Are basement apartments worth it?

Question

I'm closing on a duplex house hack that is located (East Wauwatosa) in a good school district and two blocks from a trendy downtown district. The renters in the area (for duplexes) are mainly young professionals who are couples that have no kids yet or have kids who are in kindergarten/elementary school. I'm debating on a couple of options...

Option 1:

Finish the basement into a one-bedroom apartment. Doing this would allow me to live for free in the duplex, now triplex.

Option 2:

Take the lower unit and finish the basement into more living space. That would make the lower unit a 3 bed, 2 bath, leaving the upper unit as a 2 bed 1 bath. I would get great returns after I move out, but not during the house hack.

After running the numbers for both options, when I move out and convert it solely into a rental it's essentially a wash as far as ROI . Option 1 though makes the house hack $0/m for me to live there though.

I have only done light rehabs so no experience yet with major projects. I'm looking for feedback from those who have done something similar. Based on your experience, and the given area I am in, is one better than the other?

William S. · Answer

@James Marshall I think that's a fantastic idea.

I just spoke with the city. No basement apartment allowed in my area, which is fine with me, makes my decision easier.

Best path forward it seems is to convert the lower unit (2 bed, 1 bath) into a 3 bed, 2 bath, by adding another bedroom, bathroom in the basement. I could rent that out to a room mate. They would have their own bathroom/living area. We would only have to share the kitchen which is nice. However, I still have to add an additional parking space....

William S. · Answer

The city said a mother in-law was okay, however it didn't seem clear on requirements. The side door on the duplex goes down to the basement, lower unit, and upper unit. So technically the basement unit has access to the lower unit. Is a mother in-law still one if it has a kitchen too?

Jim D. · Answer

Adding the MIL unit sounds pretty messy given the permitting, parking, and increased rehab costs.

What about going with option 2, and living with roommates while you are there? Assuming you're ok with that, it would give you the best of both options--$0/m for you, and no big renovation.

Frank Chin · Answer

Here is a link to the folks in the area that handles zoning, and would advise you if it's OK. Better double check before you spend money. They declared my basement unit illegal because is un-permitted and violates zoning.

See: Zoning wauwatosa They should be able to give you guidance.

William S. · Answer

@Frank Chin Thanks for the input. I have been searching for zoning on the duplex, but haven't found anything yet on it. The basement apartment seems to be the best return, however the back yard is narrow. There's a two car garage, and two parking spots all in line with each other. I would have to add an additional parking space, meaning that one of the units would have to park their cars behind each other, much like a narrow driveway. May be too inconvenient?

Frank Chin · Answer

I own a duplex here in NY and have the same issues as you, though I went through the wringer already from the standpoint of permits and zoning.

First, the area is zoned 1 and 2 family. Long story, the basement was declared illegal. To legalize it, I converted it to a office for myself which involves removing a bathtub and stove. My plan was originally rejected, but sustained after appeals.

I need a variance to legally go to 3 family. Two problems. Three families are built to different standards, requires fire escapes and cement room furnaces. The other is the neighborhood association is against any variances involving up-zoning even if I do the upgrades.

While I have a 3 BR, 2 BR, and a legal basement unit office, a neighbor did rehab his house combining the 2BR with the basement unit into a nice large living place. He did though leave a small area in the basement for the owner to keep supplies.

Zoning rules vary, but your option 2 involves the least zoning complication. My basement is legal to live in, the only problem is the zoning issue, folks didn't want legal 3's in a 2 family zone. They cite traffic and school overcrowding. What some of my neighbors have is a basement unit apartment under the radar.

William S. · Answer

I have been using $35 per sq ft on rehab costs, however I feel like finishing a basement would cost more (move/add plumbing, egress window, drainage, etc). $35k-$50k?

William S. · Answer

@Jd Martin Yes. I forgot to mention this option. My long-term strategy is to buy duplexes in this area, however I am unsure if they are better suited to be converted into Triplexes or to created larger duplex units.

Note: There is no street parking allowed in this area. Currently there is a two car garage, and two paved parking spaces. If another unit was added I would have to create more parking.

JD Martin · Answer

Option 3: finish the basement and you move into it, and rent out the upper floors. That will give you the best return. In a house hack, the best money is always for the owner to live in the least desirable unit. I have friends that did this in Chicago with small 3-5 unit buildings, where one of the units was a small basement living area. They did this over 20 years and are now worth a hell of a lot of money. And this was on blue collar salaries, factory work.

Are basement apartments worth it?

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