My Tenants Want the Basement Finished

42 Replies

Hello! I have a four bedroom three full bathrooms property that is currently occupied.  I charge these tenants $2000 per month for rent.  I verified the fair market value with Basic Allowance for Housing at $2169.00.  I also checked the FY 2016 Fair Market Rent Documentation System which showed $1934.00.   

The tenants would like me to get the basement finished.  There concerns are that because the basement is not finished, it is very cold down there, but I think they just want the extra living space.  I found a contractor that I feel comfortable enough to move forward with.  The positives of a finished basement is that the value of my property would be increased.  Also, my tenants seem happy with the property (outside of the basement) and I want to keep them happy so that I would not be finding new tenants every year.  On the other hand, a couple of things concern me.  I feel that if I get the basement finished that I should raise the rent by at least $100, but I want to make sure that I remain fair.  I honestly do not know all the other things that would need to be considered in this situation.  I wonder if getting the basement done while they are there can raise safety or health concern.  Then, it seems that it might be best to write something up, so that they would not be able to raise any issues later.

I would appreciate any advice or guidance on how to best approach and handle this situation.  Thank you in advance.

Sounds like a nice house, Nicole. Normally for rental upgrades, I seek a 24 month payback. Capital improvements are different, though. Are most basements finished in this neighborhood? Don't want to overbuild and be the nicest house on the block.

I wouldn't do major construction like this with tenants in place. "When will they be done? Someone stole my such and such.A stranger is going to have a key to my house?" Got to worry about safety concerns, too. Lots of subs in and out.

What is the bid amount, roughly? $5k? $20k?  

I'd tell them I appreciate the suggestion, but for their health and safety it can't be done. Good luck!

Hi Nicole, you did great work getting the numbers on the fair market rent.  What do the fair market rents say with the additional square footage of a finished basement? 

Finding that, my next step would be to make an offer to the tenants. "Yes, I can have the basement finished to make the home more comfortable, but the increased usable space would raise the months rent $200." I've found tenants request an upgrade because they had an idea, but they aren't actually serious. If they are willing to pay more for the value, they're serious, and you didn't waste your time doing a lot of leg work. Raising the rent would be fair.

Your contractor should be able to speak about any health and safety concerns. 

I'd write up two documents. First, I would write a memo explaining the work to be done, ensuring the contractor has access (days/times), etc. Then, I would write an addendum to the rental contract for the additional space.

All the best!

It seems you might be looking for a reason to agree with them.

I'd say the house was rented AS-IS and leave it there.

I learned my lesson doing "nice things" in the hope the house would sell to residents, but this list got longer before their intent became clear.  They couldn't qualify and I burned several year's worth of cash flow on unnecessary improvements.

@Steve Vaughan Thank you for your quick response.  I am not sure how to check if most basements are finished in the neighborhoods.  The reason I am considering finishing the basement is because I have been debating on selling the property.  I honestly don't know if I am cut out to be a landlord.  Its scary wondering if the tenants are going to not pay rent one month, and then I would not have the money to cover the mortgage.  This landlord opportunity was just supposed to be temporary until I can be in better place to sell it.  At the time, I have concerns about if I would receive a buyer who would be willing to buy the house for what I owe on the loan.  If all goes well with continuing to rent the property I will try to stick it out.

I understand and that is what I was thinking that it not a good idea to have it done while the tenants are in place.  The contractor is willing to start on Saturday, March 19, 2016 for $2100.  I would buy the materials.  Now that you are reinforcing all the concerns, I am even further reminded why this would not be a good idea while they occupy the property.

I wouldn't do a renovation like this with a tenant in the house.  You are talking a couple months of construction depending on how big and how fast the contractor moves.  Do you already have the capital to spend on a project like this?  For a quick cost estimate I would take $40 x sq ft = cost, then add 25% contingency to get your budget.   ex $40 x 1000sf = $40,000 + 25% = $50,000.  For $10 per sq ft will get you carpet and paint only.  For me this would justify a large rent increase $200-$300.  If you decide to do this, I would make them sign a new 2yr lease as minimum and rent increase.  In general, I would tell them sorry this is something I'm not interested doing at this point in time.  

Finishing the basement will not increase the temperature of the home. I would not renovate unless the tenant signed an extension with a rent increase high enough to compensate for the cost of renovation. It is unlikely they will do that so you should politely decline.

Hi @Timothy Steele thank you for you response and your advice.  I do not not know to check for additional square footage of a finished basement.  The website just basically shows four bedroom.  The link i used is: 

https://www.huduser.gov/portal/datasets/fmr/fmrs/F...

Also, thank you for your advice about the documents to write up.

Hi @Robert Melcher .  You may be correct "might be looking for a reason to agree with them."  That is also correct, I did not advertise my house as having a basement at all.  I am new at the "landlord" field and I want to do a good job.  So, I am doing my best to do as much research as possible. 

Don't spend a penny on this.If you don't have cash reserves to pay for vacancies you are begging for trouble.Give them notice you are selling the house and get it over with because it is just making you miserable at this point owning it.

If the tenants concern is the basement gets cold then install an insulated door. Once you finish the basement there is that much more square footage  that can be damaged and needs to be fixed between tenants or selling. If they rented it for $2,000 with the basement not finished then they will be alright. Once you give in to finishing the basement what will they want next a hot tub? 

Hi @Jim Adrian .  Well, my plans for the basement are basic.  Currently the basement does not have any Sheetrock covering the slabs of the ceiling, and the insulation shows.  The fours walls of the basement are cement, and for now I will leave them as is.  The contractor is willing to put Sheetrock up on the ceiling, add three electrical sockets, and Sheetrock on the slabs that separate one half of the basement from the other.  On one half of the basement the furnace, electrical box are located at the one end and the washer and dryer is opposite that on the other end.  The other half of the basement would just be empty.

As far as flooring goes, it will stay as 

@Account Closed

I would not cater to the tenant on this request to finish the basement.  I would let your cash reverse answer the question on whether to do this or not.   I would guess you don't have the cash for this.  If you start now catering to the tenant then you may become a push over on other things.  Stand your ground on no renovation.  Besides there is nothing wrong leaving the basement as is.  This is what they accepted when they signed the lease.

The upper floor already has insulation in it (shown in pics).  I hope the insulation doesn't have a paper backing (vapor barrier) on one side otherwise this will cause a condensation problem.  This should already keep most the cold from coming thru the floors.  If you are not going to add stud walls with insulation around the exterior walls then its not worth doing anything to it.  You are still allowing cold to travel thru the walls into the house.   It would not hurt to get a quote on what it would cost to completely finish out the basement if you decided to do it later.  If I was to guess on cost based on the pics I would throw ~$15k for carpet, stud walls with insulation, new ceiling, painting, electrical and mechanical.  I hope this helps you.

I agree with Brandon. Get out of the business. You will not recoup your investment in the basement at resale.

I honestly don't know if I am cut out to be a landlord. Its scary wondering if the tenants are going to not pay rent one month, and then I would not have the money to cover the mortgage.

You are not cut out to be a landlord and should sell before your worst nightmairs come true.

Most city codes REQUIRE a second means of egress(aka exit) other than the entry passage - - a second door or a window of a minimum size - - for any room which is used as sleeping quarters.

@Account Closed , We are in the process of planning  a project similar to yours. Planning on adding 2 bedrooms in basement and possibly a small living room. Egress window in each bedroom is mandatory according to code.I'm budgeting $5K-$8K for total cost. The tenant will pay an extra $250/Bedroom/month after construction completed.It takes cash reserves to weather the storms that buy and hold investing brings and plus finishing out basements.I hope you have them to handle such situations.If your not comfortable,and don't want to educate yourself about landlording it may be best to liquidate. But if you are up to the challenge take it one step at a time.Save up some cash reserves. Get comfortable managing tenant relations before tackling a renovation in the basement.Learn on BP about landlording first and the rest possibly later. Good luck

Hi @Bryan Drury and thank you for your response and kind words. 

The end of April will complete my sixth month as a landlord.  I mean that to say it is only the beginning and I know that I have a lot to learn. I have been a little discouraged throughout this process, but I am not ready to give up yet.  I am continuing to learn and ask questions as things arise that I am unsure about. 

I am thankful for BP, and all the advice and guidance that has been giving on this post.  

I know that I am not ready to invest heavy in the real estate business just yet, and that is why I only have this one property.  I will continue to learn and take things one step at a time.

as I was reading through everyone's comments I was thinking if they're interested in making such improvements to the home, this may be an opportunity for a lease option. Since I'm new to this I don't know the logistics, maybe if they got some skin in the game and helped with the cost of improvements it would dissolve some of your fears and concerns. 

It's been mentioned that you may want to sell but yet you still want to learn the process, this just seems to me like this would be the best of both worlds. 

Like I said I'm new to the game, so I don't know if this would work or not but I was just trying to think creatively!

Good luck!

I would not sheet rock the ceiling, it will make future electrical and plumbing repairs more expensive.  That's why people get those ugly drop ceilings, it makes maintenance easier.

Tell the tenants to buy a space heater and follow the 'distance from flammable stuff' rules on the packaging.  The basement looks small enough that a space heater will warm it up in no time.

Updated over 5 years ago

I've been "called out" on this bad advice and admit it was bad advice. I guess you can never advise a tenant to use a space heater, you'll end up with either a fire or electrical issues.

My concern is what is the tenants expectations of 'finishing' the basement? Are they going to expect painted walls, new flooring, shelving in the laundry area, etc? I personally, wouldn't do it. Or, be very clear as to what is being done.

@Account Closed :

The end of April will complete my sixth month as a landlord.  I mean that to say it is only the beginning and I know that I have a lot to learn. I have been a little discouraged throughout this process, but I am not ready to give up yet.  I am continuing to learn and ask questions as things arise that I am unsure about. 

Hello Nicole. I'm just starting out in REI myself. I bought a 2-unit that I occupy in Syracuse, NY, and I've been able to increase my rental income due to some househacking. I embrace the learning process of being a landlord because every step of learning will make it easier for my next deal, and the deal after that... all the way until I'm able to quit my job and have my financial freedom.

Now, maybe the buy and hold method doesn't personally suit you, and that's what you're learning. It's all good: there's several strategies of REI that may suit you better. And at least you can say you did it, though, which is more than what a lot of people who stood on the sidelines can say. So sell the house, stack your paper and take time to be educated on the other REI strategies.

I agree with then other posters that you absolutely should not upgrade that basement... unless you know for certain you can recoup it and then some when you sell the house. I wish my tenants would try to ask me to revamp/finish my basement (many aren't here in Syracuse) because it's cold, and your house's basement looks a helluva lot more neater/cleaner than mine's. You'll find that many tenants are under-educated in how certain things work with a house, and the suggestion about insulating the basement door another poster made makes total sense.

@David C. Fella,telling tenants to buy and use a space heater is a ticking time bomb.At best,breakers start kicking or fuses pop and then @Account Closed calls electrician and conditions worsen.In worst case a fire starts and things really get ugly.My gosh what are you recommending?The tenant has a thermostat, run it up a couple points.You obviously don't have real world experience, so please!!!!

My advise is to treat this Landlord thing as a business, not a friendship. Your fear of not having a tenant is blocking the overall picture. There is a difference between keeping a tenant happy and catering to them. An unfinished basement is not going to cause them to move out, if it does then you would have bigger concerns down the road anyway. Respond to the tenants that finishing the basement is not in the plans right now and leave it at that.

As for the landlord thing, as some have said to sell to ease your mind, I would not if I were you. Not yet anyway, you have already conquered the hardest part of getting your first property and getting it rented!! Excellent job on that part. I would see it through on the completion of this first lease and then reevaluate. Being a landlord isn't as fun as it seems once you actually become one, but it is the beginning of setting yourself and family up for the future.