Turning Your Home Into a Legal Rental Property? Consider All This First!

by Amit Magdieli
November 14, 2014

Magdieli Property Management Rental Tips
You wake up one morning, and it strikes you. The bills are piling up. Or, if you only had a bit more disposable income, you could better enjoy life and live your dreams.

Bottom line: You need more cash.

Then snap! What about turning your home into an income-producing rental unit? Or, buying an investment property?

Often, homeowners come to us with just those thoughts in mind. And, lots of questions.

The first questions they usually ask us are:

“What kind of rent can I get?”
“What costs am I looking at?”

Those, of course, are the important ones for the homeowner.

Then, it’s our turn. Our first question, and our most important one, we ask:

“Is your home or investment property legal to rent?”

Defining Washington, D.C. Legal Rental

A high level understanding of what legal rental means in Washington, DC. It is usually comprised of two main components.

1. Certificate of Occupancy. Any building with two or more units requires a Certificate of Occupancy (C of O) stating that it is a legal multi-unit. This includes row houses with separate basement units. However, if there is only one unit, a C of O is not needed. A C of O is issued once and lasts the length of your ownership in the property and can be transferred to future owners.

2. Basic Business License (BBL). ALL rentals must have a DCRA issued license that certifies it is legal to operate as a rental business. This is required for one or more rental units and are different depending on the number of units in the building. If the building has two or more units, a C of O must be established before applying for a BBL. BBL’s are renewable every two years through DCRA.

Both C of O’s and BBLs require separate inspections by the DC government to ensure standards are met. There are unique, though complimentary requirements to receiving both of these certifications.

Common Misunderstanding for Homeowners

Is passing a home inspection, or buying a house legally, the same as having a legal rental? No … not true. There are different standards involved.

For example, have you ever seen a house advertised for sale with a cute, separate “English basement” or “in-law suite”? That’s the first sign it’s probably not a legal unit with a Certificate of Occupancy (C of O). Therefore, it cannot be rented separately.

Agents know that advertising a two-unit row house in Washington, D.C. requires a C of O. And, if a row house has this, because it’s a huge selling point, you will definitely know you have one or not.

If there’s no C of O, and most basement units in D.C. do not have one, it’s an illegal basement rental. Alas, many people rent their basement units in D.C. this way. But, make no mistake, you are taking a risk.

Two Reasons Why You Must Go Through the Process

The most expensive mistake an investor or income-property owner can make is NOT going through the requisite permitting and licensing process when establishing a rental unit.

Sure … the unit may be completely finished and up to code. Then it could only cost a couple hundred dollars for the Basic Business License (BBL). Or, it may require a C of O and thousands of dollars in significant upgrades to pass the variety of housing codes to get the city’s certification that it’s a legal rental.

Despite the scenario, going through the process is a must, and here’s why:

Safety: Show your tenants you care. Let them know that their safety and the product you are providing them are important. Have the unit certified as safe and in proper working order.

Liability: It doesn’t matter if you have a great lease, great insurance and an amazing property management firm in charge of running everything smoothly. If you have an illegal rental, all liability and damages, irrespective of the source of a problem, will most likely fall on you … the owner.

Have a major insurance claim on a rental? First thing your management company will do is check to make sure you have an active BBL.

Tenant complains to the city? First thing DCRA will do is check to see if you have a BBL.

Have to take a tenant to court for non-performance? Can’t do that without a BBL.

What’s more, you must note that a good, honest property management company will not take on a client renting an illegal unit. We don’t at Magdieli Property Management.

However, we do specialize in turning row houses throughout Washington, D.C., into successful rental properties. We can help you through the complicated, and often times very long, process of what is needed to make your unit legal.

After you consider these standards, consider us an investment in your peace of mind … the value of your property … and your legal status as an investor.

It could very well lead to more money in the bank for you.

About Amit Magdieli

Amit MagdieliAmit Magdieli is the founder of Magdieli Property Management LLC is a full service property and tenant care company operating for 15 years in Washington, DC.  He is a licensed real estate agent, member of GCAAR,  and member of Multiple Listing Service (MLS)