Next in our deep dive into the world of rental real-estate for how both landlords and tenants can interact and operate together in the different environments of tenancy is going to be Part 3 – Attached Properties.
The following forms of Rental Real Estate will and have been covered in this series.
- Rooms Rentals(Attached accommodation).
- House in Multiple Occupation (HMO).
- Attached Properties (Cottages and duplexes).
- Single-family homes.
- Cluster properties.
Part 2 – Attached Properties.
What is An Attached Property?
The broad term in real estate would imply any form of property estate that provides multiple units of accommodation within the same plot of land.
In the broad term; cottages, duplexes, apartments, high rise residential towers, and cluster homes would all be forms of attached properties.
For the sake of this series, for rental real estate; we will keep the definition of attached properties to only include cottages and duplex properties.
This is to better classify like forms of real estate when it comes to investment experiences and expectations; to discuss the entire spectrum of attached homes under one banner would give a misleading representation of expectations.
What is a duplex?
A duplex is any property design plan that involves two living units joined to each other either as townhouses (side by side) or apartment-style properties (one on top of the other). The main fact is that within property boundaries there are only 2 units of accommodation.
In this case, the duplex is sized to be similar to a single-family home.
What is a cottage?
In this case, a cottage will be any form of an additional living unit separate from the main house on a property.
The unit must be able to accommodate self-sustained living concerning having its access to basic utilities such as water and electricity as well as accommodate basic home facilities such as a bathroom, kitchen space, and bedroom.
Attached Properties – The Basics.
Progressively speaking, attached properties can often be as accessible for some people as room renting; solely because the property they accommodate may already facilitate a cottage on the property or duplex design plan.
Costs Of Attached Properties-
With the above in mind, in the case of an attached property not already being able to facilitate either a cottage or duplex design; attached homes are the second most accessible form of rental investment next to room renting.
Aside from the financial requirements needed to do the necessary extensions to turn your home into a duplex or build a separate cottage unit on your property; the only other fixed restrictions for such an investment would be having a property with sufficient space for the investment and accommodation laws for your property.
The necessities for either investment would be the previously stated essentials of independent living:
- Independent Kitchen area.
- Independent Bathroom area.
- Independent lounge area.
- Independent access to the living unit.
Access to the property as a whole can be shared by everyone on the property or each household can have independent access to their living areas.
Management of Attached Properties-
For landlords, there are 2 potential standpoints to managing an attached estate; either from the standpoint of having two tenants on the property – while you live somewhere else or from the standpoint of accommodating one living unit on the property while a tenant occupies the other.
The first instance inevitably generates more income as there are 2 paying tenants on the property. This option also involves more management as there are 2 tenants, it makes hiring a management agent or viable agent as their benefits are more apparent when; as a landlord you are not too close to your rental property.
The second option, though not as profitable; is preferable for individuals who don’t have another property to accommodate for themselves. This form of arrangement is where landlords typically reap the benefits of House Hacking.
The Legality of Attached Properties-
For properties that were prebuilt and designed with a cottage or duplex design, their procedures for renting both or the extra living unit would be similar to following the renting procedures fo a regular single-family home.
In the case where the property was not prebuilt and designed with a cottage or duplex, it would be required to check with the title deeds of the property and your local deeds office for whether or not there are any restrictions on making such changes to your property and the neighborhood at large.
There will be more scrutiny over the investment if it is to be a new investment; this is to make sure no costs are cut over making the extended property legally habitable.
What to expect From an Attached Property arrangement (Landlords and Tenants).
1. Further than a roommate but closer than a neighbor (Boundaries)
Whether it’s a landlord and tenant occupation or a double tenant occupation; establishing and understanding the boundaries of an attached home is an essential and often difficult to establish ruling.
People are going to want their space and more importantly, they are going to want to make sure their space isn’t being encroached upon.
The necessities of living are easy enough to separate because each living unit has its facilities. Issues often arise when it comes to distributing amenities such as the available yard space, detached facilities like sheds and garage space, the swimming pool and garden space.
In both situations, the landlord will be in charge of setting the exact boundaries of ownership within the property and to identify what constitutes for shared property and how exactly shared property is shared.
In a tenant-landlord occupation situation for an attached property, the landlord needs to be aware that the management situation of the tenant is closer to that of a room rental environment than when you would normally rent out single-family homes and the above.
That is to say, tenants are generally more demanding of their landlords – the closer they are to their landlords. In such an environment, establishing clear boundaries over how and when the tenant can report to you, is critical.
Regardless, as a landlord, you should expect many knocks on your door over loose hinges and leaky faucets.
2. Making the responsibilities clear from the start
With relation to the above point, after establishing who gets what and what gets shared – it’s equally important to establish who is in charge of what and what needs to get done by the person in charge.
There are essentially going to be 3 levels of responsibility when it comes to the occupants of an attached home:
Responsibilities over the property and property assets.
Tenants can keep the inside of their home in whatever state works for them, but the outside of the property doesn’t just include them.
General rules over the expected way to treat outside amenities concerning cleaning and landscaping management will go a long way to keep everyone happy and keeping the property in order.
I previously wrote 2 posts that provide some important tips and tricks when it comes to effectively managing landscaping as a landlord (HERE) and a post that covers the best and worst profitable renovations you can make to a property (HERE).
Responsibilities between the occupants.
Within the property, occupants aren’t roommates but they are closer than neighbors. With that, comes more necessary compromises and communication when it comes to respecting each other.
A certain level of house rules may need to be put in effect concerning organizing social gatherings on the property, managing noise and respecting privacy boundaries.
It’s not entirely uncommon for the occupants of an attached property to have their special variation of a Roommates’ Agreement to manage expectations and the peace.
Responsibilities towards the neighbors/neighborhood.
As a collective, the tenants of the property will jointly and severally responsible for how they act concerning respecting their neighbors.
Complaints about the property concerning noise or general disruptive behavior will be targeted at the property as a whole and not necessarily the specific individual in a specific unit on the property.
This is as much a factor to be considered by the landlord as by the tenants as it only takes one individual being disruptive to cause potential damage to the other tenant.
3. Tax benefits for property improvements.
This is as much a benefit for the landlord as it is for the tenant. When a property is being rented out, the landlord effectively becomes a business in the eyes of the law.
Expenses that are done to improve the rental property can be written off as non-taxable business expenses.
For the landlord who is living on the same property as the rental property such as with cottages and duplexes; general improvements to the property at large (shared area) can be categorized as business-related expenses and investments which are not taxed.
4. Vacancy management.
When the property is not fully occupied (both living units occupied). it essentially leads to the remaining tenant having to deal with double the responsibilities of managing the property or risk having half the property suffer from the wear and tear of a lack of maintenance.
For the landlord, this involves the loss of an income source and the burden of having to manage the fixed expenses of the property such as for basic utilities and mortgage payments.
5. House Hacking.
A viable and potentially lucrative strategy for multi-unit rental real-estate investment is House Hacking.
This strategy involves the landlord of a property living in one unit of multiple on the property and renting out the remaining units. When effectively executed, the generated rental income from tenants should be able to completely cover the landlords’ mortgage payments as well as the main costs of living on the property.
This is possible in an attached property environment like duplexes and cottage tenancies as well as with larger forms of multiple unit rental properties. If you’re interested in learning more about how to effectively start house hacking; I’ve written out an all-encompassing guide (HERE).
Should You Be In A Attached Home?
Attached homes are a step above room rentals when it comes to both the inconvenience of having a tenant living nearby and the benefit of having a tenant cover some or all of your costs of living on the property.
Both cottages and duplexes will respectively offer moderately high rental payments that can; dependent on circumstances match and compete with renting out single-family homes.
The is also the scalable benefit of being able to rent out both units on the property if the landlord can make other accommodation arrangements for themselves.
What Type of Landlord is an Attached Property For?
- Your property has the facilities to accommodate living arrangements for another family/person.
- Your property has enough space and is not legally limited for investments for an attached home extension on the property.
- You have the knowhow or are willing to learn the ins and outs of effectively managing a tenant who has quick and easy access to you (If you intend to house hack on the property).
- You are willing to hire a property manager or learn how to effectively manage multiple tenants on a property.
What Type of Tenant is an Attached Home For?
- Depending on the size of the attached property; space can be ideal for anyone from a single adult tenant to a household (family).
- Though the living quarters are typically separated in some way for both cottages and duplexes; the occupants are very near to each other. As such, it is always best to have tenants who are comfortable with community living.
Concluding Evaluation of Attached Properties.
Attached homes, as previously stated; are the next level rental real estate environment after room renting.
Because the landlord and tenant are sharing the same property; this form of rental investment is more accessible than renting out a single property as this would force the landlord to have already made arrangements for their living.
The occupants of the property whether being landlord and tenant or two tenants are given adequate levels of privacy from one another than would have been awarded in a room rental situation.
The ability to scale up tenancy in the same property by having the landlord vacate the property to be replaced by a tenant is also a worthwhile opportunity provided by the property.
Special care will just need to be made concerning the occupants of the property respecting each other’s boundaries.
Scoring Attached Properties as an Investment.
As will be the case with all the other rental properties in this series, I will be scoring HMO properties within the following 4 criteria as well as providing brief reasoning for the score:
- Accessibility – How easy is it to set up and start.
- Scalability – The ability to increase and handle the increased demand for the service.
- Return On Investment – How much you get for how much you put in.
- Return Potential – What can you reasonably expect to get out of this investment.
1. Accessibility (3/5).
Finding a duplex or a property that already has a cottage attached property on it is not rare and the homes are typically comparable in price to a single-family home.
Aside from that, the required investment financially and legally is often not extensive if as a homeowner; you want to convert your single-family home into an attached property.
All in all, from a baseline perspective of having to purchase a property and get it ready for rent – attached homes are only marginally more cumbersome than converting a regular single-family home.
2. Scalability (3/5).
With consideration of what is possible strictly on the property, a landlord who was previously occupying the other unit on the attached home property is always able to move out to accommodate another tenant in the unit they were occupying before.
For larger (and significantly more expensive) duplexes and cottage designs; the landlord can potentially use the property as a form of HMO to accommodate even more tenants.
This is however only possible in the event of purchasing a much larger property and would also potentially require more legal considerations.
3. Return On Investment (3/5).
Considering the potential premium charged for a ready attached property and the investment cost of converting a single-family property into an attached home; The return potential of the property will in most cases be marginally better than that of a single-family home.
This is further amplified in cases where the landlord can lease out both units of the property; so long as they have made reasonable arrangements for their living.
4. Return Potential (3/5).
The return potential of the property cannot; in most cases be significantly leveraged for significantly higher returns as is the case with HMO properties and cluster properties and apartments.
This is because attached homes; on average, will only be able to accommodate one extra tenant than usual (in the case of a landlord not living on the property).
The appeal of attached homes isn’t usually their incredible earning potential, it’s their accessibility to being able to house hack and essentially live for free on your property without having to invest enormous finances and time into projects like cluster homes and apartment blocks.