A hot housing market adds another complication to the lives of divorcing couples and their kids. Some estranged couples opt for unorthodox solutions like living separate lives under the same roof because they can’t afford to move. I also know of situations where the children live in the family home full time, and it’s the parents who take turns rotating in and out. While the desire to maintain continuity and consistency for the kids by keeping them in the familial house is strong, the numbers don’t always allow it. Between existing debt, alimony payments and the additional expenses of a second household, making ends meet becomes a vicious cycle that can only be broken by selling the house and having both parties become renters.

And when that happens, nobody wins. Except the real estate agent.

In these instances, converting the basement into a second suite apartment can make the difference between having to sell the property and keeping both parties in the market.

I recently worked with a divorced couple with a $350K mortgage on a house worth one million. It was agreed that the woman would pay her ex-husband $325K and keep the house. By transforming the basement into a second suite apartment (which cost the equivalent of $300/month in mortgage) and renting it for $1200/month, she was able to put $900/month towards her debt and make the situation work. For his part, the husband was able to invest his principal into a semi-detached home and turn his basement into a rental suite, enabling him to have an asset in the marketplace and start rebuilding his own wealth.

I recently worked with a divorced couple (the wife) where she was considering either selling the home or keeping it any renting out the basement. The couple agreed to get two appraisals and find a number between the two figures as the real value of the home. Once the appraisals came in, ($1,020,000 and $1,060,000) they agreed on $1,050,000. Considering a potential real estate fee of 5% plus HST, closing costs, fixing minor defects and repairs, they agreed to reduce the sale value by about 10% or $100,000. Meaning the market value for the transfer is $950,000.

Agreed Market Value: $1,050,000
(R/E fees, closing, repairs, etc…) $100,000
Dividable value $950,000

 

By transforming the basement into a second suite apartment (which cost $65,000 roughly $260/month in a mortgage) and renting it for $1200/month, she was able to put $940/month towards her debt and make the situation work. For his part, the husband was able to invest his principal into a semi-detached home and turn his basement into a rental suite, enabling him to have an asset in the marketplace and start rebuilding his own wealth.

Dividable value $950,000
Current Mortgage ($1,400/month) $350,000
Equity $600,000
Husband’s equity 50% $300,000
Wife’s Equity 50% $300,000
Equity payout added ($300,000) $1200/month
Second Suite cost $240/month
Total Cost: $1440/month
Rental Income: $1200/Month
Difference: $240/Month
Homes market Value: $1,050,000
Current Mortgage: $   350,000
Additional items:
Equity payout $300,000
Second Suite $65,000
New Mortgage $715,000
Equity Retained  $325,000 +Value of finished basement.

Husband:

New Home: $850,000
Down Payment $300,000
Second Suite Cost $55,000
New Home Mortgage $605,000
New Mortgage payment $2,400/month
Rental Income $1,050/month
Net payment $1,350/month

 

But is it really wise to undertake a basement renovation at a time when there is no margin for additional stress and complications?

I get this question from clients who are separating a lot. And my answer is this: a professional, well-orchestrated team can complete the project in 4-6 weeks (3 months if underpinning is required). And, unlike remodeling a kitchen, the disruption to the principle residence is minimal and predictable. At Penguin, we offer an online Customer Portal System that provides our clients with real time updates on which trades will be working on their home on what day, payment schedules, project timelines and milestones. We also reduce stress upfront by offering ‘perfect information’ on everything from the cost of the project (we have a fixed price policy) to the finish date.

Having worked with so many families in transition, we are sensitive to their most pressing concerns. When young children are in the picture, the questions of whether the basement is suitable for split use and if and how the backyard will be impacted are paramount. In cases where grandparents move in to help with finances and childcare, it’s about working with the family to custom design the ultimate granny suite.

For couples going their separate ways, investing in a second suite solution will open up possibilities that were not there before, allowing both individuals to retain a foothold in the market and move forward with their lives, lessening the complications of a life choice that is never made lightly.

Is a Second Suite Solution right for you? Four points to consider.

1. Is the property in your name? Ideally, only one person should be on the title. If both individuals still own the home, only one should communicate with the contractor.

2. Is your ceiling height at least 6’8? This will save you from the costly task of underpinning the basement.

3. Do you have a side entrance or walkout basement? This will save you anywhere from $5,000 – $25,000 depending on whether you’re creating an entrance above or below grade.

4. Is your home in a desirable neighbourhood, close to amenities and near public transport? Bonus points if there is limited rental stock in your area.

Guy Solomon
Penguin Basements

Guy Solomon is the founder and CEO of Penguin Basements, Canada’s leading basement renovation contractor and creator of The Second Suite Solution, a wealth-building strategy designed to help homeowners build wealth by converting their unused basement space into rental income. To learn more about Guy and his services please click https://www.thedivorceangels.com/vendor/guy-solomon-penguin-basements/

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