Turn empty space in your home into a rental apartment for added income. At a price far less than constructing a guest house, you can remodel a room in your house to become an "accessory" apartment.

Converting house space into an apartment can be especially useful for investors as few investments can rival the return of an added apartment. Monthly income can be 2 or 3 times the monthly cost of the loan to install it.

These "accessory" apartments are also called guest apartments, in-law apartments, family apartments or secondary units. They are completely independent living facilities with separate cooking, eating, sanitation and sleeping facilities that are located either within an existing single-family dwelling or in a separate structure on the same lot as an existing dwelling. Because it is the least expensive option, I focus on the apartment that is added within an existing house.

Accessory apartments may be located in any part of the house depending upon the availability of usable space. Spaces that have the greatest potential for conversion into accessory apartments include:

• Attics
• Basement portion of a split foyer house
• Walk-out basement areas
• Attached garages
• Finished living areas in any portion of the house
• Houses that will aesthetically accommodate a small room addition.

Technical Considerations

Some of the things you will need to consider include estimating cost and income, financing, zoning & building codes, and becoming a landlord. Also, you will need to include a bathroom and kitchen, although a kitchen does not need to be too complicated. It can consist of a refrigerator and a microwave for a smaller apartment.

You also may need to establish separate utilities service for the apartment, to comply with local regulations. In addition, separating the accessory apartment from your own private area will probably involve a separate entrance for tenants.

Costs

The New York Times Reported (July 7, 1991) that when two schoolteachers, Nicholas and Gayle Mancuso, built their new home, they added a two-bedroom apartment to help with expenses. They rent the apartment for $650 a month, including utilities, which helps offset their monthly mortgage and tax bill of $1,850. The apartment cost about $10,000 to build, so after 16 months it had already paid for itself.

Studies in Minnesota in 1982 estimated that costs to convert free space into apartments ranged from $26,400 for a "fully-contracted-out" job (an unfinished attic that required extensive remodeling work) to a low of $9,940 for a two-bedroom apartment in an older two-story house by an experienced "do-it-yourselfer." Estimates for conversions with "do-it-yourself" labor were $15,520 and $17,985 for split-entry and basement conversions respectively. Asphalt parking spaces were estimated to cost $500 per space.

The average monthly break-even rental costs, assuming modest "do-it-yourself" labor at remodeling time were estimated to be $228 for a second story accessory apartment in an older two-story house; $274 for a split entry conversion; and $302 for a basement apartment.

Copy out what others have done

Look for ads in newspaper to find other converted apartments. Then go by and see what they look like. Feel free to copy what other people have done. Here are a couple of ads from my local newspaper: "Studio furnished apartment includes utilities $475/mo + deposit no pets," or "Room for rent with private entrance and bath, $400/mo, includes utilities."