Before you rent out your granny flat, know the pros and cons.
Consider the pros and cons of renting out your in-law unit before becoming a landlord.
As rents continue to soar in the Bay Area, if you’re a homeowner with an in-law unit, the idea of renting it out can be tempting. However, there are a number of pitfalls the wannabe landlord should consider.
The benefits of renting out your unit include the income and the fact that you’re helping alleviate the ongoing housing crisis. But you’re taking on a big responsibility as a landlord; taxes, repairs, and maintenance come out of the income; and you’ll have more limited flexibility in the use of the space.
In-law units, or granny flats, have their own entrances, bathrooms, and kitchens. Renting one is legally equivalent to renting out any other piece of property, and you need to follow your city’s laws.
“Renting your in-law is a way to provide housing for teachers, firefighters, policemen — the people in our communities who often have a hard time finding a place to live in the community they serve,” said Krista Gulbransen, executive director of the Berkeley Property Owners Association.
Because the person lives under your roof, “you have a more personal relationship,” Gulbransen said. “When you have a personal relationship, you tend to keep the rents low.”
However, you are committing to doing maintenance and repairs you might defer otherwise. Expect to invest around 10 percent of the monthly rent back into the apartment for upkeep, according to Robert Griswold, author of Property Management for Dummies. Also, you must pay taxes on the rental income.
“Make sure you are prepared to handle the time and effort it takes to be a successful property manager,” Griswold cautioned. When a leak develops and the unit floods, you’re the one who is expected to take care of it.
If you’re used to hosting out-of-town friends or family in the unit, when a tenant takes possession, it’s no longer available for that purpose, quite possibly for a long time “as long as they pay their rent and follow the terms of the lease,” Gulbransen said. While pondering the decision, familiarize yourself with your city’s rules, Gulbransen said.
“Even if you are only renting your in-law apartment, you are a landlord, and you need to treat it as a business,” Gulbransen said. “The best way to have a business is to be informed.”
