You’ve probably heard of house hacking – buying a duplex or small multi-unit property, so that you can move into one unit and have your neighboring renters pay the mortgage.
But what if you’re buying (or own) a single-family home?
One option is bringing on a roommate. I’ve done this, and it was great. Still, roommate living isn’t for everyone.
Wouldn’t it be great if you could house hack a single-family home, without having to share common spaces with a roommate?
Enter: the income suite.
Be forewarned, not every home is conducive to cordoning off an income suite. And even among those that are, be prepared for a legal tightrope walk, if you want to dodge zoning changes.
But for certain homeowners, income suites represent an easy financial win. So what do you need to know, to add an income suite to your home?
Divisibility: Evaluating a Property’s Potential
Some homes have natural divisions, that make them easy to split into two livable units. Does the basement have a separate entrance? Is there a livable space above the garage? Or maybe you have an outbuilding, carriage house or barn that could be finished and made livable?
Separate entrances are ideal, if you want a true separation of spaces. But you don’t need separate entrances.
One option is to add doors on the interior. For example, if the front door opens right next to the stairs, it’s easy enough to add a small wall with a door to access the downstairs, and another door at the top of the stairs to access the upstairs.
Or, part of the home could be shared, while the rest of it remains separated. If there are two separate living suites, each with their own full bathroom, bedroom and living space, you may accept a shared kitchen.
Be creative. Just because a room was originally designed to be a dining room, doesn’t mean it couldn’t become a bedroom, and vice versa. Putting up a small internal wall with a door is not very expensive, nor is adding a door to a currently-solid wall.
Official or Unofficial? The Choice Is Yours
If your property has separate entrances and completely separate living spaces, you can consider going the “official” route and changing the property’s zoning to a two-unit building. Don’t expect a cakewalk: zoning boards are notoriously painful to work with. Read: bureaucratic nightmare. They will make you pay a series of fees, send out stiff-necked inspectors who will not budge on a single issue, and require that each unit has its own utility hookup and metering. And that’s just the start – they will undoubtedly spout inexplicable housing codes and force you to jump through completely illogical hoops, just, well, because.
It’s a permanent change, and not easily reversed. But you can advertise a separate apartment for rent, and legitimately sell the property as a multi-unit building when it comes time to sell.
If zoning boards, bureaucratic inspectors and separate meters sounds like more than you’re looking to tangle with, fret not. There’s also the “unofficial” route.
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Free Video Training: Passive Income from Rentals
Without separate zoning, you can’t advertise a completely independent “apartment.” The property is still legally a single unit. But you can advertise a “suite” with a separate entrance and complete privacy.Which, to most renters, is no real difference.
Set a budget of no more than 1-2 years’ rental income, preferably less. That means first getting a sense of the local rental market, and how much your potential income suite will rent for.
If you can expect to lease your income suite for $1,000, try to keep your budget under $12,000. Set a hard limit of $24,000.
Why? Life tends to throw us curveballs, and it’s hard to project further into the future than a year or two. What if you get married and move out? Or your significant other moves in and demands more space for their exotic bug collection? Or you find yourself unexpectedly expecting a new child? Perhaps your parents or in-laws need to move in?
You want to see a profit within a year ideally, and certainly within two years. Otherwise you’re just asking for something to come along and ruin your well-laid plan for rental income.
If setting up a full kitchen is outside your budget, consider a kitchenette. Tour a few studio apartments with kitchenettes for ideas, and don’t be afraid to buy used appliances.
Lastly, bear in mind how these changes will affect your home’s marketability. Will the alterations make it more difficult to sell? Will they lower the value or increase the value?
You’ve Got Mail
If you went the official route, congratulations, you have two unique mailing addresses, and can have two separate mailboxes.
But if the property is legally still one unit, you can’t have separate mailing addresses. That means sharing a mailbox.
Sharing mail is not the end of the world, but it does require a system. You’ll need to agree with your renter how to sort the mail.
One option is each person only takes their mail out of the mailbox, and leaves the other’s mail in. That only works if both parties are good about checking the mail every day.
The other option is you take all the mail, sort it, and leave their mail for them somewhere safe.
Remember, in the eyes of the law, you are roommates!
For unofficial income suites, you’ll need to sign a roommate lease agreement.
Be extremely specific about what spaces and amenities are shared, what’s private for the renter, and what they can’t access.
Remember above when we talked about separate utility meters for official multi-unit zoning? Well, be prepared for shared utility bills if you go unofficial. You’ll need to specify a utility bill split in the lease agreement. And what happens if one party wants the thermostat set differently? Write down a clear, specific policy for thermostat levels in the lease agreement.
What about visitors, noise and cleanliness? If you thought this is something you and your new roommate can “just work out” after they move in, beware. Unless it’s in writing, thoroughly detailed in the lease agreement, it probably won’t happen the way you think it will.
Set your lease agreement to terminate at the end of the lease term, unless both parties agree in writing otherwise beforehand. It will save you hassles later on, in serving the renter with notice to vacate.
Assuming the Mantle of “Landlord”
Ready to become a landlord?
First, be sure to do comprehensive tenant screening. Collect rental applications from all interested prospects. Run tenant credit reports, criminal background checks and eviction reports on all applicants. Read up on Fair Housing Laws.
Once you’ve signed a lease agreement, you’ll need to comply with your local and state landlord-tenant laws. That includes privacy laws – you can’t enter the income suite without giving written notice.
Be prepared to evict the renter if they don’t pay the rent, or they damage your property.
You’re a landlord now! Be prepared for a lot of headaches but not a lot of sympathy from the public or courts.
Are Income Suites for You?
Income suites may not be a panacea for all your financial woes, but they can certainly help your monthly cash flow. If you’re shopping for a new home, keep an eye out for homes you might easily divide for an income suite.
Later on, income suites can come in handy if your grown children move back in, or as an in-law suite for aging parents. If you plan to live somewhere for a long time, income suites can prove an excellent long-term investment.
And typically, you can finance the property alterations on a credit card or personal loan. No muss, no fuss, just some quick repairs and instant returns.
Not a bad way to ease your way into becoming a landlord!
What are your thoughts on income suites? Ever tried creating one? Would you ever?