No brainer, right?
Well, maybe. As with many things that appear too good to be true, there are pros and cons and things to watch out for.
BEFORE YOU START DIGGING.
While a basement you can rent out can be a good investment in the long run, it may cost you $15,000 or more to properly convert it – that could mean a couple of years before you even seen a profit. If you’re not planning on living in your home long-term, it may be more hassle than it’s worth.
Remember, too, that when it comes to selling your home, a basement apartment may be attractive to another couple like you but it might turn off more traditional buyers who view their basement as a family room or storage for camping and hockey equipment, not a place for a stranger to live downstairs.
If you’re serious about renting out your basement because you really want or need the extra rental income, make sure you ask yourself the following:
IS YOUR PRIVACY IMPORTANT?
Will you be okay with occasional noise down below, the tenant’s family, friends or love interests coming and going at all hours, knocks on the door when the toilet overflows or a pipe bursts? How about your tenant walking around the backyard while you’re sunbathing in the summer?
DID YOU DO YOUR RESEARCH?
Landlord-tenant laws differ across the country so check into them. Municipal bylaws also vary in terms of construction, fire and building safety codes – follow them to a tee or you run the risk of having your basement apartment shut down.
Next, make sure to call your home insurance company too to see what additional coverage you need. You’ll also want to insist your tenant buys insurance too to protect himself and his belongings – these won’t be covered under your policy.
And ask your accountant about tax implications – do you have to claim the rental income on your taxes, or will you have to pay additional capital gains when you sell your home, which may now be deemed an investment property? Finally, visit sites like www.myREINspace.com to read forum discussions between property owners on how to deal with tenant and other issues.
DO YOU KNOW WHO YOU’RE RENTING TO?
Finding the right tenant is as important as hiring an employee. Ask prospective renters to complete a rental application, for permission to do background checks for criminal or credit records and employment, and ask for references, particularly from past landlords.
Although it may sound like a great idea at first, think twice about renting to family members or close friends – renting out your basement is above all a business decision and renting to people you know well can make it difficult to collect overdue rent or terminate the lease.
HAVE YOU PLANNED AHEAD?
If renting to a smoker or someone with pets is a deal breaker for you, ask beforehand and include the prohibitions in the tenant agreement. Ask if the person will be living alone or if other family or friends will visit regularly. Insist on a written lease that outlines rules, payment, penalties and the length of the agreement.
Renting out your basement – or even a spare room – can be a smart way to invest in the home you want. Just make sure you know what you’re getting into.