Friday, April 24, 2015

Equity with a Laneway House

Here are some of my thoughts on home equity for a laneway house. For the record we don't own the land that we are building the laneway house on, my parents do. So we are paying for the laneway house but we are getting zero equity in return. I worked out (somewhat informally) with my family how that will the equity would be divided in the distant future. So we are getting a (small) detached house for roughly the price of a two bedroom condo but we have no equity, no option to sell, our money is locked in until maybe the distant future. My wife and I are comfortable with this, we have a plan and this is going to be in line with what we want. To be honest with you I didn't really think about the equity portion of building a laneway house too much prior to getting it the process started. To us having our equity lock away for a while is okay, we didn't want to go with the alternatives: rent, buying a two bedroom, we can't afford a detached house, the only option that we really wanted to consider was a townhouse.

One thing that makes me wonder is will the money that we put into the laneway house, will that translate to equity for the entire property? Hypothetically does a million dollar piece of land with a $350K laneway house automatically mean $1.35 million in equity? I'm not sure, I actually don't know at all.

I've always approached the laneway house as our forever home. I don't anticipate needing to move. We have three bedrooms and two bathrooms, the space maybe small but in my opinion it's future proof for a while. I'm not going to worry about the equity (for now).


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