Legalizing secondary suites in Calgary is not a simple thing to do. Even though the new Development Permit Exempt Program makes it easier to legalize suites you still need to understand why you would want a legal suite and how to do it. The above article by Calvert Home Mortgage Investment Corporation in Slide Share is your guideline to finding and financing legal secondary suites. Whether you are building a whole new suite or legalizing an existing suite, whether you want one legal suite or many legally suited properties, you will find crucial information here. If you still have questions send me a message and I will be glad to help.
The attached information is only a representation of information gained through research and is not intended to make any kind of guarantee of success. Rules, policies and bylaws of the City of Calgary or financing companies may change at any time. Personal results will vary.
Anshul Kanvas Wagholi Pune Apartments Brochure.pdf
De-Mystifying Secondary Suites In Calgary - Why and How to find and use them to build wealth
1. On June 29, 2015, Calgary City Council voted down the proposed bylaw for wards 7, 8, 9 & 11 which
would have allowed secondary suites in all single family home land use districts. Calgary City Council
did, however, pass a bylaw that supports making secondary suites safer with an easier development
permit process which is now being implemented. This process is called the Development Permit Exempt
program. Educated and committed real estate investors can use this, along with other opportunities
discussed below, to create or continue to build a successful and a higher value portfolio of properties
with legal secondary suites. I have summarized what you need to know to take advantage of this
opportunity.
What a Legal Suite Does For You
Legal suites provide premium value since there aren’t many of them out there. If you have them you
have a gem with higher value in part because it can never be shut down. You can advertise the value of
a legal suite to your tenants and when it comes time to sell your Realtor can properly advertise them
(unlike illegal suites). The cost to convert to a legal suite is normally under the increase to property
value. As tenants become more discerning and the city increases enforcement buyers will become risk
averse to illegal suites.
A legal suite can turn a cash flow dog into a cash flow cow and provide a cushion in market down turns.
What You Need To Do
1. Find Property
Research
• You need to know what it takes to make a suite legal through the Alberta Fire Code
and Alberta Building Code
• You need to know what communities have a higher demand for legal suites and
legally suited properties. This varies between communities and therefore affects
rent and value.
Prepared by Keith Uthe: October 14, 2015
Email: keith@chmic.ca
2. Zoning
• You need to be clear in your understanding of how the city land use districts (zoning)
are defined. Part 5 of the Calgary Land Use Bylaws Ip2007 is where you want to start.
There is an interactive version of the bylaws on the city of Calgary website at
http://lub.calgary.ca/
Permits
• Understand what type of permit or application you need to submit to get your legal
suite approved and what documents are required.
• Drawings can be very costly to obtain. Try finding an architect on www.fiverr.com
that will do the drawings in the format and scale the city requires for minimal cost.
2. Finance Your Property
Lenders
• Who is the best lender to use for what you want and need to accomplish and when
should you be using them.
• Find a lender who will fund your renovation or your purchase based on the after-
repaired value allowing you to better leverage your capital.
Joint Venture Partners
• Will your capital be coming from a joint venture partner or will the joint venture
partner buy into the property after the work is all done?
• Is there value for your J.V. partner in being part of the deal up front or in coming in
when the work is all complete? The up-front deal means you give up a portion of the
increased value, and the other means you must have more capital available to
acquire the property and renovate the property.
Leverage Capital
• Whether you have cash capital or equity capital you should strategize on your best
use of leverage for your maximum return.
• Talk to lenders and mortgage brokers who can help you find the right mortgage
product to maximize your capital and total return.
Building a Team
An important first step of your real estate business is to invest time in research and building a team of
key professionals to enable you to build your portfolio with legal suites. After all, you can’t do it all
yourself.
You need a contractor who has current knowledge of building code, fire code, permits, and is licenced to
work with the city. This would also include an architect for drawings.
You must have a Realtor who knows how to look for the right properties with the best opportunities.
Use Calvert Home Mortgage or a mortgage broker who knows where to get you the financing to close or
refinance the deal and funds to build the legal suite.
You have to respect the time of each member of your team and not just leave everything in their hands
to get done. The easier you make their job, the easier they can make yours.
3. Development Permit Exempt (DPE) Program
The City of Calgary is placing a priority on tenant safety and as such introduced the new 18 month
Development Permit Exemption program on September 1, 2015. This program encourages existing non-
conforming and illegal suite owners to bring their suite into compliance with the appropriate building,
fire and safety codes. The key feature behind this program is that a property owner with a home on a
lot zoned for a permitted use secondary suite is able to get a development permit, building and trade
permits all at the same time and in a couple of hours from City Hall, skipping weeks for the development
approval.
Important details to know about the 18 month Development Permit Exemption (DPE) program:
It applies to new and existing illegal and non-conforming suites in permitted use zoning
If your property is eligible, you can save an estimated $2,200 in costs and 3 – 4 weeks of time
Suites built prior to January 1, 2007 have to meet Alberta Fire Code
Suites built after December 31, 2006 must meet current Alberta Building Code
Suites built prior to 1970 can qualify
All legal suite address’ will be eligible to be posted on a publicly accessible database here:
o http://bit.ly/SuiteDatabase
The property will have to pass inspection from a city inspector
The electrical components have to meet the current Canadian Electrical Code
You must provide an onsite parking stall and a private amenity space of at least 7.5 sq. m.
You can book an appointment to complete your application submission
As part of your application you will need:
o Site Plan (Existing Real Property Report)
o Floor Plan
o Side Elevation (if there are changes to the exterior)
o Cross Section
Here is a link to the program: www.calgary.ca/suites
Is a Legal Suite Allowed?
In Calgary you have either permitted use, discretionary use or not allowed at all.
Permitted use secondary suites- There are certain land use districts (zonings) which allow secondary
suites with no public input requirement, as long as you meet all the applicable bylaws. The moment you
ask for an exception to the bylaws you take away your ability to quickly obtain your permits. There are
several land use districts or zonings which allow permitted use secondary suites.
Properties within the following land use districts have secondary suites as a permitted use as shown in
Bylaw Ip2007 and are eligible under this program: R-C2, R-2, R-2M, R-C1s, R-1s, R-C1Ls, R-CG, M-CG, M-
C1, M-C2, M-H1, M-H2, M-H3, M-X1, M-X2.
4. Discretionary use- What this means is that a legal secondary suite is possible subject to your
discretionary secondary suite application and approval. Most lots zoned with discretionary use will
require a minimum lot width of 9 metres to be considered for a secondary suite. You can apply for free
through the DPE Program however the process does take about 6-8 weeks to receive approval from the
City Planning Committee.
Properties within the following land use districts have secondary suites as a discretionary use: R-1N and
R-C1N.
Not allowed at all- The majority of lots in Calgary are zoned to not allow secondary suites at all. When
you run into this situation you may want to consider a land use re-designation application. This
application currently allows you to apply free of charge for a change from the current zoning to a zoning
that allows permitted use secondary suite. It does take up to 6 months to get the answer, however it will
not cost you money. To use this strategy you need to know how to identify the right opportunities and
the type of zoning request that best suits your property. You could request a zoning change to R-1s, R-
C1s or R-C1Ls, however there are lot width, depth and area size minimums as well as suite size limits
that you must meet. There are other zonings that allow permitted use secondary suites that are less
prohibitive and can be applied for through the land use designation change application.
Properties within the following land use districts do not allow secondary suites: R-1, R-C1, R-C1L, DC, R-
MH, M-G, M-1, and M-2.
For more information on land use districts: http://bit.ly/land_use_matrix
Legal Non-Conforming Suites
What is a legal non-conforming suite? Legal non-conforming means that at the time the suite was built
it was legal, however the bylaws have since changed and this makes it non-conforming. This situation
applies to homes that had the suite built prior to 1970 and fall within one of the following zonings R-1,
R-C1, R-C1L, DC, R-MH, M-G, M-1, and M-2.
If you can prove that the suite was built prior to 1970, and has been continuously operating as a suite, or
will swear under oath a statutory declaration as such, then you can apply for the building permit and
inspection. Your suite will need to meet Alberta Fire Code standards. There is a minimal cost for the
building permits and inspection. When your suite is passed by the city inspector you will then receive
your legal suite sticker and be included on the legal suite database (http://bit.ly/SuiteDatabase).
R-C1, R-1 and R-C1L ZONING
As mentioned in my previous article, home owners in Calgary continue to take advantage of the ability
to apply free of charge for a land use designation change. If you own an R-C1, R-1 or R-C1L zoned
property you can apply for a re-designation that will allow you to have a permitted use secondary suite.
A key point to remember when looking for properties to purchase that may be eligible for a land use re-
designation is to know what the minimum parcel width, depth and lot areas need to be for the zoning
you are requesting. Visit: www.calgary.ca/suites
5. When you are approved you are then able to apply for your secondary suite through the DPE program.
R-CG Zoning
If you own a half or side by side duplex, or semi-detached home then this zoning is critical to pay
attention to. I believe that this new land use district (zoning) offers a lot of opportunity for investors.
The R-CG zoning can be applied for through a land use re-designation request. Under this zoning,
permitted use secondary suites are allowed in Duplexes, Semi-Detached, Row House buildings and
Single Detached homes; providing you with plenty of opportunity.
If you own a half or side by side duplex or semi-detached home and currently have an illegal suite or
want to build a legal suite then this is the zoning change you will need to obtain. If you own a single
family home, no matter the lot width, and want a legal secondary suite you want to consider this zoning.
Two very important notes about this zoning is that suites of 484 sq. feet or smaller do not need an
onsite parking space and lots wider than 13m have no size limitation on the secondary suite. The
minimum parcel width is 7.5 metres for a parcel containing a Duplex Dwelling for a secondary suite.
R-C1N and R-1N ZONING
Properties with this type of zoning that have a lot frontage width of 9.0 metres or wider are eligible to
have a legal secondary suite under the ‘Discretionary Use’ bylaw. The discretionary use bylaws require
property owners to apply through the discretionary suite process which is currently built in as part of
the DPE program. The strategy in buying these types of properties may come at the time of offer to
purchase. Consider adding a term or a condition to the purchase contract to allow yourself time to
apply and receive approval for the secondary suite to ensure that property will work for you. Your
Realtor can also advise you of the pros and cons and what is best for your deal.
It is important to know that the discretionary suite application approval takes 6-8 weeks and have a 94%
approval rating from the city.
R-C2, R-2 and R-2M Zoning
These land use districts offer some of the easiest opportunities for secondary suites since they are
permitted use. The key item to know when looking to buy or legalize a suite with this zoning is that for
lots more than 13m wide there is no limit on the suite size. For more info: http://bit.ly/land_use_matrix
What Size Can My Suite Be?
In zonings such as R-CG, R-2, R-C2 and R-2M and a few others, if your lot is 13 metres wide or more you
can use the whole basement to build your suite. If your lot is less than 13 metres wide then your
maximum size is 70 square metres or 784 square feet. The lot width is determined by the mid-point of
the lot. For discretionary use lots and some permitted use lots the maximum suite size is 70 square
metres no matter the lot width. It is possible for you to apply for a 10% size variance on your suite, in
any zoning, allowing you to go to a maximum of 77 square metres, however this will add time to receive
your approval. If your furnace room is not in the common access space then it must be included in the
calculation of the unit size.
Again the City Land Use Bylaws under Part 5 can provide you with clarification.
6. Impact on Value
Legal suites add value to a property, period. The amount may vary based on the community, quality and
demand however, it is common to have about $20,000 or more in added value. When I value properties
I use the following guidelines for a new suite. The extra full bath adds about $8000 in value, secondary
suite kitchen cabinets and appliances about $7000, finished basement about $10,000 and the fact that it
is legal adds $20,000 or more in value. That is about $45,000 in value compared to an unfinished
basement. If all you need to do is legalize an existing suite then your value increase may be about
$20,000 or more, however, your costs to legalize are generally less.
6 Methods to Finance Your Legal Suite
Whether you are buying a property that you intend to build a legal suite in or legalising a suite in an
existing property you own, financing is going to be necessary. Here are six different possible methods
that could apply to either buying and renovating a new property or financing renovations on an existing
property in your portfolio.
Seller Financing (Vendor Take Back Mortgage: VTB)
Assume Existing Financing
Agreement For Sale
Money Partner Joint Venture
Bank and ‘B’ Mortgages
Private Lender: Calvert Home Mortgage
Seller Financing (Vendor Take Back Mortgage – VTB)
Use the seller as the interim lender rather than giving them cash for the purchase. This would allow you
to leverage your capital to complete your legal suite plan with the property and enable you to pay out
the seller quicker. Talk to your mortgage broker about this strategy. You may have to combine the VTB
with a private lender since a number of banks and ‘B’ lenders may not allow the VTB mortgage, or
restrict their amounts.
Assume Existing Financing
You could assume the existing financing on homes where you know that you can increase the value
quickly with a legal suite, improving the value and then refinancing for the long term at an optimal loan
to value. The best deals allow you to leverage your capital with a low down payment. This could also
work with a VTB or private 2nd
mortgage. You may be able to get a discount on the purchase if you save
the sellers a huge prepayment penalty. Refinance the assumed mortgage at maturity to avoid penalties
and reduce your capital investment required.
Agreement for Sale
With agreements for sale you have the ability to build or legalize a suite by using the seller as your
financing. Your strategy would be to increase the value with renovations and then refinance the
property. Do not be afraid to discuss this strategy with the seller to give them confidence in you and the
contract. It is very important to include your mortgage broker early to find you a lender for when you
complete the purchase. A private lender may need to help close the deal and then be refinanced at a
bank. Barry McGuire’s Rapid Cash program will train you on how to find and negotiate these deals.
7. Money Partner: Joint Venture
You may want to work with a Money Partner to build your portfolio of legally suited property. You can
offer money partners a higher return on investment from the increased value and cash flow of legally
suited homes. You will be giving up a percentage of the profit for the partner to provide the funds for
the down payment, the renovations or both. Are they willing to invest in the property from the start or
only when the legal suite is complete? Depending on their level of risk tolerance may determine when it
is best to bring them into the deal.
Investors who understand the benefits of the legal suite strategy may prefer to J.V. with a
knowledgeable investor rather than doing all the research and work themselves.
Banks and ‘B’ Lenders
Banks and ‘B’ lenders are the best and most economical option for long term leverage, and thus, also
the best option to support your long term cash flow. They don’t provide the best short term financing
solution, nor are they willing to recognize the value of a property if it is above your purchase price, or an
after-repaired value. Use the institutional money when you have already increased and proven the
increase of the property value and rental cash flow for your best long term leverage.
Private Lender: Calvert Home Mortgage
Private Mortgages offer flexible financing options and typically are easier to qualify for and provide
faster service compared to institutional lenders. There are higher interest rates than banks since they
offer specialized and unique products and services. The deal and the plan are often more important to
private lenders than your credit.
At Calvert Home Mortgage we will loan you up to 80% of the after-repaired value and offer fully open
interest only or closed term mortgages. Our products and goal is to help you maximize your short and
long term leverage.
If you buy with a long term mortgage, then improve the value, your use of capital isn’t maximized: you
will have more cash invested in the property over the initial term of your bank mortgage, thereby
decreasing your return on investment – consider the efficiency of your capital, and the capital of the JV
partner. Understand the financing option that allows you to leverage your capital so you can legalize
your suite without using cash or so you could have 2 or three legally suited property renovations on the
go at the same time using the same amount of capital you had invested in just one.
Credit Cards: Costly Leverage
Credits cards are a poor long term debt solution as they become very costly with typical interest rates
somewhere between 19-28% and those great renovation department store cards are usually 28%. This
makes a private lender rate of 9-15.5% interest much more affordable by comparison.
Credit cards typically require a minimum monthly payment of 3% of the balance owing. So if you owe
$30K on a credit card that is a $900 per month payment the same amount through a private lender at
15.5% interest is a monthly payment of only $382 per month. That is about $518 dollars or more in
savings each month. That is your cash flow you are throwing away on credit card interest.
If you are in this situation right now then you need to know that there may be less expensive ways to get
out. I would be glad to talk with you to see what I can do to help.
8. The credit card company would be happy if you made your large payment every month for the next 20
years without a plan.
Potential Legally Suited Property
Example #1 Private Lender Funds Legalizing Suite
An investor who owned a rental property with a main floor suite was receiving positive cash flow and
strong profit. This is an opportunity to use after-repaired value financing from Calvert Home Mortgage
to fund the cost to legalize the suite.
This home in Beddington is zoned R-C2 on a 15 metre wide corner lot and the value before renovations
was $417,000. The investors obtained financing from a private lender for the $12,500 in renovations.
The total cost to legalize the suite, including the lender fee was $14,000 ($14,000 @ 11.5%, 20 yr.
amortization) at a cost of $147 per month. The new property value with the legal suite is $430,000 for a
gross increase in value of $23,000.
The legalized suite provides a net gain in value of $9,000. The rent from the new legal suite of $1,250
per month will more than cover the monthly payment to the private lender of $147.00 for the
renovation. When the bank mortgage comes up for renewal the investor can seek to refinance and pay
off the private lender thus increasing their long term cash flow even more.
Example #2 – Purchase and New Legal Suite
Here is an example of a legal suite opportunity found right here in Calgary. This home in Highwood
zoned R-C2 recently sold for 405,000. It requires updating and a legal suite could have been built. The
total cost for both would be about $80,000.
A bigger updated bungalow on the same street with a legal suite sold recently for $568,000, and there is
difference in the size between the two properties so the adjusted after-repaired value of the subject for
the size difference is about $550,000. The difference between the purchase price and the after-repaired
value represents a potential overall value increase of $145,000.
If the buyer had used the specialized after-repaired value financing program from Calvert Home
Mortgage this property could have been purchased by the investor with only $10,000 down, and have
their reserved capital available for their renovations. Consider the chart below for the difference
between how the investor would do with Bank financing versus Calvert Home Mortgage financing.
9. Calvert Flip to
Refinance Option
Bank finance
Option
Difference
Purchase $ 405,000 405,000 -
Property value $ 550,000 405,000 145,000
Down payment $ 10,000 81,000 71,000
Net Mortgage $ 395,000 324,000 69,000
Purchase costs $ 1,195 1,195 -
Appraisal fee - 350 350
Interest rate % 15.5 6.30 9.2
Renovations $ 70,000 70,000 -
Financing Interest (60 days)$ 10,064 4,288 (5,776)
Down Payment and
Renovation cost $ 80,000 151,000 75,224
Calvert Lender Fees $ 5,925 - (4,725)
After-Repaired Value $ 550,000 - -
Refinance at Bank $ 440,000 - -
Calvert Mortgage & Fees $ 400,925 - -
Cash back $ 39,075 - -
Initial Down Payment and
Renovation costs $
80,000 151,000 -
Remaining Capital Invested $ 40,925 151,000 110,075
Financing Interest $ 10,064 4,288 (5,776)
Not only did the investor miss an opportunity to buy the property with only $10,000 down he also had
to invest approximately $110,000 more in capital overall. This means that with the bank or ‘B’ financing
the investor would need a total of $155,288 in capital, including financing interest, compared to only
$90,064, including financing interest, using the Calvert Home Mortgage after-repaired value financing
program. The investor also could have received $39,000 cash back upon refinancing the property
leaving them with only $40,925 invested in the property compared to $151,000 invested in the property
using bank financing. Using the Calvert after-repaired value financing program up front and then
refinancing after the repairs are complete is better long term leverage for your hard earned money.
Example #3
In this example an investor purchased an illegally suited property zoned R-1N, which means they need
to submit a discretionary suite permit application. The investor purchased this property for $377,000
with a plan to update and legalize the suite. Our estimated after-repaired value (ARV) for the property
is $435,000. Based on 80% of the ARV we provided a mortgage of $348,000 allowing the investor to
complete the purchase with only a $29,000 down payment. The cost of the renovations is projected at
10. $25,000. The cost of the mortgage interest and lender fees for 8 weeks amounts to about $14,000. The
extra value the investor built-in comparing his costs to the after-repaired value is $19,000.
This investor has a Joint Venture partner that wants into the deal after the renovations are complete.
The JV partner is buying a 50% ownership in the property which is equal to a 20% down payment of
$435,000 or $87,000. This $87,000 represents the investor’s down payment, renovation, and financing
costs. The investor has no capital left invested in the property and she maintains a 50% ownership
interest in the property. She has $68,000 in returned capital to recycle by purchasing another property
and do it all over again. Plus she has a net profit of about $19,000.
You can see from this example how purchasing with private financing, legalizing the suite, then joint
venturing and refinancing can be a great strategy. There is great short term profit and ongoing
ownership provides long term wealth growth.
These examples show you how you can make the most efficient use of your capital using the Calvert
Home Mortgage after-repaired value financing program. Knowing how and being able to leverage and
recycle your capital will accelerate your wealth growth. Legal secondary suites not only provide
increased value and income, they provide stable income that improves your ability to qualify for the
refinance mortgages or pay down your mortgage faster.
Preparation + Opportunity = Success
• Educate and prepare yourself to be ready to take advantage of the opportunities that will lead
to your success.
• Know what a legally suitable property looks like and where to find them.
• Take advantage of the Development Permit Exempt Program through the city to legalize new or
existing secondary suites you have.
• Talk to the people that can show you how to maximize the leverage of the capital or property
equity that you have.
• Now is the time to take action and advantage of the opportunity to accelerate your wealth.
The City of Calgary website is a great resource and I owe a big thank you to Cliff De Jong at the City of
Calgary for answering my numerous questions.
Please contact me to answer any investing or financing questions you may have.
All the best in your investing!
Keith UtheKeith UtheKeith UtheKeith Uthe
keith@chmic.cakeith@chmic.cakeith@chmic.cakeith@chmic.ca