Updated: Sep 14, 2020
When you purchase a rental property, you are looking for figures like yield and capitalization rates. To keep it simple, the capitalization rate is the yearly profit divided by the purchase price of the property. This figure berries city-by-city, but however within a city, it should be relatively the same. In Vancouver Canada, a capitalization rate of 2 to 3% is normal. This is because property prices in Vancouver are relatively expensive. So for the investor, when they buy rental properties, they will be happy if they can get anything around 3%, with 4% being a bonus. It is very rare to have a rental property of a single family home which exceeds five percent.
Let's switch gears and talk about a laneway house now. on a normal sized property in Vancouver, you can build a laneway house for about $250,000. After building the property, rent it out and the rent would be around $2,500. If you do this and you calculate the capitalization rate, you will end up with a cap rate of about 10%.
So from an investment building a laneway house is a very good idea. However there may be various reasons where you do not want to build a laneway house. The first reason is that many people enjoy their privacy and they want a backyard of their own. Secondly, taxes can be an issue.