Many homeowners are exploring ways to add income-generating secondary suites to their properties. Often, these property owners assume the only way to do this is to convert basements into self-contained apartments. Not all homes have suitable interior space for a secondary suite, and many owners prefer to maintain the privacy and existing layout of their primary residence. As a result, they may assume that adding a rental unit is not a viable option.However, with many municipalities relaxing zoning restrictions, prefabricated suites that can fit in a backyard space offer an alternative solution.These standalone units, often referred to as garden suites or detached accessory dwelling units (ADUs), can be built faster than conventional additions, offer a high level of design flexibility, and are increasingly permitted under new zoning regulations in major cities. Homeowners who are unable or unwilling to undertake the renovations required to convert a basement may find that a well-designed prefab suite offers a more practical alternative, providing rental income with fewer structural limitations and greater long-term flexibility.Why Basements Aren’t Always ViableWhile basement apartments remain the most common form of secondary suite in Canada, they are not feasible in every home. Some houses lack basement space altogether, while others have low ceiling heights, poor natural light, or layouts that will not meet building code and secondary suite requirements without significant renovations, including expensive structural upgrades, such as fire separations, egress windows, creating a separate entrance and stairs, and other work.There are also lifestyle considerations, such as sharing an interior space, even with separate entrances. Noise and privacy concerns can be deterrents. A detached unit in a suitable backyard space can offer a more independent solution for both the landlord and the tenant.The Rise of Prefabricated Garden SuitesPrefabricated construction, where the unit is partially or fully assembled in a factory and delivered to the site, has evolved significantly in recent years. Modular and panelized designs now offer durable, architecturally refined units that meet building codes and can be installed in a fraction of the time of a conventional build. Modern versions are more aesthetically pleasing, as well.Prefab suites are available in a range of sizes, from under 400 sq. ft. to over 1100 sq. ft., with multiple bedrooms and bathrooms. This helps provide suitable options that both fit within a backyard or other open space and align with local zoning and lot conditions. Units can be delivered in modules and craned into place or assembled on-site using factory-built panels. In both cases, the construction timeline is drastically shortened, often to less than three months from permitting to move-in, with most of the work occurring off-site.These suites typically include a kitchen, bathroom, living area, and one to three bedrooms. High-efficiency insulation, heat pumps, triple-glazed windows, and optional solar integration are now standard offerings from many manufacturers, making them energy-efficient and climate-resilient.Canadian Cities Are Changing Their RulesThe viability of backyard prefab suites has improved dramatically thanks to zoning reforms across Canada. Toronto, for example, passed city-wide permissions for garden suites in 2022, allowing most homeowners with single-detached, semi-detached, or row houses to build an additional unit in the backyard. Edmonton, Victoria, and Ottawa have similarly relaxed rules to allow secondary and even tertiary units on standard lots.Some municipalities now offer pre-approved design templates for backyard suites, reducing the need for lengthy development approvals. Others are streamlining permitting and offering financial incentives, including rebates or development charge exemptions, particularly for long-term rentals. It is critical to check with each municipality for rules and regulations before starting.Costs and Financial ViabilityPrefabricated housing can be more affordable than site-built properties, although suites are not cheap. Costs are predictable and often lower than conventional builds. A high-quality backyard prefab suite typically costs between $150,000 and $400,000 or so, including site preparation, utility hookups, permits, and delivery. Exact pricing depends on size, complexity, finishes, and local servicing conditions.Financing a prefab garden suite can present added complexity, although an increasing number of lenders in Canada are beginning to accept these units as valid collateral for home equity loans or second mortgages. However, approval often depends on the type of prefab construction, whether the unit is permanently affixed to the property, and the policies of the individual lender. Other factors, such as local zoning, resale implications, and whether the unit meets conventional appraisal standards, may also affect financing eligibility.In high-demand rental markets, the return on investment can be substantial. In Toronto or Vancouver, a one-bedroom suite can earn around $2,500 per month, according to Rentals.ca in June 2025. Even in mid-sized cities, single-bedroom rents can exceed $1,400, meaning the unit could generate enough to offset financing costs and build long-term equity.Design, Permitting, and Site ConstraintsNot every property can accommodate a backyard suite, and permitting remains the most complex part of the process. Minimum lot size, rear yard depth, height limits, access requirements, and proximity to property lines all affect feasibility. For instance, Toronto’s guidelines require a minimum rear yard depth of 7.5 metres and restrict the total floor area of the suite to no more than 60 square metres, although exceptions may be possible through minor variance applications.Site servicing is another key factor. Connecting the suite to existing water, sewer, and electrical systems can add costs, particularly on older lots with outdated infrastructure. Many prefab builders now offer end-to-end project management, including feasibility analysis, design customization, permitting assistance, and construction oversight to help navigate these hurdles.Long-Term BenefitsA well-executed backyard suite does more than generate rental income. It adds usable space to your property that can later be used for aging parents, adult children, guest accommodations, or personal workspace. It also enhances the resale value of the property, particularly as multi-generational living and flexible housing options become more desirable.For homeowners interested in rental income, a backyard prefab suite could be an effective solution. Supported by changing zoning laws, maturing construction technologies, and growing municipal incentives, these units offer a practical, scalable way to make use of extra space.