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

For most homeowners, a basement is just glorified storage space. Even finished basements often present a challenge—most of us default to throwing an old rug, couch, and TV down there and calling it an “entertainment” space or a “Man Cave,” and then proceed to never use it. Or we slowly fill it with boxes until it’s a musty hoarder’s maze that traps unlucky visitors. But basements represent a huge opportunity if you’re looking to increase your income, because they can be transformed into legal apartments and rented out for money.

If your basement is finished, the process of transforming it into an actual apartment in the eyes of the law is fairly straightforward—and the financial benefits can be huge. But even with a finished basement, you can’t just install a bed and list it for rent. You’ve got to make sure the place is safe—and legal.

What does a basement apartment need to have?

First and foremost, a disclaimer: You’re going to need to look up your local building codes and laws. You need to obtain a certificate of occupancy for your new apartment. Some areas have made basement apartments completely illegal, and different local authorities will have different requirements for a legal apartment. Before you do anything, make sure you know what’s specifically required, including:

• Dimensions. Your local housing authority will have minimum size requirements for a legal apartment. The International Residential Code (IRC) requires at least one room with 120 square feet of living space, and many U.S. states simply follow that minimum, while others bump that number up a bit. You’ll also need to consider ceiling height—the IRC requires at least 7 feet, which can be a challenge in basements, especially if you need to drywall the ceiling to enclose ductwork or wiring. Again, local building codes may deviate from that minimum.
• Access. To be a legal apartment, your prospective tenant will need their own dedicated entry—they can’t be required to walk up the stairs and through the main house to get in and out. You’ll also need to check the local fire codes to ensure there aren’t additional requirements. And some local authorities require a second exit from the space, which might be an “egress window” (see below) or a second door.

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

Once you’re sure you meet these basic requirements, congratulations: You can turn your basement into a legal apartment. But there’s still work to do.

Adding bathroom and kitchen access to your basement

If your basement has a bathroom and kitchen already, you’re golden. If not, check to see if it already has the “rough-in” plumbing and electrical required—many builders include that in case the owner wants to finish the basement later, or perhaps a previous owner started a basement remodel and then gave up.

If you don’t have plumbing roughed in, you’ll need to do that, because livable apartments by and large require access to a bathroom and a kitchen of some sort. According to Home Advisor, a basement rough-in costs about $4,000, and the total cost of adding a bathroom to a basement will run you between $6,000 and $15,000. A kitchen rough-in will cost about the same, and the actual kitchen will run you anywhere from $1,000 to $20,000 depending on how large and lavish you decide to go.

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

Another consideration is dampness and water: Many local areas require basement apartments to be waterproofed in some way. If your basement is finished, this may have already been done, but you’ll need to confirm it meets the standards for an apartment. If not, you’ll need to have that work done before you can legally rent the space.

Finally, you might be required to have the space inspected for mold, lead, asbestos, or other problems. Again, you’ll need to find out the reports you’re required to obtain before you can get your certificate of occupancy and begin renting the place.

Whatever you do, don’t be tempted to forego the legalities and rent the space under the radar. Not only would you be putting the safety of your tenant in question, you’d be putting yourself at significant legal risk, and if your tenant goes rogue on you, there will be fewer legal options for dealing with it. Even a finished basement might require an investment to turn into a legal apartment—but the potential income might very well be worth it.