How to Turn Your Finished Basement Into a (Legal) Apartment for Extra Income

For most homeowners, a basement is just a glorified storage space. Even finished basements often present a challenge – most of us by default Throw an old carpet, a couch and a TV there and call it an “entertainment room” or a “man cave” and then never use it. Or we’ll slowly fill it with boxes until it’s one musty Hoarding maze that traps unlucky visitors. But basements represent a great opportunity if you want to supplement your income as they can be converted into legal housing and rented out for money.

Once your basement is complete, the process of converting it into a real dwelling before the law is fairly simple — and the financial benefits can be huge. But even with a finished basement, you can’t just build in a bed and offer it for rent. You need to make sure the place is safe – and legal.

What must a basement apartment have?

First of all, a disclaimer: you’ll need to look up your local building codes and laws. You need a residence entitlement certificate for your new apartment. Some areas have made basement dwellings entirely illegal, and different local authorities have different requirements for a legal dwelling. Before you do anything, make sure you know what is special required, including:

• Dimensions. Your local housing authority has Minimum Size Requirements for legal housing. The International Residence Code (IRC) requires at least one room with 120 square feet of living space, and many US states simply stick to this minimum while others increase this number slightly. You also need to consider ceiling height – the IRC needs at least 7 feet, which can be challenging in basements, especially if you need to drywall the ceiling to enclose ducts or cables. Again, local building codes may deviate from this minimum.
• Access. To be a legal dwelling, your prospective renter needs their own dedicated entrance – they cannot be asked to go up the stairs and through the main house to get in and out. You must also check local fire codes to ensure there are no additional requirements. And some local authorities require a second exit from the room, which can be an “exit window” (see below) or a second door.

• Windows. Basements tend to be dark rooms without many windows, which might be a problem for you. Building codes typically require an “egress window” (one big enough to climb out of) in every room, and many local areas have standards for how far off the ground they can be. There are specific requirements for each aspect of the window, so make sure you know what’s needed.

If you are confident that you meet these basic requirements, congratulations: you can turn your basement into a legal apartment. But there is still a lot to do.

Adding bathroom and kitchen access to your basement

If your basement already has a bathroom and kitchen, you’ve come to the right place. If not, check if it already has the necessary plumbing and electrical work – many builders include this in case the owner plans to finish the basement later, or perhaps a previous owner started a basement remodel and then gave up.

If you don’t have plumbing, you’ll need to do this, as livable homes, by and large, require access to a bathroom and some kind of kitchen. Corresponding home counselor, a shell in the basement costs about $4,000, and the total cost of adding a bathroom to a basement ranges from $6,000 to $15,000. A kitchen shell costs about the same as the actual kitchen will run you somewhere between $1,000 and $20,000 depending on how big and lavish you decide.

You don’t necessarily have to divide your basement into different rooms as long as you have enough windows to meet your local codes – you can call your apartment a studio and define different rooms with furniture. However, keep in mind that one- and two-bedroom apartments command a lot more rent than studios. So throwing up some interior walls to define spaces might not be a bad idea. And you do not to have to separate the utilities – you can just include them in the rent if you don’t want to bother with them. But the apartment needs to be heated.

Another consideration is moisture and water: in many areas, basement dwellings need some form of waterproofing. If your basement is finished, it may already be done, but you need to confirm that it meets apartment standards. If not, you will need to have this work done before you can legally rent the space.

Finally, you may need to have the room checked for mold, lead, asbestos, or other problems. Again, you need to find out about the reports you need before you can get your occupancy certificate and start renting the apartment.

Whatever you do, don’t be tempted to forego the legalities and rent the space under the radar. Not only would you be jeopardizing the safety of your renter, you would also be putting yourself at significant legal risk and if your renter is cheating on you there are fewer legal options to deal with it. Even a finished basement might require an investment to turn into a legal dwelling – but the potential income could well be worth it.