Is it worth legalizing your basement, or building a laneway home?

A client purchased a bungalow in Toronto, featuring an unfinished basement. She asked, “Jay, do you think making a basement suite is worth it?”

Throughout the GTA, homeowners are increasingly asking the same thing. With real estate prices climbing, creating secondary suites, or laneway homes has become more than just a trend. It’s a practical way to build wealth, support family, or offset the rising costs of homeownership.

I remember walking through her basement and envisioning its transformation: a private entrance, a kitchen, a living area, two bedrooms, and a full bathroom. It was a space with immense potential. That’s the beauty of secondary suites; they turn underused spaces into something functional, profitable, and even life changing.

Secondary suites, also known as in-law apartments, or legal basement suites, are self-contained living spaces within a home. They must comply with local building codes, have separate entrances, and meet safety requirements. Once legalized, they can generate steady rental income or significantly boost a property’s resale value. In cities like: Toronto, Vancouver, and Calgary, a well-designed suite can add tens of thousands of dollars to a home’s market value.

Laneway homes are unique. Usually built at the rear of a property, they are fully independent residences that offer similar benefits, but on a larger scale. They can host a tenant, an aging parent, or even a young adult just starting. I’ve seen families develop small, beautiful laneway homes that blend seamlessly with their property, providing flexibility and long-term financial security.

We reviewed her numbers. Legalizing a basement suite isn’t cheap; it can cost between $50,000 and $100,000, depending on the extent of the necessary renovations, such as plumbing, electrical work, fire safety, ceiling height adjustments, and finishing. A suite can easily rent for $1,500 to $2,500 per month in Toronto, not to mention the increased resale value. Over time, rental income can help cover mortgage payments, property taxes, and maintenance costs.

In urban Canadian markets, a legal basement suite can boost your property’s resale value by about 70% to 75% of the renovation cost. For example, a $60,000 investment could increase the home’s value by $42,000 to $45,000. Properties with legal secondary suites often sell faster and for higher prices because of the extra rental income potential. Homeowners in Ontario can expect to earn between $18,000 and $30,000 annually from a legal basement suite, helping to cover housing expenses. Garden suites usually rent for more.

Municipal zoning, building codes, and permits are all part of the construction process. Some cities require specific ceiling heights, egress windows, and parking arrangements. Failing to comply with these regulations can lead to fines, or issues when trying to sell the property.

Legal suites enable multigenerational living, giving families the flexibility to care for aging parents, or support adult children as they gain independence. I’ve observed grandparents move into a laneway home while their children and grandchildren stay in the main house, encouraging independence while staying close. This mix of financial security and personal convenience enhances the value of the investment.

Is it worth legalizing your basement or building a laneway home? Based on my experience, the answer is generally yes, if you approach it thoughtfully. Understand the costs, follow the regulations, and plan carefully. The benefits are clear: increased property value, rental income, versatility for family living, and a sense of pride in turning underused space into something meaningful.

I think about that client, now settled with her tenant paying rent that covers her mortgage. She smiles each time she walks through her newly renovated basement. “It feels like my house is working for me now,” she said. That, more than anything, highlights the true value of legalizing your basement: turning opportunity into reality, one square foot at a time.