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Hello-
We have a home that has a separate studio apartment. It has no legal kitchen, just an electric burner, dorm fridge, and utility sink. Our city allows us to rent it out as a "room" in our home, as long as we live in the main building. We never have a problem renting it and it never remains vacant. When we purchased the home, the appraiser would not count the income we get off this apartment, as we did not then have the correct zoning to allow for a room rental (we have since resolved this).
I could fairly easily apply for and receive a "2nd-unit permit" which would basically turn the home into a 2-family instead of a single family. This would be some hassle, as I'd have to draw up and submit floor plans, demonstrate that the wall thicknesses are to code, and likely install a cooktop stove in the counter top.
My question is: How would this impact our property value when it comes time to sell the home? Could an appraiser "count" the income in one situation and not the other? Is it worth the hassle to turn it into a legal two?
Hello-
We have a home that has a separate studio apartment. It has no legal kitchen, just an electric burner, dorm fridge, and utility sink. Our city allows us to rent it out as a "room" in our home, as long as we live in the main building. We never have a problem renting it and it never remains vacant. When we purchased the home, the appraiser would not count the income we get off this apartment, as we did not then have the correct zoning to allow for a room rental (we have since resolved this).
I could fairly easily apply for and receive a "2nd-unit permit" which would basically turn the home into a 2-family instead of a single family. This would be some hassle, as I'd have to draw up and submit floor plans, demonstrate that the wall thicknesses are to code, and likely install a cooktop stove in the counter top.
My question is: How would this impact our property value when it comes time to sell the home? Could an appraiser "count" the income in one situation and not the other? Is it worth the hassle to turn it into a legal two?
Thanks!
That would depend almost entirely on your location, local market demand for this type of property, etc.. And since you did not state your location, it's pretty hard to give you an answer to your question.
Provided you get the proper permits that makes the "room" a second unit, the GLA would be counted as well as the income from it.
I am sure that ETex2 can expand on this.
Hey now D, you're the expert in residential appraisal. Don't you teach this stuff?
My simple answer is: it just depends. The local market will determine the impact on value. You may be hurt, or you may be helped. Is this 2nd unit in a separate structure? Is it a garage conversion? or added on to the main house? Did you lose square footage due to the 2nd unit and now you're house is smaller than typical for the neighborhood? Common sense says add the GLA and the income. MIGHT/SHOULD make the value higher. But your local market might actually punish you for having it since no typical buyer of property in your neighborhood wants it. And you may even have some obsolescence due to the second unit that actually lowers the overall value causing a need to spend money to bring it back to one single family unit. A local appraiser will hopefully be able to determine the local market's demand for a 2nd unit in your neighborhood and how it impacts value. No easy answers here I'm afraid.
OK, well thanks for all of that! I think we'll probably end up going for it and getting the permit. From a buyer's perspective, I don't see it making any difference one way or the other. They apartment will be the same (plus or minus a cooktop). The only difference is whether or not the appraiser can count the income off the apartment. The place is clearly set up to be a second (inlaw) unit, but of course could just as easily be used as an artist studio or office. Anyhow, many thanks for the advice!
OK, well thanks for all of that! I think we'll probably end up going for it and getting the permit. From a buyer's perspective, I don't see it making any difference one way or the other. They apartment will be the same (plus or minus a cooktop). The only difference is whether or not the appraiser can count the income off the apartment. The place is clearly set up to be a second (inlaw) unit, but of course could just as easily be used as an artist studio or office. Anyhow, many thanks for the advice!
Of course, it will only count once. The appraiser will either 1)add it to the square footage when comparing the property to other sales, or 2) leave the square footage out of the comparison and then add the capitalized value of the annual net income anticipated for the rental unit.
The appraiser will no doubt charge a higher fee for no. 2). And don't be surprised if the indicated value isn't higher than the value in no. 1). It will probably depend on how functional the whole property is as a single unit.
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Besides, you have way more experience than I do, so I will defer to you 
