Thinking about renting out your basement or mother-in-law suite? While the decision to become a landlord is not something to take lightly, it can be a great source of income, says 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,” he says.
And if you're selling your home with built-in rental space, it can be considered a selling point, according to Griswold. Before you take the plunge and list your rental property, here are five things to consider:
1. What are the 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, often called "accessory dwelling units" or "secondary suites," illegal. If they are legal, they are often under zoning codes that could include:
2. Is your rental up to code? If you are renting out a secondary unit 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, notes Griswold. Not only will you face considerable fines, but the rent can be waived and returned to the tenant if the property is not found to be code compliant.
3. Is the 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 can 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 24/7. 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. Would you be a good landlord? You also need to know your personality, says Griswold. “You need to be fair, firm and friendly but not friends with your tenant so you can enforce rules,” he explained. Although it’s rare for an on-site rental, you have the option of hiring a professional property management company to deal with your tenants. Additionally, get to know fair housing standards, said Griswald, 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.”