600
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 $215,000, and if financing is 80%, the loan amount is $172,000.
* At 2.34% interest rate, 25 yr amortization the monthly P&I mortgage payment is $756.87 (interest cost is $335.40 a month)
* Monthly rental income is over $1,800
You will find that you can enjoy a healthy net income after mortgage payment. There are other costs besides one time design and construction, the increase in property tax will be small relative to the income from rent.
6. What are my financing options?
There are Canadian banks and credit unions that are willing to lend to homeowners who are planning to build their laneway houses. For example, Vancity has developed a mortgage financing package called “Laneway Housing Bundle” specifically for this purpose.
We have many resources and can also recommend you the right financing solution for your laneway house. We also work with many builders who are experienced in building laneway houses.
7. Will adding a laneway house to my property increase my property taxes?
Yes, when you are adding a laneway house, you are making improvements to your property. It will increase the value of your house, and your property tax bill will increase as a result. You can contact the City to find out how much more tax you will be paying when you add a laneway house to it.
8. Can I find a new home builder to construct my laneway house?
It is not as simple a process to find any new home builder to build the laneway house for you. It is a complicated undertaking, and there could be expensive delays and mistakes for those who are inexperienced to do the job.
You need an experienced building contractor who has a team that has years of experience in housing construction and project management. The general contractor will take care of the entire process including design, building permits, construction, project management, etc.
Cost over-run is the biggest problem faced by many home owners who use someone who is not experienced in laneway house construction. Many home builders are not familiar with the regulations, while others may not have built any laneway house before.
9. What is the cost to build a laneway house?
This depends on many variables; as the construction cost is directly linked to the size of your laneway house. You can budget for:
City fees for permit, sewer and water upgrades, demolition, new electrical service and landscaping ~$30,000 to $40,000.
Current quotes are from $200 to $250 per sq ft cost to construct a laneway house. When compared to a standard East Vancouver new house construction cost between $150 to $175 per sq ft, there are some savings a capable new home builder could deliver. Shopping for an experienced laneway house builder is important to build your house on a budget.
When new home builders and the City gained more experience dealing with laneway house construction, it may be possible to bring the cost down to much more affordable level.
10. Is there a warranty for my laneway house?
Yes. Every home constructed has a comprehensive warranty for your peace of mind. Some builders include 12 months of building maintenance after the home is completed and an occupation permit issues by the City.
We use new home builders who are licensed by the Home Protection Branch of B.C. and your new laneway house is covered by the 2-5-10 years National Home Warranty.
11. How do I get started?
Visit our Getting Started information or give us a call or send us an e-mail.