Toronto’s Untested Laneway Housing Market Is About To Be Tested! – Toronto Realty Blog
Let’s say you’re currently tipping the scales at 198 pounds.
If you ate five pounds of food and immediately weighed yourself, would you expect to weigh 203 pounds?
Sometimes, it should be a matter of simple math.
But if you’re an appliance wholesaler and you package together a $1,500 fridge, $1,000 stove, and $500 dishwasher, can you really expect the market to bear $3,000, or would the consumer expect a discount?
What if you were looking to sell your $50,000 sports car but you wanted to put your custom-made $10,000 golf clubs in the trunk and sell them together? Is the market value then $60,000?
What if you had one child and then added a second. Can you merely assume that your time commitment, stress level, and reminiscences about the single life will merely double? Because I can tell you from experience, that estimate is quite low.
So what if you had a house that was worth $1,500,000 and you built a legal laneway house at the back. Then you wanted to value, and/or sell the property.
How in the WORLD do you value that?
A few years ago, we started talking about laneway houses on this blog back when they were just a pipe-dream. Some of the long-time TRB readers suggested, as far back as a decade ago, that allowing laneway housing would be an innovative way to increase supply in the city, noting that this has been done in other major cities across the world.
As the years went on, the idea gained more and more traction until finally, the City of Toronto officially opened the door to it.
But a question was asked by one of the TRB readers that would be impossible to answer: how would you value the entire property?
Even up to this point, any answers are merely speculation.
Correct me if I’m wrong, but I don’t recall seeing a sale posted on MLS for a legitimate, legal, renovated single-family dwelling and self-contained laneway suite that would be described
However, all that is about to change…
I don’t know if you guys follow Marty at Laneway Housing Advisors. He’s a regular reader of the blog and we’ve discussed his work on here before. I’m on his email list and I read his newsletters, and last year, I started to see a lot of listings coming onto MLS which have his report on qualification for laneway housing.
If you’re the type that has bookmarked Toronto Realty Blog, Toronto Life’s real estate section, BlogTO’s real estate section, et al, you’ll want to bookmark his as well.
There are a lot of interesting reads out there about laneway housing.
If you want to know where it all started, you’ll want to read this:
Toronto Life: “This Is The City Planner Who Made Laneway Suites Legal”
His name is Graig Uens, and years from now, we might be talking about him as one of the individuals who changed Toronto real estate in the 21st century.
He notes in the article:
“Since 2018, there have been 239 permits to build laneway homes.”
But what is it going to be like when one of these double-properties comes to market, you ask?
We’re about to find out!
Just listed this week: 1067 Shaw Street. Beautifully renovated semi-detached, 4-bed, 4-bath with a 1-bed, 1-bath basement apartment with nice curb appeal too!
Have a look:
It’s a fair size home; an 18.67 x 125 foot lot, and having opened up the main floor, there’s no wasted space.
The renovation is modern, stylish, and looks to have been done well.
Here’s a shot of that main floor which shows the space and the renovation:
And here’s a look at that basement apartment:
But what were we talking about earlier?
All that jazz about laneway houses, right?
You won’t believe what these folks built, it’s just incredible!
Where the garage once stood, you’ll now find this:
Amazing!
Here’s a shot of the laneway house from the actual laneway itself:
Note the street number “26” on the wall.
What does that refer to?
It’s 26 Ivaan Kotulsky Lane, which is the street, er, lane that runs behind Shaw Street.
Whether or not this #26 is just for fun, or whether the address, has, or will be changed, remains to be seen. Land Registry shows this property as one parcel. But we’ll come back to that in a moment.
For now, let’s take a look at the laneway house itself:
Pretty neat, eh?
And they’ve left the garage down below so the house on Shaw isn’t a “no parking” house, which would have lowered the value.
This project is absolute genius on behalf of the owners who have now listed the property for sale on MLS at $1,799,900 with an offer date.
So what immediate questions come to mind?
I’ve got a few.
How do you value a property with two houses on it?
This was the question that I asked at the onset via some childish examples.
If the main house is, or should be, or could be worth $1.8M, then do you simply look at the back house as worth $600,000 and add this to come up with a value of $2.4M?
Do you expect a package discount, ie. the A + B = C but you expect to pay less than “C” in the end?
If that back house were a condo, it might cost $600,000 based on the square footage. So is that how we value it?
Or do we look at the rent and then simply add some sort of value based on capitalization rate or how much mortgage the rent would carry?
If you could rent that unit out for $2,000 per month, this would carry approximately $600,000 in mortgage at a 1.35% rate over 30-years. Over 25-years, it would carry $510,000, so you can play around with the numbers if you wanted to use this method of evaluation.
In the end, there are a lot of ways to come up with a value here, and every buyer would do this differently.
How would a mortgage lender view this property, appraise it, and loan on it?
Great question!
And unfortunately, it’s one that I don’t have an answer to.
Somebody had to go first, right? There had to be somebody who wanted a mortgage on a 2-dwelling property in downtown Toronto, and I don’t even know if the lenders have any idea how they’ll handle this.
Perhaps they’ll appraise the property in the same way that we suggested above: by looking at the combined value, and perhaps they’ll even use our method of analyzing how much mortgage the rent would cover each month.
But perhaps they’ll only loan on the value of the main dwelling itself, regardless of the price paid for the full property. That would be problematic. Time will tell…
Will the City of Toronto allow the owners to legally change the address?
Another great question!
Is it odd that I asked a question and am now complementing the question itself?
In any event, this is what a lot of buyers would wonder, not just because it makes things like mail delivery easier, not to mention ordering Uber Eats, which we’ll be doing for about 50% of our meals in a decade (or less), but also because it dramatically changes the appeal of this property.
Suddenly, it ceases to be one property with two dwellings, and almost becomes two distinct properties.
Can a future owner keep one dwelling and sell the other dwelling?
This is the logical follow-up question, and it all depends on the next important question.
Can you, or would somebody want to sever the two properties?
The only way you can sell one of the two dwellings is if you have two distinct and separate titles.
In order to do this, you would have to apply for a severance.
And circling back to several questions ago, the only way you can 100% legally change the address is if you have two separate properties registered via two separate PINs.
There are work-arounds, of course.
Consider that you might live at 123 Smith Street and you have a basement apartment, so you put “B” on the number plate, and VOILA! Overnight, you’ve got 123B Smith Street and it didn’t cost you anything.
But to build a laneway house at the back of the property located at 123 Smith Street and legally change that address to 789 Laneway Drive is far from automatic, and the only way you can guarantee that outcome is to sever the lots and register two titles.
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So, any other questions, discussion points, or opinions?
This sale is going to be a game-changer, folks! Ten years from now, this might be one of those “Do you remember where you were, when…” questions for those real estate nerds among us.
Kudos to the owners of this house, they did an absolutely incredible job.
Happy Friday, everybody!
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