Tips on Converting your Basement into a Rental Unit

Remodeling your basement and renting it out may be a good way of supplementing your income. Of course that assumes it's legal to begin with. Basements are the most ignored spaces in your home so the hidden costs should be adequatedly considered before hand. Also don't bother creating that basement apartment unless you plan to do it really well.

Nearly two years ago and well before HGTV's New TV program "Income Property," we discussed the pros and cons of adding a kitchen to a basement. We also discussed installing insulation, engineered wood and replacing sewer lines in a basement. In looking back at our basement renovation, we decided it was time to pull what we learned altogether from our separate experiences in those spaces.

Kitchen area beforeKitchen after

What's Not Obvious
Basements tend to get ignored or totally underrated when it comes to the amount of work needed to make them habitable. However, homepowners always seem to add value to an unfinished basement and its future promise. If you are planning to rent your basement out, you've got to go the extra mile and make it safe, liveable and exceptionally attractive. This will ensure that you attract a very good tenant who can afford to pay you good rent.

Our remodeled basement consisted of:A livng room with engineered wood floors and marble fireplace.

  • A bedroom with walk-in closet.
  • Hall and large storage closet.
  • A full bathroom with fullly tiled shower.
  • A kitchen combined with washer and dryer.
  • Separate entrance door to back yard.

Before remodeling, the entire basement was covered with asbestos tile. Part of it had popcorn ceiling and wood paneling and the remaining part had only a laundry sink, washer and dryer. There was no insulation. In winter it was an excellent place to store wine--- dark and cold. I summer it was a also a place to escape Washington DC's Indian summers and high humidity.

Items that are easy to overlook
While we don't rent our basement, someone does live there. Our goal from the start was to create a space that was as good as the main floor. If you are not going to at least do that, then we recommend that you save your money and not do it, especially if your goal is to rent it out.

Your objective should be nothing less than to "wow" your friends and perspective renters into saying "Wow, this doesn't fell like a basement, I would love to live here." That means really fixing the issues like leaks in pipes, faulty wiring, adding insulation and not just covering things up. Also keep in mind that you will have to meet todays building code requirements. For example, if you are creating a bedroom, you might have to remove and install a new casement window that allows egress--- the ability of a person to escape via the window in case of fire.

Basement Living roomLiving room after remodeling

Items that are easy to overlook

Several things happened in our basement remodel that drove up the costs. These included rotten wood from water damage, water leaks near the foundation, faulty HVAC venting and plumbing that was very old. You can't fully predict these unless you or your contractor has X-Ray vision. Ours did not. So be smart and plan for them. Have some money set aside to deal with them. Here's some of the challenges we faced with our basement remodel:

  1. Providing Adequate Insulation- our contractor suggested ripping out the wood paneling and just insulating with thin sheets- R15. We opted to leave the paneling in but to frame in front of it and install R-30 insulation.
  2. Plumbing- after 50+ years, something has to give. In our case it was the sewer line. The additional sinks, toilets and a dish washer may tax your exisitng plumbing system.
  3. Electric panel not sufficient. New lighting and appliances can also tax your existing electrical panel so evaluate it before hand and plan to upgrade it.

Final Word
It might be tempting to cut corners on a basement remodel, especially one that is for renting out. Forget about that. Do everything above board in this order:

  1. Contact your county or city planning department and ask if you can rent out your basement. If they say it is, get it in writing. If someone develops a case of temporary amnesia at least you are covered.
  2. Get several bids and make sure that your contractor has the proper license to do the work. Some contractors specialize in basement renovations.
  3. Make sure that everything is inspected by the County and City and that it passes. You don't want a tenant suing you. Also mist insurance companies won't pay a claim if the work is not inspected. 
  4. Once the basement is finished, call your insurance company and alert them that your basement will be rented.