DC rowhouses are expensive. Fortunately, many come with English basements—lower levels with separate entrances that can potentially be rented as apartments and used to offset the house’s mortgage. But it’s not always that simple. Here’s what you should know before you post your basement on Craigslist and start cashing rent checks.
Can I rent out my basement?
To do so legally, the DC Department of Consumer and Regulatory Affairs (DCRA) requires two things—a basic business license, which costs $270, and a certificate of occupancy, or “C of O.” To figure out if a C of O already exists for your basement, check DCRA’s online Property Information Verification System. If there’s no C of O, you’ll need to get one before being granted a business license. This means having a DCRA inspector evaluate the apartment using a checklist of safety and habitability codes.
Requirements include proper ventilation of appliances, working fire detectors, and ceilings that are at least seven feet high. “The units [we examine] are passing that checklist more often than not,” says DCRA director of public affairs Matt Orlins. “It’s not a situation where we get ten requests and eight are denied.”
Does having a legal apartment even matter?
Well, kind of. Search “basement apartment” on Craigslist and you’ll turn up everything from cramped studios in Glover Park to spacious two-bedrooms beneath stately Capitol Hill rowhouses. One thing you won’t often see: the words “certificate of occupancy.” That’s because some homeowners don’t know they need to bring their property up to code, others find the regulations too puzzling to deal with, and some just don’t care or don’t want to go to the expense. DCRA’s Matt Orlins even admits, “It’s challenging to identify [an illegal unit] from the street. Most enforcement comes from neighbor complaints.”
So to many landlords, the answer to this question is clearly no. But it should matter to the renter because illegal units haven’t been evaluated for safety. Scrolling through those Craigslist ads, you’ll notice many obviously unsafe spaces—studios with windows too small to escape through in a fire, say, or low-ceilinged rooms where an average-size person wouldn’t be able to stand upright.
What happens if I get caught renting out an illegal unit?
Renting an apartment without a business license or C of O can result in fines starting at $2,000. “Our goal is to ensure safe, compliant units, not to issue penalties,” says Orlins.
If I want to turn my basement into a legit apartment, how much will it cost?
Remodeling a totally unfinished basement into a legal rental can cost $125,000 and up, says Will Couch of Foundry Architects, who has done several such conversions. Even bringing an already finished space up to code can be expensive, especially if there are significant problems like ceilings that are too low.
If you weigh these costs against the relatively small risk of getting dinged for an illegal unit, it’s easy to understand why so many basement rentals remain unlicensed. “Honestly, I need that rental income to pay my mortgage,” says one Petworth landlord who doesn’t wish to be identified. “I had no idea it wasn’t licensed when I bought it, and now I have to pay thousands of dollars to fix it?”
How much can I get for my rental?
Basement apartments can rent for hundreds of dollars less than units in an apartment complex, so you probably won’t have trouble finding tenants. For example, in Adams Morgan, a nearly 800-square-foot one-bedroom at the popular Argonne building starts at $2,118 a month; similarly sized one-bedroom English basements in the neighborhood generally start at $1,700.
“With a basement apartment, you can often lease something a bit more updated or spacious for your money,” says Nancy Starrs of the local apartment-search firm Apartment Detectives. “They can be bargains.”
What else should I know?
If you do make your basement a legal unit, you’ll need to report the rental income on your federal tax return. And if the gross annual income from it exceeds $12,000 in a given year—likely in DC’s market—you’ll need to file a D-30 (unincorporated small business) return with the District’s Office of Tax and Revenue.
Freelance design writer Jennifer Barger can be reached at firstname.lastname@example.org.
This article appears in our August 2015 issue of Washingtonian.