House hack- what they don’t tell you

6 Replies

I recently experienced something that I’m wondering if others have experienced. My goal was to do a house hack where I lived in the basement and rented out the other units. I found a duplex I like and began the process for getting it under contract. I went to an investor meetup and as soon as I told them I wanted to rent out the 2 units and live in the basement they told me it was illegal- that I was operating it as a three family. I called the town the next day and they confirmed that it was illegal for me to live in the basement, even if I was the owner. After talking to a few more people about it, they said this was not unique to that town, that using the basement as my living space would be illegal regardless of the town. It was curious to me why I had never heard this in the books I’ve read or podcasts I’ve listened to. It’s always been spoken about as if it was fine. Unfortunately, I’m back to square one with how to get into real estate.

Has anyone experienced this?

@Lola Brown yes, technically in a lot of towns it is a code violation to have more than 3 unrelated persons in the same dwelling structure. I went to college at University of Florida in Gainesville, FL, where this restriction exists. However, there are many landlords in that area that rent houses to college kids by the bedroom with 3+ unrelated persons in the home. As far as I understand, as long as the unit is not troubling the neighbors or causing issues, code enforcement will not be an issue. But there is still a small risk. So, yes I have heard of this restriction (or similar restriction).

I personally do not have any rentals that fall in this category, but you should be aware that there is indeed a risk present if you proceed. But, there is some risk involved with most real estate investing.

@Lola Brown not sure where this property is located, but in my market I’d live in one half of the duplex, rent the other and do short term rental on the basement. Worst case if it’s illegal and you get caught you could just stop that and wouldn’t be homeless

@Brennan Hile Great point, I also asked about being able to Airbnb the basement and that said that’s illegal too (I’m in NJ). If I were to rent the basement out and get caught, the biggest downside for me would be going cash flow negative by not being able to rent out the basement. It blows up my whole idea of house hacking.

Not a laywer, not your lawyer, But could you consider the basement a part of one of the units and have roommates? My house in MN, we just finished the Basement out. Added a bedroom and bathroom. I don't have it as a separate unit. I see it as adding it to my part of the house. So instead of a 2/1 it would be a 3/2 with roommates.

@Lola Brown,  ask your town to cite the section # of the ordinance that they believe makes it illegal to live in a basement unit -then read it and post the relevant ordinance(s) here.    I've never heard of a regulation that makes it illegal to live in a basement.  More likely, your town has rules about egress doors, windows, light, ventilation etc that most basements do not comply with.  However, all those requirements are doable with a little time, work and planning.   The real question is whether you want to do the work they require.