Converting a basement into an apartment (Colorado Springs: real estate, rentals, insurance)

[Jerome Figgs]

Are there rules for renting a basement in a residential neighborhood in Colorado Springs?

[StealthRabbit]

also consider 'boarders' / shared space / supplies rather than 'renters'.

This can solve many zoning / legal barriers.

Be sure your insurance carrier is aware of any other people living in your home. (especially if they are 'paying')

[TCHP]

In the legal terms, if the house isn't zoned for multi-tenant residency, then you are open to a variety of liability issues with the city, county, insurance, etc.

In more practical terms, turning a basement into a separate apartment within a single family home means you will have to deal with issues of access through common areas, shared heating, shared water, unusual smells, strange cooking/meal items, potential smokers/drinking/drug use issues, working or recreation hours at odd times, or any number of other items that don't align with your personal ideals.

[sunsprit]

Originally Posted by Jerome Figgs

Are there rules for renting a basement in a residential neighborhood in Colorado Springs?

Yes, best to contact El Paso County Zoning for clarification of your property.

The more restrictive "single family" zoning areas will limit the number of non-related occupants in a house.

Be aware that if you're taking in paying residents, you've now entered the realm of a commercial property. Your property insurance requirements will change. Best to contact your insurance agent for clarification of what changes and costs are applicable.

As well, there may be modifications required to the house for ingress/egress, separate heating/air conditioning, and so forth. Remember that you'll be required to have CO and smoke detector monitors by each bedroom area, for example ... and the responsibility to keep them in working order (battery replacements?) is on you. Even if you have a tenant who decides that the smoke from their burned cooking sets off the smoke alarm needlessly so they disable it, the burden is on you to be sure that it's working properly. Again, not an issue ... until the day comes when it is an issue. Sanitary facilities? Access to the house systems, such as plumbing/heating/electrical? Adequate number per code of electrical outlets/ground fault protection?

Don't forget you're entering the world of property management and client relations. If you allow somebody to establish a residency in your house, you've got to deal with them in accordance with the very favorable tenancy laws now in force. If, for example, you find the behavior of your tenant unacceptable and want them out of your place, you'll need to follow all the legal requirements for an eviction. This can take months to accomplish if your tenant is willing to go the distance to fight you. Even on basic issues such as not paying their rent, you're still stuck with them until you can complete the legal process ... and a small claims court judgement is worth only the paper it's written on unless you have a tenant with assets to go after. Don't count on their ability to pay being worth what it may cost to pursue them.

From my perspective, many years ago a lot of folk ignored these zoning/habitat/insurance considerations and just went ahead and rented out the available spaces. In a less litigious era, one could slide by "under the radar" and get away with it. I believe that many supplemented their income in cash and didn't declare it, too. It was a rare neighbor that complained about such situations.

In short, everything was OK until the day came that it wasn't.

Have a tenant slip/fall on an icy sidewalk? Now they'll sue you for the injuries, maybe even loss of income or ability to work. You need to be pro-active about general liability coverage for your rental property which is different than the general liability for your single family home residence.

Have a neighbor upset about the possible decline of property values due to non-conforming rental activity?All they have to do is complain to the zoning department and you may be the one facing legal action for your rental activity. I saw a lot of this happen in R-1 zoned areas when the housing prices rose from the mid-$30,000 range to $200,000+ ranges. Now many of those places are multiples of those amounts and so worth protecting the property values through zoning. A lot of those older houses that were built for multi-generational family living were being used for basement rentals by folk who didn't need all that living space.

Of course, if your property is zoned and in conformity with the zoning/codes, then ... with the additional items needed to CYA ... you, too, can be in the landlord and property management biz. Have fun, hope it works out for you.

PS: bad advice above re "boarders" to avoid the zoning restrictions. The zoning statutes are carefully worded to address people living under the roof at that address. Doesn't matter what you call them, if they're not your immediate family members and have established residency in the structure, they're ... by legal definition ... covered under the zoning requirements. So if you own and are living in an R-1 single family zoned house, you are restricted as to how many non-related people may live in the house. I've read enough Colorado zoning statutes to find this legal zoning language pretty standard practice around here. For the most part, all written to protect the character and property values of various neighborhoods when they found it desirable to address these residential concerns.

[Vision67]

With all those rules.....no wonder there is such a housing shortage.

[sunsprit]

Originally Posted by Vision67

With all those rules.....no wonder there is such a housing shortage.

there's nothing new about these zoning concerns in R-1 type zoning areas.

they've been around for many decades.

the only thing "new" about them is the changes in the nature of society (litigiousness), fewer multi-generation families living in the housing, and the substantially increased cost of real estate.

I watched as the zoning started to be enforced in the 1970's, when the price of Colorado housing surged and folk wanted to protect their property values.

[Vision67]

Do you think people renting out rooms/houses using Airbnb.com are abiding by those rules?

Do they need to?

Who enforces them?

[Mike from back east]

If I had $25K to invest in basement improvements to meet zoning codes for a rental unit then I think long and hard about just buying something in the stock market where many REITs are paying 8% and some 10% and some even more. I have a number of these.

As I do the math, I'd spend $25,200 to upgrade the basement, with that money locked up in the value of the house. If I get $700/month for that unit then it takes 36 months to recover the $25,200. If there were vacant months or repairs then it would take longer to recover the improvements and there's not made a cent of profit to this point, not to mention the lost opportunity to grow this money during those 3 years in the market. If the house gets sold them that investment of $25,200 might return to me but who knows for sure. I'd have to advertise for tenants, pay more for insurance, manage the turnover and pay for any upkeep, painting, or refreshing. My former neighbor in COLO SPGS had several fourplexes and she seemed to always be painting one of them, or replacing a water heater, taking out 3 dumpsters of trash left behind, dealing with deadbeats and other issues. Being a small-time landlord is a tough row to hoe.

If I put $25,000 into a REIT paying 8% a year in dividends then I collect $2k/year in dividends or $6k at the end of those 36 months. I didn't have to lift a finger to do it, still have my $25k in principal which I sell in seconds via the internet with no more trouble than pushing a button to buy a book on Amazon. As with any stock market equity, the price may go up (capital gain) or decline (capital loss) which is a risk I'm far more willing to take than being a landlord. I can go online to my stock broker account and buy or sell something like this is less than two minutes and the bookkeeping is terribly simple. Dividends are taxable income but so is rental income. IIRC there's a stack of IRS forms for rental property -- yuck.

My best advice is look around for better uses of your money.

[Vision67]

I learned a long time ago that I never want to become a landlord.

Over the years I've heard so many stories...

As for investing, my AMZN is doing fine.

[orngkat]

I became an accidental landlord when I bought a residential house with three tenants in it. One in the basement and two on top. I can't imagine why anyone would even want to be a landlord after all the trouble I went through with these three people. Not to mention complicating your tax situation. One thing to consider is parking. Cars parked on lawns and extra vehicles in the backyard and street are not appreciated by most neighbors.