If you’re lucky to have some extra room in your house — whether it’s a finished basement, a mother-in-law apartment, or separate guest house — you’ve probably considered renting it out for a little extra income.
“It’s a good plan,” said Robert Griswold, author of “Property Management for Dummies” and Inman News columnist. “It helps you with mortgage payments and the beauty of it is if anything goes wrong, you’re right there.”
And if you’re selling your home with built-in rental space, it can be considered a selling point, according to Griswold.
But, before you take the plunge and list your rental property on Zillow, there are a few things to consider.
1. What are your neighborhood’s or city’s rental zoning laws? While some cities do not place limits on renting out a mother-in-law or walk-out basement, other cities deem those types of rentals, commonly referred to as “accessory dwelling units” or “secondary suites,” illegal. Zoning codes that are often in place include, as reported by Nolo Law for All:
- Restrictions on number of residents.
- Laws allowing only one “household” per house
- Restrictions on the number of dwelling units on a parcel
- Extra requirements for multi-unit housing (e.g., required additional parking spots for tenants)
Even if your city allows these rentals, if you live within a planned neighborhood or are a member of a homeowners or neighborhood association, you may be subject to their rules.
2. Is it up to code? If you are renting out a secondary home on your property, you are legally responsible for following the local housing codes. Like rental zoning laws, rental housing codes will differ around the country. If you don’t comply with housing codes, the penalties can be significant, noted Griswold. Not only will you face considerable fines, but the rent can be waived and returned to the tenant if the property is not code compliant.
3. Is your rental desirable? While your walk-out basement may be up to code and legal, is it something that someone else would want to rent? Ask yourself objectively if you could you picture yourself living there. Most often secondary housing units are priced lower than an apartment or other rental, so take that in consideration as well. As with all real estate, demand varies from market to market. Are you in a location where rentals are in high demand?
4. Do you have time to be a landlord? As a landlord you are responsible for making or arranging for repairs and should be available 24 hours a day, 7 days a week. You should expect about 10 percent of your rental income to go to repairs and updates on the property. If you don’t keep up on the property, you could lose or alienate good tenants.
5. Are you cut out to be a landlord? You also need to know your personality, said Griswold.
“You need to be fair, firm and friendly but not friends with your tenant so you can enforce rules,” he explained.
While it’s rare for an on-site rental, there is always the option of hiring a professional property management company. And finally, Griswold, said, get to know fair housing standards and whether you would be OK renting to someone who had a different lifestyle from you.
“You have a right to what you believe, but you can’t get into that as landlord.”