Renting parts of the house separately and legally

6 Replies | Portland, Oregon

I have a three-bedroom, two-bath house. One bed and one bath are accessible through a separate entrance. I am going to be building an ADU in my backyard soon.

It is my understanding that it’s likely to eventually be legal to have two ADUs on the same property in Portland (a basement and a detached, for example) but that it’s not legal now.

Is it possible for me to legally rent my basement unit separately from the upstairs of the house, without running afoul of anything legally? I plan on refinancing the home as a rental, with signed leases for the upstairs, the downstairs, and the ADU, as long as that's legal.

Or would I need to legally turn the basement into an ADU eventually to have that be legal?

The best way to find out is to call your building or planning department. When renting units illegally you can go to jail if there is a fire and someone dies or gets injured. If any type of injury occurs the first thing lawyers will check is your building permits, building code violations and fire code violations. You never know what type of accident can occur. Someone could get electrocuted. If someone falls down the stairs an attorney will send someone to measure the height of every stair tread. If someone gets a respiratory problem the attorneys will look at building permits, moisture levels, windows, molds and ventilation.

@Jennifer Smith

Hi Jennifer,

You are allowed to rent your house out. You can rent out separate bedrooms to different tenants and have different terms with those tenants. If they share a kitchen and it works out that’s great.

What you aren’t allowed to do is modify a space without a building permit and then rent it out. Ie if the basement doesn’t have a kitchen and you put one in, that would be illegally modifying a space and renting it out. As well you aren’t allowed to AirBnB without a permit.

As long as the finished space in the home is currently permitted you are fine to rent it out as is.

One last item, it might be more advantageous for you to refinance the property while you are still living there. You can do up to 80% LTV (you'll save more capital) and as well the interest rate is a lot lower (1 or 1.5%). I would recommend talking to a lender ASAP so they can help you plan accordingly. Liz and Mike at Fairway Mortgage down in John's Landing are excellent if you need advice from a local lender.

Let me know if you have any property management for real estate questions. Feel free to shoot me a pm if you have any specific questions.

Cheers and good luck with your project!

@Chris Shepard Thanks! Do you know if there’s any printed info available about what requires permitting and what doesn’t? For example, adding a door to the basement entryway? I want to add a few things to the basement to make it easier to rent out.

You can look up the building code and/or municipal code for your area and it will state what requires a permit. I.e. locally a roof doesn't require a permit unless you touch the diaphram (sheathing), neither do window/door replacements on SFR only....MFR always requires a permit.

That said generally speaking anything except finishes requires a permit. Adding or removing doors, permit. Moving outlets or plumbing, permit. Remodeling a bathroom and putting everything back the same way, permit. Hotwater heater replacement, permit.

Morning @Jennifer Smith

Here's a quick link to a City of Portland article on when a permit is needed for different projects:

You're right, that the city is working on making a detached ADU legal on a lot with a duplex/split home, but we're not quite there yet. Lots of non-conforming properties are split, doesn't mean it's allowed or won't get you in trouble if something goes wrong. As the city starts in on their rental registry, best to just start above-board and doing it the right way, even if that costs you more in the short-term or prevents you from achieving your ultimate goal.

Double thumbs up on the refi/LOC while you're owner occupying the property. Big mistake I made a couple years back in not doing the same thing. Get the better rates and LTV now while you're living there, just be cautious not to get over-leveraged/waste the LOC/refi funds on things that don't grow your portfolio.

Best of luck,