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.

Your Property
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:

  1. 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.)

  2. 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.

  3. 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.

Your Finances
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.)

Your Privacy
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!

Related Articles
  1. Budgeting

    The Hard Way We Pay For Convenience

    Convenience is a luxury. However, any cost-conscious individual should be aware of these ridiculous ways we pay for convenience and how to avoid them.
  2. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  3. Budgeting

    How to Cost Effectively Spend on Baby Clothes

    Don't let your baby's wardrobe derail your budget. These top tips help you to save money and spend wisely on baby clothes.
  4. Personal Finance

    College Students are Failing Financial Literacy

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
  5. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  6. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  7. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  8. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  9. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  10. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  4. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  5. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  6. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!