Advice on living in basement and renting main areas

[Lissa Harre]

I own a 5 bedroom 3&1/2 bath house with a finished basement. I’m hoping to live in the basement and rent out the top 2 floors. 

How should I split utilities, HOA, ect?

Can I limit the rental to not include the backyard? The backyard is fully fenced but the deck to get to it is not structurally sound and I can’t afford to fix it. Also I have young children that play in the yard so I don’t want strangers using their space. My husband thinks this will limits our prospective tenants too much and we should just fix the deck and be done with it. 

What should I look for in a tenant to live peaceably? I’m concerned about unreasonable personalities that will either be very demanding or overly messy/loud/ect. 

What issues have you had with tenants in your home? 

Should I allow pets? Can I limit what kinds? Should pet fees be monthly or 1x? 

Parking: The house has a 2 car garage and a driveway that could hold 6 cars and no on street parking. Can I limit parking to only in the garage? If I park my car at the bottom of the driveway on one side they will have access to both garage spaces and I will never be blocked. 

Pros and cons of property management company? Is it necessary?

[Theresa Harris]

Living in the basement and renting out the rest of the house is a good way to maximize the rent.  

Does each floor have its own kitchen and bathroom or would this be a shared house?

Yes you can specify that the back yard is not part of the rent and that there is parking for 2 cars (or however many you want).  If the tenants do not have use of the backyard, I would specify no pets otherwise the pets will be completely indoor.

As for utilities, for heating, split it by floor-so if upstairs has 2 floors of equal size and downstairs is 1/3 of the space-you pay 1/3. For water, do it by the number of people. HOA is on you to pay.

[Chris Davidson]

@Lissa Harre fix the deck. 

You can limit areas, but it will make it more unappealing to some tenants. You can also increase rent to cover utilities and you pay for everything. You can do what you want regarding pets, but I would charge a 1 time fee and get all the money up front. 

Best of luck!

[Nathan Gesner]

Quote from @Lissa Harre:

Reading a couple books may answer 80% of your questions. I recommend "Every Landlord's Legal Guide" by NOLO. Written by attorney investors, it's full of practical advice pertaining to management of investment property, has sample forms that can be edited, and - most importantly - they tell you what your primary state laws are and where you can read them. It's updated every year and is the best $40 you'll spend as a Landlord. There is one book for 49 states and a separate book for California. You can also check out "Managing Rental Properties" by Brandon Turner.

There is no problem restricting yard use, but it may cut down on the number of interested parties. That can be a good thing or a bad thing.

I definitely recommend allowing pets, but setting limits. No more than two, keep them small, and charge extra rent per month. $50 per month for a dog earns you $600 a year and you get to keep it, whereas deposits are usually smaller and have to be returned.

Be very, very clear about noise levels! Warn them in your marketing, warn them when you show the property, and warn them when you sign the lease. Be prepared to issue warning letters, fines, or terminate the lease when they violate the noise restrictions.

Same with parking. Be very clear about the number of vehicles allowed and where they are allowed to park. 

[Lissa Harre]

Quote from @Theresa Harris:

Living in the basement and renting out the rest of the house is a good way to maximize the rent.  

Does each floor have its own kitchen and bathroom or would this be a shared house?

Yes you can specify that the back yard is not part of the rent and that there is parking for 2 cars (or however many you want).  If the tenants do not have use of the backyard, I would specify no pets otherwise the pets will be completely indoor.

As for utilities, for heating, split it by floor-so if upstairs has 2 floors of equal size and downstairs is 1/3 of the space-you pay 1/3. For water, do it by the number of people. HOA is on you to pay.

 The top two levels are a traditional house. 1 kitchen & living spaces on main floor and bedrooms on top floor. The basement currently has a finished bathroom but I will need to install a kitchen so the spaces will be completely separate.

Thank you for the idea on utilities.

[Lissa Harre]

Quote from @Chris Davidson:

@Lissa Harre fix the deck. 

You can limit areas, but it will make it more unappealing to some tenants. You can also increase rent to cover utilities and you pay for everything. You can do what you want regarding pets, but I would charge a 1 time fee and get all the money up front. 

Best of luck!

Thank you

[Lissa Harre]

Quote from @Nathan Gesner:

Quote from @Lissa Harre:

Reading a couple books may answer 80% of your questions. I recommend "Every Landlord's Legal Guide" by NOLO. Written by attorney investors, it's full of practical advice pertaining to management of investment property, has sample forms that can be edited, and - most importantly - they tell you what your primary state laws are and where you can read them. It's updated every year and is the best $40 you'll spend as a Landlord. There is one book for 49 states and a separate book for California. You can also check out "Managing Rental Properties" by Brandon Turner.

There is no problem restricting yard use, but it may cut down on the number of interested parties. That can be a good thing or a bad thing.

I definitely recommend allowing pets, but setting limits. No more than two, keep them small, and charge extra rent per month. $50 per month for a dog earns you $600 a year and you get to keep it, whereas deposits are usually smaller and have to be returned.

Be very, very clear about noise levels! Warn them in your marketing, warn them when you show the property, and warn them when you sign the lease. Be prepared to issue warning letters, fines, or terminate the lease when they violate the noise restrictions.

Same with parking. Be very clear about the number of vehicles allowed and where they are allowed to park. 

Thank you so much. I have been so overwhelmed with all of the different books/blogs/podcasts and most of the seem to be centered around how to buy a property not how to run it.

[Orion Holmes]

I did this sort of thing for am airbnb.

id reccomend you err on the side of strict at the cost of possible tenants.

its better if you are happy than maxmizing cashflow. Unlike troublesome rental property tenants, when you house hack, you have to see these issues yourself.

make a house rule sheet, make sure to go over each rule. For the rule sheet think of everything that is important to you. Again, dont think of maximizing cashflow.

for instance, shoes or shoes off, how is garbage handled, is there a schedule for laundry? Are single tenants allowed to bring over "Friends" to their room?

Our main issue was the bathroom on the top floor. We had one in the basement.

the bathroom got dirty, fast. If we didnt clean it up once a day looked like a bus stop.

You have to be specific with people, very.

like if you have long hair, be sure to collect your hair from the drain. If the bin looks full, empty it, dont just toss your garbage at the top of the trash mound.

try to have only single tenants. Unless there are no single people in your area, reducing the quantity of people will reduce wear and tear and stress.

[Sarita Scherpereel]

Hi @Lissa Harre There's been wonderful advise on here already. I just want to add that knowing your city's property guidelines about living in basements is really important. I'm not sure if Atlanta has violations/citations for this. So just make sure you double check...if you haven't already. Best of luck! 

[Richard F.]

Aloha,

If your deck is not safe, it would be foolish to rent out any part of the house knowing so due to the liability exposure. How can you prevent tenants from accessing it? With a "rule"? That will not remove your exposure. If you cannot afford to fix the deck, how will you add a reasonable and safe kitchen in the basement, especially considering you have young children?

Does your basement finished basement have at least two appropriate egress points for the safety of you and your own family in case of fire?

Will your water heater be able to keep up with the additional people, especially if their schedule coincides with yours?

Where/how are your tenants going to receive their mail, or will everyone's mail be in one box? What about package delivery?

On our multi-family properties, we include a "Quiet Hours" rule from 10 PM - 8 AM daily, with fines for violation. Some also limit laundry hours as well due to the noise.

[Ray Lin]

When living in a basement, make sure to know the laws and legality. In NYC basements are illegal. I knew a family who owns the house and was living in the basement. During a dispute, the tenants call the city and the owners had to move out of the basement, stayed in hotel for months until the tenants was evicted. I believe in house hacking, but you need to stay in the side of the law.

[Ryan Thomson]

@Lissa Harre I would recommend splitting the utilities evenly. Just make that clear in the lease. This incentivizes everyone to not be ridiculous in their utility usage. 

You can limit the rental to whatever you want. Just needs to be spelled out in the lease. 

Pets allow for a larger rental pool of applicants, but they are also messier and cause more damage. 

Best of luck! Learn as you go! Iterate. You don't have to have it all figured out now.

[Lissa Harre]

Quote from @Orion Holmes:

I did this sort of thing for am airbnb.

id reccomend you err on the side of strict at the cost of possible tenants.

its better if you are happy than maxmizing cashflow. Unlike troublesome rental property tenants, when you house hack, you have to see these issues yourself.

make a house rule sheet, make sure to go over each rule. For the rule sheet think of everything that is important to you. Again, dont think of maximizing cashflow.

for instance, shoes or shoes off, how is garbage handled, is there a schedule for laundry? Are single tenants allowed to bring over "Friends" to their room?

Our main issue was the bathroom on the top floor. We had one in the basement.

the bathroom got dirty, fast. If we didnt clean it up once a day looked like a bus stop.

You have to be specific with people, very.

like if you have long hair, be sure to collect your hair from the drain. If the bin looks full, empty it, dont just toss your garbage at the top of the trash mound.

try to have only single tenants. Unless there are no single people in your area, reducing the quantity of people will reduce wear and tear and stress.

Thank you so much. This is the perspective I’m trying to have but your wording helps narrow my focus. It’s better to be happy at the expense of maximizing profits. Your rule list is a great idea too. Quiet hours!

[Lissa Harre]

Quote from @Sarita Scherpereel:

Hi @Lissa Harre There's been wonderful advise on here already. I just want to add that knowing your city's property guidelines about living in basements is really important. I'm not sure if Atlanta has violations/citations for this. So just make sure you double check...if you haven't already. Best of luck! 

I don't live within Atlanta city limits but I have been researching my municipal's laws and I haven't found anything that prohibits me. I did find out my county has a law against short term rentals which never even occurred to me. 🤦🏽‍♀️ Also, I live in an HOA but the language against rental is very weak. They definitely aren't in favor of it but they don't prohibit it either.

[Lissa Harre]

Thank you! I definitely have a problem with not moving forward until I think that everything is perfect. I’m trying to work through that and just make a good deal rather than a perfect one.

[Chelsie Hall]

Quote from @Lissa Harre:

Thank you! I definitely have a problem with not moving forward until I think that everything is perfect. I’m trying to work through that and just make a good deal rather than a perfect one.

I am this way as well. I keep asking my property manager for dates, figures, and explanations. She wants me to chill and just let her handle it. It's hard being a control freak and "letting go." Bah! But I hired her to handle what I don't know, so I'll heed her advice. Perhaps you hire a property manager as well for the first year until you get a handle on it.

[Aaron Porter]

Fixing the deck is a must and you shouldn't rent the house without that being addressed.  Way too much liability if you don't.  

Your insurance will need to be changed as you are turning the house (at least partly) into a rental.  

Pets are a personal decision, you can increase the rent by $50ish/ month and keep that but they also create lots of noise, almost always have accidents in the house destroying flooring, tri and doors, and create extra messes that have to be remediated when tenants move out.  

You can split utilities 50/50 or include utilities in rent and just charge a rental rate.  If splitting, you may have to provide proof to tenants of what the utility costs are to justify and get them to pay the extra $$ above rent.  

Limiting access to the backyard is a non issue.  Just include it in the lease, and know that limiting access to the backyard makes having pets harder for the tenants

Having a property management company will limit access to you, the landlord, from your tenants.  But it will also cost a portion of the rent that you receive.  If you go the pm route thoroughly read through the contract and make sure you understand it and that they are in line with what you expect from your managing team.

 

[Drew Sygit]

Have you checked with the city to make sure you can legally do this?

Also, FYI - you are allowed to ignore Fair Housing laws because you will be living in the same building as your tenant and it is less than 4 units. This will make it easier for you to screen potential tenants and be more choosy.

[Sara Levy-Lambert]

• When it comes to splitting utilities, HOA fees, and other expenses, it's important to be transparent with your tenants and to clearly outline the terms in your rental agreement. One option is to include a provision in the agreement stating that the tenant is responsible for paying their fair share of these expenses, based on the percentage of the property they are renting. This can help avoid misunderstandings and disputes down the road.
• 
  It's generally a good idea to be upfront with prospective tenants about any limitations or restrictions on the property, such as access to certain areas or amenities. This can help prevent misunderstandings and ensure that you attract tenants who are a good fit for your property. That being said, it's important to be reasonable and not impose too many restrictions, as this could limit the pool of potential tenants.
  
• When selecting tenants for your STR, it's important to thoroughly screen them to ensure they will be a good fit for your property. This can include verifying their employment and rental history, conducting a credit check, and checking references. You may also want to consider including a clause in your rental agreement outlining the types of behavior that are expected of tenants, such as respecting the property and being considerate of neighbors.
  
• As for pets, it's up to you whether or not to allow them in your STR. If you do allow pets, you may want to consider imposing a pet fee and/or requiring a pet deposit. This can help cover any potential damages or extra cleaning that may be required. You can also specify certain types of pets that are allowed or not allowed in the rental agreement.
  
• As for parking, it's generally a good idea to be flexible and accommodate your tenants' needs as much as possible. If you have a large driveway and garage, you may want to allow your tenants to use these spaces, as long as it doesn't cause any issues for you. However, you can also include provisions in the rental agreement outlining the terms of parking, such as the number of vehicles allowed and the designated parking areas.
  
• As for property management companies, there are pros and cons to consider. One pro is that a property management company can handle many of the day-to-day tasks and responsibilities associated with running an STR, such as marketing the property, screening tenants, and handling maintenance and repairs. This can be a good option for busy landlords or those who live far from the property. However, property management companies also charge a fee for their services, which can be a con for landlords who prefer to manage their own property.