Rent out Basement

[dbanta]

I bought my house 5 years ago before I started reading MMM.  The house is 3000 sq ft and we are family of 3 plus a dog.  The house is too big for us.  However, we love the location and the good/bad news is that the market exploded since I bought my house so to downsize would probably cost us about the same as what I bought my house for 5 years ago.

We do have a finished basement with a bedroom (currently my husbands office), a living room (currently our nicely temperature controlled tv room), a bathroom and a large storage room.  I'd like to consider renting out the basement to a responsible single person (the rental market is also insane in my area) but there is no separate entrance or kitchen. 

The pros of doing this, if we find the right person, is that it could cut my mortgage in half and this is our largest monthly expense.  However, we would potentially be sharing the kitchen (which we use with high frequency).  There are also concerns of this person interacting with my dog and my child so we woudl need to be very very careful (run a background check, etc.)  Also we will need regular access to the storage room (stores paper towels, etc that we buy in bulk from Costco) so we would need to enter this individual's space.

We do live in a college town so there is a good chance we could rent to a grad student who would rarely be around or a visiting professor, etc.

Has anyone done something similar with luck or terrible results?  Are there any laws that I need to be concerned about, or how would I find out about such laws?

Thanks!

[Bill76]

I know this isn't what you asked, but I have a thought on downsizing.  If the market in your area has exploded, wouldn't the value of your current home have gone up as well? You might be able to sell your current home at a hefty profit and use the proceeds to fund the purchase of a smaller home, even if it does cost the same as your current home did 5 years ago.  Result: smaller mortgage without the hassle of a tenant in your house.

As for converting the basement to a rental, I'd check with a realtor or property management company about the laws in your area. The lack of a kitchen and separate entrance are obvious problems for a rental apartment. If you're sharing the kitchen and will be regularly accessing a storage room in the basement, it sounds more like you'd be taking on a roommate, rather than a tenant.

[totoro]

You are talking about a room-mate and usually bylaws permit this.  My thought is that it has high potential to be a PITA.

If your property has increased along with the rest I'd use some home equity to put in a legal suite or I'd sell, take the profit and downsize if that works better for your family.

Room-mates can be great but when you have a family sharing your house with someone unrelated can be tiring unless you find someone who is a really good fit.  That is rare and you'll likely eventually get tired of the loss of privacy.

[dbanta]

I know this isn't what you asked, but I have a thought on downsizing.  If the market in your area has exploded, wouldn't the value of your current home have gone up as well? You might be able to sell your current home at a hefty profit and use the proceeds to fund the purchase of a smaller home, even if it does cost the same as your current home did 5 years ago.  Result: smaller mortgage without the hassle of a tenant in your house.

That's a good thought.  I'm just struggling with a house that is 1/2 the size costing the same as my current house.  Here are the numbers I have

My house -
Purchased in 2010 for $245,000 with interest rate of 4.25%
Currently owe $185,537.74
Current value (according to zillow) is $338,919

So if I sold it, I would have about $130-$150 to use for a downpayment (depending on realtor fees, etc.)  Most houses that I've looked at online are going for about $250,000 for 1200-1600 sq ft.  If we did decide to down size to one of these, my mortgage would be closer to $120,000 instead of $180,000 and maybe I could get a lower interest rate.  Would that be worth it?

Another consideration, is that I live 1mi from work right now and love my bike ride and the ability to go home over lunch.  Most other houses are still close enough to easily bike to, but probably not home over lunch. 

To throw another wrench into this, we are working to sell my husbands house, 3 bedroom 1 bath that is a 30min bike ride to work for me.  We are looking to get a $80,000 from selling it (he bought in 2009) so we are planning to make some profit there.  We could consider moving to his house and selling mine.  The downside to this is that it is not in a nice central location near bike trails and I would have a significantly longer bike commute.

Although, if we sell both and use the profits from both maybe we could find something smaller and perfect with a very small mortgage.

[Roboturner]

We started Air BnB'ing our basement, rent it out frequently, you have to deal with a shuffle of people through the house, but its nice having the flexibility of not being tied down to a specific renter, and it ends up generating more income (higher rate then what you would get with a long term stay). A thought for you moving forward...

[dbanta]

We started Air BnB'ing our basement, rent it out frequently, you have to deal with a shuffle of people through the house, but its nice having the flexibility of not being tied down to a specific renter, and it ends up generating more income (higher rate then what you would get with a long term stay). A thought for you moving forward...

Thanks!  That's a great idea.  I'll talk with my husband about that.  Do you have any pets or kids that you need to consider when renting?

[EricP]

I think that renting out the space would be a great idea. Moving sucks and is costly.  You'd be looking at ~$12k in realtor's fees plus closing costs to the bank ($3k?) plus whatever it costs to move all your stuff.  If you like the location then keep the house.

As for lacking a separate kitchen, It probably won't be as bad as you are envisioning.  Especially if you get a young single male.  He'll end up eating Chipotle half the time and will cook something quick in a single pot when he's not eating carry-out.

I also can't imagine the renter caring about getting down into storage (as long as it isn't through his bedroom) if you just ask before you head down there.

[pbkmaine]

Whether you use it as a b&b or a rental, there are easy ways to put kitchen function in a space. You already have a sink in the bathroom.  Put a dresser or table down there with shelves above it. Put a small refrigerator next to the dresser. Put a microwave on the dresser. Put plates, cups and coffee and tea fixings on the shelves. You might want to add things like a hot plate, a toaster or a French press coffee maker. All of these things can be acquired inexpensively and allow people to make simple meals without intruding on your kitchen.

[Megma]

Is it possible to add separate entrance? several of my relatives installed "walk-out" basements but this will depend on your house. Or if you have a side door maybe you can add a separate entrance that way? In my renting years I looked at several basement apartments where your entrance was from a side door then straight down the steps, there was sometimes a common area (laundry/storage usually) at the bottom of the stairs and then a door into the apartment.

This will depend on the layout of your specific house.

[Roboturner]

We started Air BnB'ing our basement, rent it out frequently, you have to deal with a shuffle of people through the house, but its nice having the flexibility of not being tied down to a specific renter, and it ends up generating more income (higher rate then what you would get with a long term stay). A thought for you moving forward...

Thanks!  That's a great idea.  I'll talk with my husband about that.  Do you have any pets or kids that you need to consider when renting?

I have a Pug and a Chinchilla, there is an area on your listing to inform your potential tenants of things like that, kids, pets, etc... Also you make the decision on who to rent to, our house is small so I don't allow renters to bring their pets, but its up to you! Really a free market type concept, "These are my terms in my house, either you want to rent or you dont." I'm pretty laid back but like I said, no pets for me, and smoking is only aloud outside.


Also it's not only short term hotel-type stays, there are quite a few traveling professionals/summer interns etc, that are looking for 2-3mo stays. I had a traveling nurse all summer and she was great!

[dbanta]

Is it possible to add separate entrance? several of my relatives installed "walk-out" basements but this will depend on your house. Or if you have a side door maybe you can add a separate entrance that way?

I think this would be pretty difficult.  Only 1 room currently has a windowwell in it and that's the room that would most likely be the bedroom.

Whether you use it as a b&b or a rental, there are easy ways to put kitchen function in a space. You already have a sink in the bathroom.  Put a dresser or table down there with shelves above it. Put a small refrigerator next to the dresser. Put a microwave on the dresser. Put plates, cups and coffee and tea fixings on the shelves. You might want to add things like a hot plate, a toaster or a French press coffee maker. All of these things can be acquired inexpensively and allow people to make simple meals without intruding on your kitchen.

This is a great idea.  There is a little wetbar area with a couple of cabinets and sink (separate from the bathroom sink).  I could "furnish" this area a little bit better like you suggested.  Thanks for the idea!

I think we would furnish the space (we already have an extra tv and couch in the living area) and we would probably setup a bed and some nighstands down there so that we could possibly also use the space for visiting friends.  The Air BnB could fit in really well with this plan.

[pbkmaine]

If you log on to Pinterest and search for "kitchenette", you will see a ton of great ideas. Just mentally erase the ones that look like they cost $50,000 and you will see some low-cost solutions.