How to House Hack with a Basement Apartment
Those in the investment world love to talk about house-hacking. This often means buying a duplex, living in one side, and renting the other side. It’s a great option for sure, but in hot markets like Denver and Colorado Springs where duplexes are rare and fought over, this isn’t a realistic option for everyone.
Enter the mother-in-law suite. As Denver and Colorado Springs continue to see property values rise, homes with a basement apartment or carriage house offer another great way to house hack and offset your mortgage while still maintaining the privacy of your own space. And it gives you ultimate flexibility in your style of rental. (Long-term, furnished medium term or Airbnb.)
Want to know more about house hacking in Colorado? Check out our house hacking page here.
Basement apartment vs carriage house
Most people prefer a carriage house, but they are much rarer and are usually found in higher-end homes. If you’ve got the money to get into neighborhoods like that, it’s a wonderful option. For others, however, the basement apartment is going to be the go-to, and that’s what we talk mostly about here.
Depending on where you’re buying and the style of rental you operate below, we’ve seen clients offset anywhere from 50 percent of their mortgage to their full monthly payment. Here’s what you need to know.
How do I find a home with a basement apartment?
Unfortunately, there’s no specific site for home listings with a basement apartment or a walk-out basement. It takes some diligence and persistence. We have searches set up that try to find them through certain filters, but in the end, it’s just the tough work of sifting through listings and looking for that side entrance to the basement or the back entrance that goes straight down into the basement.
For the best shot at finding a home with a basement apartment, work with an agent who knows these properties and has specific searches developed to find them. (Ahem, insert blatant self-promotion of our company here. Yes, we work with a lot of Denver and Colorado Springs buyers and investors looking for this.)
A good agent will know which neighborhoods tend to have homes with this lock-off basement setup and will know how to use the MLS search tool to uncover these homes.
Do I even need a kitchen in the basement for a good rental?
Great question. Not necessarily. We’ve got clients who have turned a lock-off basement without a kitchen into a great short-term rental on Airbnb. These clients bought in Arvada and have a basement with a separate entrance that has a little living area, a bedroom and a bathroom. They put in a little coffee and tea station and are pulling in around $1,000/mo
What kind of rental should I do downstairs?
Whatever fits your house-hacking goals. In general, the monthly rent numbers and the amount of work go hand-in-hand. So, a long-term rental is going to be the lowest rent and the least work. A medium-term furnished rental (think traveling nurse or corporate rental of one month or longer) is between 25-50 percent more revenue but is also more work to keep the space occupied. A short-term rental (STR) on Airbnb or VRBO is the most work but also the most money.
It really depends on the effort you want to put in. It also depends on the type of home you have. In the above example of a basement unit without a kitchen, that’s really only going to work for an Airbnb. A long-term or medium term tenant is going to want a kitchen to cook in, so the short-term stays are your only legitimate option.
One other point about basement apartments in Denver is that it’s one of the only ways you can legally operate a fully separate STR on Airbnb full-time. In Denver, the STR has to be your primary residence, so you can’t rent a whole house full-time because the city wouldn’t consider that your primary residence. But the city does allow you to Airbnb a basement or carriage house.
How much rent can I get with a basement apartment?
Again, this depends on a lot of factors. The biggest factors are the size and condition of your basement unit and the location of your home. That said, here are just three examples of what our clients have seen. (Obligatory disclaimer: The below numbers are no guarantee of any rents you would get.)
North Park Hill
1br/1ba with kitchen
Airbnb -- $1900/mo from August to November 2018
Medium-term furnished rental -- $1,450/mo on average since November 2018.
2br/1ba w/OUT kitchen (but microwave, mini-fridge and coffee bar)
Airbnb -- $1420/mo on average
1br/1ba w/OUT kitchen (but microwave and coffee bar)
Airbnb -- $1,000/mo
Any other obstacles?
Possibly. What we’ve seen with our clients is that the men are a little more gung-ho about this option. The women tend to be more skeptical of a stranger living just below them. As with all things in real estate, we believe communication is the key. Make sure you and your partner has buy-in to this model. Ensuring the downstairs unit is truly locked off and separate from the upstairs can go a long way to easing concerns. So can seeing the money you’ll save each month.
Can I just build an ADU?
An accessory dwelling unit, or ADU, is an ideal situation, and in certain districts in Denver and Colorado Springs, you can build. The issue is then zoning and cost.
In Denver, you can build an ADU on most lots that have a ‘1’ or ‘2’ at the end of their zoning designation. (“U-SU-B1,” for instance.) There are other zoning districts that allow for it, but talk to your agent about what works and doesn’t. (Shameless self-promotion again: work with an agent who understands zoning in your city so that you know exactly what you can and cannot do.)
In Colorado Springs, they are opening up a lot of districts to ADUs, but again there are caveats. Be sure to study the ins and outs before proceeding. For instance, in areas zoned R1 or R1-6, you can only build attached mother-in-law suites. If you want to build a detached carriage house, you have to have multi-family zoning. (Which is actually pretty common in residential areas if you know where to look.)
Even if you have the right zoning, you might check the cost before proceeding. In Denver, you’re seeing a lot of the higher-end ADUs with full garages below starting in the $200,000 range.
We love this model in a time of exploding real estate markets and financially conscious buyers. Whether you’re a convert to the FIRE movement (Financial Independence, Retire Early) or just someone who wants a nice home in Colorado Springs or Denver but with the chance to offset the mortgage, a home with a basement apartment is a great find.