In times of economic uncertainty, renting the basement suite has become an increasingly popular way to generate extra income. Before going after the extra money, be sure to consider the impact of tenants on your property, your finances and your privacy.
Before making any preparations for tenants, you need to find out if it is legal. Examine your neighborhood's rules or by-laws for provisions regarding rental properties. After examining the rules at the neighborhood level, be sure to check the code in your city. Each city may have different rules regarding multi-family units such as the number of occupants allowed per household.
If it is legal to rent your basement suite, then you can begin making the property physically acceptable for tenants. Some key items that prospective tenants may look for in a rental unit can also benefit you as the landlord. Here are a few qualities the property should possess:
- The suite should be finished - This quality may seem obvious, but a basement should be finished, in all aspects (including walls, ventilation, appliances, etc.), before it is advertised as a rental property. (Find out what factors you should weigh when searching for income-producing real estate. Check out Top 10 Features Of A Profitable Rental Property.)
- The unit should offer privacy - If possible, the basement suite should have a private entrance, as well as its own kitchen, bathroom and other appliances (such as a washer and dryer) if possible. A personal mailbox and parking spot(s) offer extra convenience, too. If you are extremely sensitive to changes in noise and lighting (like opening and closing doors, or headlights shining in your window), then you should structure your renovations with those issues in mind.
- The suite should have adequate lighting - Most basement suites are at least partially underground, so extra light should be added in order to compensate for the lack of sunlight.
Undoubtedly, rental income is the largest monetary benefit of having tenants, but there are other financial aspects to consider, too. (Create a valuation system to forecast the profitability of an income-producing property in Rental Properties: Cash Cow Or Money Pit?)
If your property is changing from a residence to a rental property, then you should contact your mortgage and insurance companies. Your mortgage may restrict use of the property to being a primary residence instead of a rental. The addition of residents and more appliances increases your risk, and your insurance premium will probably change to reflect the added risk.
Speaking of additional appliances, when making renovations be sure to comply with the rules of your neighborhood and jurisdiction. Mistakes can be costly if they create code violations, you could be fined or the property could be deemed unsuitable for tenants.
Having more occupants also increases utility bills such as electricity and gas. You will need to establish separate accounts for as many utility bills as possible. Be prepared to pay higher bills for some utilities which may remain shared throughout the household, but held in your name only.
Opening your home to tenants will also impact your taxes, so be sure to keep up with the IRS to avoid trouble. (Investing in rental property can generate serious income, but there's more to it than collecting rent. Don't miss Tips For The Prospective Landlord.)
Do not open your house to tenants if you are not ready for housemates! Even with private entrances, kitchens and bathrooms, you are still sharing a home. Consider if common spaces will be shared and if so, how they will be maintained. For instance, if there is a backyard, can your tenants put out patio furniture or use the space for a family barbeque? If there is a lobby or a joint hallway, can your tenant hang pictures?
These items may seem small, but they can add up. If they go unaddressed, these issues can cause confusion as well as inconvenience.
To Rent or Not To Rent?
If you are in compliance with all applicable laws and renting doesn't adversely impact your pockets or your privacy, then your basement may be ready for tenants. A word to the wise: choose your tenants carefully!