A great way to increase your net worth is to put to work assets that are not currently producing for you. For example, if you own a home, you might be able to create rental income. Additional income can be used for any purpose such as funding your emergency savings, increasing a retirement fund or saving for that long sought-after dream item you’ve always wanted.
An extra $500, $2,000 or more per month can add up very quickly to be a sizeable additive fund. However, being a landlord is not without its downsides. Careful thought needs to be taken about local zoning, insurance, renovation costs, property taxes and more. In addition, renting to someone who will be living in close proximity to you should always be considered from a quality-of-life perspective.
Basement apartment rentals normally rent for less than other types, but can have advantages. If the space is already finished, that goes along way to reducing up front costs. In most jurisdictions to be a legal rental you will need a second source of entry and exit from a fire department perspective. If there is none, installing one will be thousands of dollars at least. Its best to ensure your rental is a legal one because if there is ever a fire, flood, or other damage caused by a tenant, your insurance carrier will likely not cover the damage. Given someone will be literally living under you, their one mistake can impact your primary living area, so making it all legitimate is the best practice. Firms like Zillow have robust landlord support tools to make it very easy to know what to do, even offering tools to collect rent automatically.
Having your new tenant be above where you park your cars has advantages. For one, noise will be likely reduced over basement or other attached apartment options. Second, a second egress is usually much easier and less costly to install. One big disadvantage is getting plumbing and heating in there, especially if it’s an unattached garage. Keep in mind local codes regarding water and septic when you live in an area that relies on homeowner septic systems.
Covid-19 has ushered in new thinking about property utlization. If you have any acreage with your primary residence, there are now many companies that specialize in pre-built accessory structures, much like pre-manufactured or modular homes. Some firms will sell you an entirely pre-built structure like Modal that even checks local codes to see if an accessory is allowed, others specialize in using steel containers as the basic frame to keep costs down. Tiny homes have become a national phenomena and renters who want more outside life and less home are attracted to this kind of living.
Keep in mind an accessory structure can be complicated with getting permitted, parking, electric and septic. Your property taxes will go up, but on the other hand, your property value will also go up and of course newfound rental income will be enjoyed.
Regardless of what type of rental income you seek from your primary residence, make sure your financial advisor helps you weigh the benefits and costs in your situation.
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