From Extra Space to Extra Cash: The GTA Homeowner’s Intro to Basement Suites

A basement suite allows homeowners to transform an under-used space into a valuable asset. Not only can it generate rental income or provide expanded living arrangements for multi-generational families, but it also increases your home’s value and marketability. A finished basement suite makes the home more appealing to future buyers, setting it apart from other properties on the market. Realizing these benefits requires careful planning, budgeting and ongoing effort to build and ultimately manage the suite as a landlord. Whether you’re looking for an extra income stream or a way to add value to your home, a basement suite can be a transformative addition when done right.

As of 2019, there were approximately 62,000 basement suites across the Greater Toronto Area, representing almost one in every twenty houses (detached, semi-detached and multiplexes up to four units) across the region.¹ Basement suites are most common in Toronto, with 58% of the region’s total, followed by Brampton and Mississauga which together have a quarter of the region’s basement suites.² Sizes range considerably across municipalities, with the average basement suite measuring 1,168 sqft in Vaughan but only 719 sqft in Toronto.³

Regardless of where they are located though, there is broad agreement among experts and real estate professionals that most basement suites are not fully legal, failing to meet one or more of applicable zoning requirements, bylaws, occupancy standards, health and safety requirements, and fire and electrical codes.⁴ As interest in secondary suites grows,⁵ it has never been more important for homeowners to understand the opportunity and responsibilities associated with creating a basement suite.

In this post, we’ll explore why retrofitting a basement suite can be a wise investment for homeowners in the GTA. From generating rental income and boosting property value to creating additional living space for multi-generational families, a finished basement suite offers many advantages. We’ll also delve into important considerations, including some of the rules that apply to building a suite, budgeting considerations, landlord responsibilities and various financing options ranging from traditional debt solutions to Clay Financial’s Home Equity Sharing Agreement.

Why add a basement suite?

Building a basement suite comes with a number of benefits, namely: rental income, increased property value, expanded living space and flexibility to accommodate multi-generational living.

Generate rental income: Homeowners who rent out their basements in the Greater Toronto Area earn between $1,800 and $2,600 per month on average depending on location.⁶ A steady stream of passive rental income can help homeowners make their mortgage payments, pay down their mortgage faster, diversify income sources, build an emergency financial cushion and save for retirement.

Boost property value: Adding a basement suite to your home can substantially enhance its overall value. Beyond offering a strong return on investment, a finished basement suite increases your property’s appeal and marketability by providing the potential for rental income, making it an attractive option for future buyers seeking additional functionality and income-generating opportunities.

Provide expanded living space: Transforming your basement into a finished suite can provide much-needed additional living space for your family. It can serve as a solution for accommodating children returning home from college or offering a comfortable, affordable living arrangement for in-laws who may be downsizing. This versatile option not only enhances your home’s functionality but also fosters closer family connections while maintaining privacy and independence for everyone.

Important considerations before building a basement suite

Constructing a legal suite: If you’re planning to invest in a basement suite, it’s crucial to understand the many rules and regulations that apply. You will want to comply with all applicable codes (i.e., building, fire and electrical), bylaws (e.g., zoning) and other standards (e.g., occupancy, health and safety). These rules include requirements for specifics such as safe exits, minimum square-footage and ceiling heights, proper windows, adequate heating and ventilation, electrical systems and the installation of smoke and carbon monoxide alarms. These standards are designed to keep your tenants safe and ensure you are providing them with a functional home. Failure to meet them can result in serious consequences, including being ordered to remove the suite, potential liability if a tenant is injured and rejection of insurance claims. Thorough research and professional guidance are key to avoiding these pitfalls.

Budgeting: When budgeting for the project, it’s important to understand the typical costs and timelines. Local basement renovation specialists report that creating a legal basement suite starts at approximately $75,000 for a 750-sqft space as of 2024.⁷ Completing a basement suite renovation takes time. At a minimum, it will take a couple of weeks to gather and review quotes before selecting a contractor and 1-2 weeks⁸ for designing and planning before you’re able to submit your application for a building permit, which will take at least a couple of weeks to be approved.⁹ That’s at least 5-7 weeks before work has begun. Once construction begins, you can expect at least another 12 weeks before the suite is complete.¹⁰ In total, you’re looking at roughly 5 months at a minimum, assuming no delays. Additionally, homeowners should bear in mind that it may take time to find suitable tenants, which will impact when the basement suite starts generating rental income, even once complete.

Risk and considerations of being a landlord: Finally, while a basement suite can be a valuable income-generating asset, it’s not without risks. Leasing the space depends on local rental market demand and there’s no guarantee you’ll find tenants immediately. You will also want to ensure your home and basement suite is properly insured. An unreported and uninsured basement suite could void your home insurance policy in the event of a flood or fire. Properly insuring the suite typically adds about 10% to your total home insurance premium (e.g., an additional $150 if you’re paying $1,500 annually).¹¹ By understanding the requirements, costs, and potential challenges upfront, you can make more informed decisions and set yourself up for long-term success. Becoming a landlord inherently involves extra work, including handling lease agreements, collecting rent, managing repairs and maintenance for the unit, communicating with tenants, and coexisting with potential sound transfer between the basement suite and your living space. You’ll either need to handle these tasks yourself or budget for hiring help when you need it.

How to finance the project

Homeowners have historically turned to debt products to finance their basement suite renovations, such as home equity lines of credit (“HELOC”), mortgage refinancings and construction loans. For homeowners that are considering a debt product, selecting the right one will depend on the size and scope of the renovation, their financial goals, and their ability to manage repayments. Homeowners in the GTA now have a new option to finance substantial projects like a basement suite: a Home Equity Sharing Agreement (“HESA”) from Clay Financial.

• A HELOC allows you to borrow as needed and pay interest on only the amount you use. A HELOC is secured against your home, so the interest rate is generally lower than what you would pay on a personal loan or line of credit. However, most HELOCs come with variable interest rates, so your payments might increase unexpectedly. Depending on your lender and the timing of your home’s last appraisal, a HELOC may also involve closing costs similar to those of a mortgage.
• A mortgage refinance allows you to access your home’s equity by replacing your current mortgage with a larger loan. As before, you’ll make principal and interest payments over the term of the loan, though your monthly payment will likely be larger than before.
• A construction loan typically provides funds in stages as a construction or renovation project progresses, often with interest-only payments until the project is completed.¹² This option usually carries higher interest rates and a more onerous application process compared to regular mortgage loans.

Government programs may also be available to support your construction project. For example, in late 2024, the federal government announced that the Canada Secondary Suite Loan Program will launch in early 2025 to provide eligible homeowners with up to $80,000 in low-interest loans to create secondary suites.¹³ If you qualify, this could be an attractive supplemental financing option.

A new financing solution for homeowners

A HESA from Clay Financial is a flexible option for homeowners looking to create a basement suite without increasing their debt burden or monthly payment obligations. A HESA isn’t debt: it provides a lump-sum cash payment in exchange for a share of the future value of your home. This means you can finance your renovation without worrying about monthly payments or eroding your existing equity, giving you the flexibility to handle construction delays and periods in the future when the suite may be empty between tenants and not producing any income.

The HESA has an open 25-year term with payment only due when you sell or transfer the property, buy out the HESA or after 25 years. There are no age restrictions, and you can combine a HESA with existing secured debt products for more flexibility. Additionally, the HESA’s Home Improvement Adjustment allows you to keep all of the appreciation generated by your improvements that go beyond regular maintenance of your home, like creating a basement suite. 

Which option is best for you?

Building a basement suite is a valuable investment but choosing the right financing solution is just as important as the renovation itself. With a range of options from traditional debt products to innovative alternatives like a Home Equity Sharing Agreement, it’s essential to evaluate which solution aligns best with your financial situation, goals and renovation plans. Take the time to shop around, compare financing costs, and assess the flexibility and risks of each option to ensure it’s tailored to your specific needs. By doing your homework and selecting the right financing, you can set up your project for success, turning your basement into a valuable asset.

1. Analysis by Clay Financial based on research and analysis of secondary suites in Ontario by the Canadian Mortgage Housing Corporation published in 2021. ↩︎
2. See footnote 1 above. ↩︎
3. See footnote 1 above. ↩︎
4. See, for example, Bob Aaron’s column on basement apartments in the Toronto Star and various real estate professionals’ blogs here and here. ↩︎
5. For example, in 2024 the Canadian government unveiled the Canada Secondary Suite Loan Program to help homeowners finance the creation of a secondary suite on their property, proposing to make $409.6 million available over a four-year period. ↩︎
6. Based on analysis of median asking rents for basement suites in the Greater Toronto Area by Wahi using 2023-2024 data from Information Technology Systems Ontario and the Toronto Regional Real Estate Board. ↩︎
7. See, for example, GTA renovation specialist Moose Basement’s blog post on basement finishing costs. ↩︎
8. See, for example, GTA engineering firm Engineered Plan’s blog post on basement permitting and timelines. ↩︎
9. The Ontario Building Code sets out a time period within which a permit will be issued or refused of 10 days. The City of Toronto states that applications are reviewed within 10 business days. ↩︎
10. See, for example, Ontario contractor Bacvar Building’s blog post on construction timelines for basement renovations. ↩︎
11. See Canadian insurance broker SeaFirst Insurance’s blog post on insurance for secondary suites. ↩︎
12. See WOWA.ca’s guide to construction loans in Canada. ↩︎
13. See the Government of Canada’s news release from December 10, 2024 for the full announcement. ↩︎