I'm already a land baroness.

December 9, 2012 6:38 PM

Do I want to become a landlady? I have reached the point I've been working toward since I bought my house. I want to build a garage in my big back yard, and/or build a rental unit.

I refinanced my house nearly a year ago. My credit rating is excellent. My mortgage payment is low, my home equity is high. My job is secure - I've been there a year and a half, the company is stable, the industry is growing, and I'm good at what I do. Thanks to a recent court settlement, I now have enough in savings to pay for what I want to do in cash, if I wanted to (I don't).

I am in a good position (I think) to go ahead and build that garage for one or two cars and/or build a small apartment on top, or by itself, to rent out. I'm thinking I could take out a home equity loan and pay it off with the rental income (which would be about twice my current monthly mortgage payment). My house is in a nice old mostly gentrified neighborhood, close to downtown and public transportation, that would be very attractive to older students and young professionals. Rentals in my area are expensive, scarce, and getting more expensive and scarcer.

I have been a single homeowner of an old house for nearly ten years, and I am pretty handy. I have a trusted contractor in mind. I have an honest and skilled handyman/property manager available for the things I can't do. I plan to do a lot of the finish work on my potential apartment myself (painting, tile, finding fixtures at the local Habitat for Humanity thrift store).

Talk me out of it. Alternatively, tell me why this is an excellent investment plan. Alternatively, tell me why I should or why I should not build just the garage.

Just for the sake of argument, assume that I already know I can't count on constant rental income and ideal tenants with whom to share my large double corner lot. If it matters, I am a single 58-year-old woman who is very responsible and good with money.

posted by caryatid to Home & Garden (12 answers total)

I think that so long as you can afford periods with no renters, then it's a good plan. If you're living there too you can keep an eye on things. In my experience it's when you're a distant landlord that things can go awry. Trust your gut over rental applicants, and ALSO check references, credit, etc., diligently. I've had one or two lemons but most people are decent if they don't think you're exploiting them.
posted by anadem at 6:45 PM on December 9, 2012 [1 favorite]

Have you checked the zoning for your area? To do the things you want to do, you need a building permit. And the powers that be may not approve of your plans.
posted by Chocolate Pickle at 6:53 PM on December 9, 2012 [6 favorites]

It sounds like a good initial plan. A meeting with an attorney who specializes in landlord/tenant law would be prudent. Not being knowledgeable about the laws and regulations on the front end is a recipe for problems. Chat with your insurance agent about what additional policies you should buy and meet with your accountant about your tax liability and how it will change. If after those meetings, it still seems like a good idea and the numbers work, go for it.
posted by quince at 6:58 PM on December 9, 2012 [1 favorite]

Yes, definitely 2nding Chocolate Pickle. Depending on where you live this may or may not be easy.
posted by town of cats at 7:00 PM on December 9, 2012

I think it sounds like a good plan. Nothing wrong with pursuing it. I might consider making the space nice enough for my own self to live in should I decide to live in it and rent the main house for even more income. Depending on where you are, this may be called an Accessory Dwelling Unit (ADU) and will most definitely have special considerations.
posted by amanda at 7:15 PM on December 9, 2012

There are often stricter fire codes for rental construction. Also, you should find out what it's going to do to your property taxes. I know the tri-plex across the street pays WAY more than we pay on our single family unit. Not saying this to talk you out of it.
posted by bonobothegreat at 7:19 PM on December 9, 2012 [3 favorites]

Any colleges nearby with a good architecture program? Contact them since it seems like you're in a position to do something fun and innovative. There may be grants or tax credits for things like solar panels, energy efficacy, vertical farming, etc.
posted by Sophont at 7:19 PM on December 9, 2012 [2 favorites]

There's a rental near where I live that has had a "for rent" sign outside for about nine or ten months now. I assume they are asking too much or there is something weird about the place, because rentals here are scarce, but long periods of no tenants are a very real possibility even in a tight market.

Money-wise it sounds like a great plan. I'd just suggest that you really think through the privacy issues -- partly that means not designing the apartment to overlook your sunbathing spot or whatever, but also that means realizing that you'll be sharing your lot not just with the tenant but also with his/her sketchy friends, all of whom will feel entitled to stroll around having a smoke at inconvenient hours. And it means being ok with them ringing your doorbell at midnight when their toilet backs up for the third time this week.
posted by Forktine at 8:13 PM on December 9, 2012 [1 favorite]

Depends on the state you're in, but I recently got a renter out which was hellish. I suspect very strongly that the particular renter is severely mentally ill. Long story short - constant threatening text messages, constant lease violations, rarely paid, never on time, long eviction process with bullshit no-show to drag the process out, had to call the police to supervise the walk through. And we're selling the place and ecstatic that she didn't trash it.

Do you want that in your back yard?
posted by plinth at 8:30 PM on December 9, 2012 [2 favorites]

Back when I was renting, there was no way I would have considered a unit where the landlord lived on site, so you may want to consider that your potential tenants may be limited by this.
posted by Violet Hour at 8:54 PM on December 9, 2012 [5 favorites]

I have A LOT of experience in property rental (both sides, all sides) building and construction, and I once attempted to help a friend (also female) just a tad older than you do this. We took meetings, got estimates, did research.

#1 - I can tell you your contractor sub-contracts certain jobs - electrical, plumbing - these things will NOT be as inexpensive or easy as you've been quoted or imagined. I'm sorry.

#2 - You will be dealing with zoning, building inspectors and rental authorities. Don't rent an illegal unit.

#3 - While nice in theory, there are a lot of problems with units over garages. Due to carbon monoxide concerns, most units are deemed uninhabitable by building inspectors or rental authorities. As they should be!

#4 - It takes YEARS of experience to learn to pick good tenants you can share your home with. Even if you are whip smart, as I am sure you are. Rental laws protect tenants, and you can get FUCKED. (I want to go with a less charged word - but I can't. The horror stories I can tell you. Truly.)

What you need on top of everyone else you have chosen for this project if you still wish to proceed is a kickass lawyer to check on every move and contract.

Building from scratch and satisfying all building codes will cost 3x what you think.

Lastly. I live in LA and formerly worked in television. I have friends that work for HGTV. They freely admit their budgets for remodels are BULLSHIT. I know this anyway, from doing renovations myself. Not trying to insult you, but y'know, those shows (if you have been watching them) make it look easier than it is.


I'm sure there are better things to do with your money, including finding other investors and investing in an existing residential rental apartment building in your area. It's a long game, but done right, the returns ate there.

Your plan is onpar investment-wise with investing in a restaurant - sexy, but ultimately foolish.

Don't do it. Do something else less risky and cost-intensive.

Really. Don't do it.
posted by jbenben at 9:28 PM on December 9, 2012 [5 favorites]

Response by poster: I checked zoning - there's no problem. Three dwellings are allowed per 6,000 square feet, and I have a little over 7,000 square feet. My tenants will be farther away from my house than my next-door neighbor's house is. Fences are cheap.

I love the idea of getting student architects involved. Good ideas to talk to a lawyer and an accountant, too.

I think being an on-site landlady will be a good screening mechanism for tenants, since I wouldn't want tenants who would be bothered by that.

jbenben, that is discouraging, even though it's only one example. But I have to point out that I've used this contractor before and his own crew did electrical and plumbing and HVAC work. I don't watch cable TV, so my expectations aren't skewed. I know it's not always easy, having done renovations myself in this house and others.

Also, I don't live in LA, I live in Denver. My neighbor (who is utterly clueless) successfully built a garage from scratch a couple of years ago, and two empty lots on my block have had townhouses (with garages) built on them in the past eight years.

If building from scratch were always such an overpriced nightmare, why would anyone do it?

I'm not dissuaded yet - anybody else got a horror story or a good experience to report?
posted by caryatid at 1:10 PM on December 11, 2012