What to do with a Chicago granny/in-law/basement unit?
Member since 2023 · 12 posts · 7 votes
What to do with a Chicago granny/in-law/basement unit?
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Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
1y@Account Closed this question comes up pretty regularly in the forums. There is an added risk layer if your basement unit is not legal and you know about it. Most of these are sort of a giant greay area. Check your zoning cert from when you bought the property to see if it is included.
If it IS a legal unit, you can always add another electrical or gas meter to service the unit. If it is not legal, you will struggle to have the tenants pay their own utilities and will likely need to offer this as an all utilities included deal.
Airbnb is a whole separate animal. If your unit is not legal, this is probably the "best" way to monetize the unit since you are just renting out part of your house. It is short term.
The duplex up/down strategy can also work, but it rarely pays off if you need to do the construction.
19 Replies
- 1yVictor SoBusiness MemberReal Estate Agent · Chicago, IL · Member since 2017 · 325 posts · 193 votes
@Account Closed I’m a little confused with your situation. Is this basement unit in a multi-unit (ex. 2-4 unit) property? I’m assuming the basement is either an illegal or non-conforming unit? Are you living in the building? When you say it has its own meter, do you mean electric, gas, and/or water or just one or two?
Victor So Real Estate LLC517 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes1y
You shouldn't have any problem renting a basement apartment in an owner-occupied property. I'm curious why you didn't investigate this during the purchase? Call the zoning office and anonymously pose your question, and it won't be a "grey area" any more.
The DIY Landlord Book4.7248 Reviews - Member since 2020 · 239 posts · 104 votes1y
Get some "good" tenants, and include utilities in rent. Just get familiar with the upside of renting a basement if its non-conforming or illegal.
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes1y
@Account Closed this question comes up pretty regularly in the forums. There is an added risk layer if your basement unit is not legal and you know about it. Most of these are sort of a giant greay area. Check your zoning cert from when you bought the property to see if it is included.
If it IS a legal unit, you can always add another electrical or gas meter to service the unit. If it is not legal, you will struggle to have the tenants pay their own utilities and will likely need to offer this as an all utilities included deal.
Airbnb is a whole separate animal. If your unit is not legal, this is probably the "best" way to monetize the unit since you are just renting out part of your house. It is short term.
The duplex up/down strategy can also work, but it rarely pays off if you need to do the construction. - Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes1y
These basement units are very common in Chicago. I have sold many 2-4s with them. My clients typically give a credit to the first floor tenant for the electricity that the garden unit uses. You can also add a meter saying to city the meter is just for a basement and that works too. Airbnb can be a great option. The basement units rent really fast as so much demand for “cheap” housing in nice neighborhoods. Even really crappy basement apartments get a bunch of applicants. For insurance you just tell them how many total units in building, as long as no injunction/violations saying units not legal it’s ok for the insurance companies I have talked to at least.
THE MOST IMPORTANT THING! Only rent these to great tenants 680+ credit and 2 good references. If there is a problem tenant they will call the city and the city may make you remove the unit. Outside the north side if in an area with lower quality tenants I would just run it only Airbnb safer that way. On north side I have seen them be used for 30+ years no issues.
- 1yEudith VacioPro MemberReal Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
Hey @Account Closed 👋🏽
Most house hackers will live in the basement + rent out the other units to maximize their return. You can also rent it out like everyone on here mentioned, but it is risky if you rent because the tenant can call the city on you and you would have to de-convert the unit + possibly pay the tenants back rent for the time that they lived there OR you can airBnB the unit - probably the best way IMO. Let's us know what you end up doing! options are there but you just have to weigh your options!
- Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes1y
@Account Closed
These units technically *shouldn't* be rented out depending on the zoning certificate but the reality is they are common and rented out all over Chicago.
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes1y
Hey there @Account Closed - What is your LONG TERM plan with the building?
If it's holding it indefinitely, then the best option, if you have the cash, is to legalize the basement. You would first have to verify if this allowed based on your current zoning, if not then check to see if you are in a pilot ADU area. If neither is an option then you would either have to get a zoning change or duplex down to LEGALLY use the space. In the Long term, this will be the highest and best use and will generate the most appreciation (what area of the city is your property in?)
Maybe more importantly, you need to understand the difference between ILLEGAL & NON-CONFORMING. Illegal is if there are violations or the city has deemed the area uninhabitable. Non-confirming means that the space does not comply to current zoning/building code but there is no active violations. MOST Chicago garden units are non-conforming and rented out to generate cashflow.
Quality Builders4.966 Reviews- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Jonathan Klemm:
Hey there @Account Closed - What is your LONG TERM plan with the building?
If it's holding it indefinitely, then the best option, if you have the cash, is to legalize the basement. You would first have to verify if this allowed based on your current zoning, if not then check to see if you are in a pilot ADU area. If neither is an option then you would either have to get a zoning change or duplex down to LEGALLY use the space. In the Long term, this will be the highest and best use and will generate the most appreciation (what area of the city is your property in?)
Maybe more importantly, you need to understand the difference between ILLEGAL & NON-CONFORMING. Illegal is if there are violations or the city has deemed the area uninhabitable. Non-confirming means that the space does not comply to current zoning/building code but there is no active violations. MOST Chicago garden units are non-conforming and rented out to generate cashflow.
non-comforming in my market means it was legal at the time of the build and is no longer legal. It does not apply to work that was never legal, but has not yet been tagged as illegal. Work that was never legal is usually referred to as unpermitted addition/work in my market.
Both present risks.
Non-conforming may not be allowed to be rebuilt in the event of it getting destroyed (red tagged).
Work that is unpermitted can often be made to be removed in cases where it is not allowed by current code so it presents a higher risk. Note in my market, safe unpermitted units built before the last year or 2 are protected by state (CA) law and a jurisdiction cannot mandate their removal. Due to the housing shortage, the state does not want safe units to be removed.
Good luck
- 1yDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 979 posts · 643 votes
Renting it out short term or long term is possible and I see advantages to both. Does this unit have it's own separate entrance? I have owned rental properties where all units were on one electric meter. I took that into consideration when renting. To figure out the add-on to the rent, I took the largest bill and split it according to square footage. This became the additional paid by each tenant. I will tell you that the mindset of some renters is "I am not paying for electric, so I can overuse all I want". So, take that into consideration as well when figuring out the amount. I added a clause in my leases saying that if electric rates and/or usage goes above XXX, there will be an increase. Best of luck and I hope it all works out well for you!
Spark Rental Co-Investing Club577 Reviews - 1yElyse SarneckyBusiness MemberProperty Manager · Detroit, MI · Member since 2024 · 47 posts · 20 votes
@Account Closed,
this is a common situation in Chicago, and the right move depends on your long-term goals. If you plan to hold the property for years, legalizing the basement unit could be the best path for maximizing value. That process takes time and money, but it removes risk and increases the property's long-term appreciation potential.
If you're not in an ADU zone and legalizing isn't an option, renting it out is possible but comes with risks. Non-conforming units are common in Chicago, but if a tenant reports the space to the city, you could be forced to de-convert it and even return past rent. To minimize this risk, be selective about tenants. Applicants with strong credit and rental history are less likely to cause problems. Many landlords include utilities in rent, since adding a separate meter isn't always feasible.
Short-term rentals like Airbnb can be another option, especially if you’re living in the building. Since you’re technically renting out part of your own home, the enforcement risk is lower. Just make sure to check Chicago’s evolving short-term rental regulations, as they vary by neighborhood.
If you decide to keep it as a rental, think about how it fits into your overall strategy. The extra income is great, but if it comes with added risk or uncertainty, it may not be worth it long-term.
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes1y
@Dan H. - Your last two sentences caught my eye! Who determines if the unpermitted work is "safe" and what exactly constitutes as safe?
Here in Chicago, there's a lot of unsafe work happening lol
Quality Builders4.966 Reviews- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Jonathan Klemm:
@Dan H. - Your last two sentences caught my eye! Who determines if the unpermitted work is "safe" and what exactly constitutes as safe?
Here in Chicago, there's a lot of unsafe work happening lol
The relevant ordinance is SB13. It is not clear as to safe but certain things are obvious such as egress, unsafe electrical or plumbing, unsafe framing, etc. Sb13 does state in general terms who gets to determine a unit is unsafe.
I have taken it to mean that if it is of the quality of a licensed contractor but simply not permitted then it is legal for 5 years (which has already been extended once). They wrote SB13 such that existing unpermitted units were allowed, but they did not want to encourage further unpermitted units (so the units had to exist before a certain date). However, the 5 year date was fast approaching and there had been many safe unpermitted units added after the date in SB13. So AB2533 extended the time. In my opinion it sets a bad example. Knowing that it has been extended once already, is there great incentive for the additional costs associated with a permitted unit? At the very least it makes the decision to get permits not as strong as it would have been otherwise.
Here is the original text of SB13:
"...
(2) The owner of an accessory dwelling unit that receives a notice to correct violations or abate nuisances as described in paragraph (1) may, in the form and manner prescribed by the enforcement agency, submit an application to the enforcement agency requesting that enforcement of the violation be delayed for five years on the basis that correcting the violation is not necessary to protect health and safety.
(3) The enforcement agency shall grant an application described in paragraph (2) if the enforcement determines that correcting the violation is not necessary to protect health and safety. In making this determination, the enforcement agency shall consult with the entity responsible for
enforcement of building standards and other regulations of the State Fire Marshal pursuant to Section 13146.
...."
As stated AB2533 has extended the time the unit had to exist by (originally the unit had to exist before JAN 1 2020). The date in SB13 existed to discourage further unpermitted units, but I believe the effect of SB13 and especially AB2533 has been to encourage unpermitted units.
Prior to SB13, there were areas in San Diego county with many unpermitted units (City heights being perhaps the most obvious) and areas with virtually zero unpermitted units (Poway where I lived had stringent enforcement on unpermitted units). Now all areas basically cannot require the removal of unpermitted units (at least for 5 years and longer if it keeps getting extended).
I understand there is a housing shortage. Removing safe units exasperates the housing shortage. But with these rules, why get a permit (cost, time, increase to property taxes, etc) unless you believe at some point the state will require safe unpermitted units to get a permit? I personally believe the housing shortage will continue for at least 15 more years and that the state is going to continue to protect safe unpermitted units for at least that long.
I do own some safe unpermitted units, but I did not add them. I purchased the property with the units already created. I purchased it before SB13 went into effect but after I already knew about it. I purchased at a price that reflected a risk that was going away in the near term (at least going away for 5 years at that time, since extended).
If I were adding units, I would pay to have it permitted but I understand those that make a different decision in this market. SB13 and AB2433 protect unpermitted units and that protection seems likely to continue (the Ab2533 precedent shows this).
- Real Estate Agent · Chicago · Member since 2021 · 168 posts · 62 votes1y
Hey Asim,
If it's not in an ADU zone, long-term rental could carry some risk, especially if it's not legally recognized. Airbnb might be an option if local regulations allow it. Another route—house hack by including it with an upstairs unit.
Might be worth consulting a local zoning expert or attorney to explore your best move. Good luck! #letsgo
– Jarret
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes1y
@Dan H. - Will an appraiser count them as a legal unit in their appraisal underwriting? I could see that as one of the main reasons someone wants to legalize it when they are going to sell or refinance.
Anyone renovating a unit without a permit can still get a stopwork order by the city right? In some areas of Chicago that is very rare (mainly the south and west sides), but on the northwest side of the city I've seen quite a few stop work orders typically a neighbor calls in which prompts the city to send someone out.
I would think a better solution would be to make the permitting process easier instead of basically enabling more unpermitted work...Quality Builders4.966 Reviews- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Jonathan Klemm:
@Dan H. - Will an appraiser count them as a legal unit in their appraisal underwriting? I could see that as one of the main reasons someone wants to legalize it when they are going to sell or refinance.
Anyone renovating a unit without a permit can still get a stopwork order by the city right? In some areas of Chicago that is very rare (mainly the south and west sides), but on the northwest side of the city I've seen quite a few stop work orders typically a neighbor calls in which prompts the city to send someone out.
I would think a better solution would be to make the permitting process easier instead of basically enabling more unpermitted work...What I have seen, even before this law, appraisers typically do not check permits and if the additions look to code, then they appraise similar to if it was permitted.
However, either the buyer in due diligence or seller in their disclosures, the buyer finds that the work is not permitted often results in a reduced price as it should. Unpermitted work costs less to have done and has risks associated with work quality and potentially getting red tagged. It is worth less than permitted work, but the amount less is determined by work quality, risk, market, etc.
if you can purchase quality unpermitted work at a correct price that by law cannot be red tagged, that could provide an opportunity (especially if the reduced risk is not yet recognized by many sellers).
Good luck
- Member since 2023 · 12 posts · 7 votes1yI think the commentary so far has been valuable - and what's probably most salient is the long term goal.
The way I'm starting to see it is if the long term goal is to ride the wave of appreciation with an eventual sale, it's probably a better idea to maximize what would be perceived as "created value" when a bank/appraiser looks at available living space. This is easiest to achieve in terms of duplexing down because much of the big things like ceiling height without digging down are in place (other work like moisture insulation notwithstanding).
However
While modeling the above approach in terms of cost nets out about the same as creating two units, but with a four digit difference in how much rent can be collected at a time where more *&* affordable housing in Chicago is desperately needed.
So for a long term strategy of keeping the space without a future view of sale in mind, creating an additional livable space reduces vacancy variability, pads additional revenue monthly and creates a high demand space if done right (eg. tasteful, not builder grade LVP sea of greige).
The risk is certainly understood in the latter option, but from a cash flow standpoint a thousand bucks a month in the pocket is hard to scoff at. It's unfortunate the city can't see past it's own bureaucracy that making permitting and zoning more relaxed and easier to achieve would be a net benefit to all looking for spaces to live and enabling work to happen. - Property Manager · Member since 2022 · 28 posts · 24 votes1y
You have several options for handling this basement unit, this topic comes up a lot on here and at investor meetings, this is my advice (I have personally done all of these)
1. Rent It as a Standard Unit
- Since it meets key habitability requirements (ceiling height, egress, lighting, kitchen, bath, bedroom with light and closet), you can rent it out as a regular apartment.
- The main issue is the utilities, as the unit is connected to the building meter, which you currently pay.
- Options to handle utilities:
- Increase rent to account for utility costs.
- Charge a fixed fee for utilities. If they are pulling from a public meter you will have an easier time with this. If they pull from a different tenant’s meter make sure you tell the tenant what is going on and offer to pay for the extra charges. Usually when tenants call the city on a non-conforming unit it is because they just figured out they were paying someone’s utility bill.
2. Rent It as an All-Inclusive Unit
- Advertise it as an "all utilities included" rental, setting the rent at a level that covers expected utility usage.
- Ensure you adjust pricing so it’s competitive yet profitable.
3. Convert It to a Legal ADU (Accessory Dwelling Unit)
- Chicago's Additional Dwelling Unit (ADU) ordinance allows for legalizing basement units in some areas.
- This could increase property value and make it a long-term rental option.
- Check Chicago zoning laws and apply for the program if your area qualifies.
- This is hard to do
4. Short-Term or Mid-Term Rental (Furnished Option)
- Use it as an Airbnb, or rent to traveling professionals, nurses, or students.
- This could help offset the utility issue since short-term rentals often include utilities in the price.
- Check Chicago short-term rental regulations if going this route.
- This is a good option
5. House Hack / Personal Use
- If you or a family member could use the space, it could function as a private suite or guest unit.
- If you live in the building, it could also serve as an office, rec room, or storage space.
- Member since 2019 · 1k+ posts · 292 votes1y
Hey Asim - Sounds like you've got a solid space with lots of potential. If ADU zoning isn't an option and duplexing doesn't make sense financially, short-term rentals like Airbnb could be a flexible choice — just factor in utility costs since it's on your meter. If you go long-term, check local laws to cover liability, and maybe adjust rent to account for utilities. Sometimes waiting for zoning changes isn't worth missing out on income now.
I'd be happy to connect for more ideas! Let me know!
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