How to Turn a Basement Into an Apartment Rental

How to Turn a Basement Into an Apartment Rental

Last Updated: September 27, 2023 by Jessica Menefee

Turning your basement into an apartment is a great way to earn extra income, if you know how to do it right. Follow these steps to turn your basement into an attractive apartment space.

7 Steps to Turn Your Basement Into an Apartment

Here are the steps to turn a basement into an apartment:

  1. Inspect the Space
  2. Set a Budget
  3. Determine Space Layout
  4. Decide What Upgrades and Renovations are Needed
  5. Get a Bid
  6. Kickoff Construction
  7. Rent Out Your Space

1. Inspect the Space

Take a walk around your basement with a critical eye. Identify areas that need repair, cleaning, or clearing to make the space habitable. You should also start to look at the minimum additions you would need for a livable space. Here is a brief list of things to consider:

    • Point(s) of access – those living in the space will need a place to enter and exit.
    • Ceiling height – each state has a minimum requirement if the space is used for habitation ranging from 6’8” – 8’6”. Check your local laws.
    • Waterproofing – if you notice water stains, a musty smell, rust, or efflorescence, you need to waterproof your basement.
    • Pests – identify any evidence of pests such as bugs or mice. If you notice any droppings or dead pests, you likely need a pest or fumigation service.
    • Insulation – many states require proper insulation to meet code requirements. It also helps with energy conservation and soundproofing.
    • Windows – windows provide natural light and ventilation. One window per bedroom is required.
      • Egress windows – these windows open fully to create an emergency exit in case of a fire, flood, or other disaster. Most states require an egress window in a finished basement.
    • Heating and cooling – climate plays a major role in humidity and temperature control. This will be a necessity for a tenant.
    • Gas and electricity – ensure all electrical outlets are working and determine if you have working gas or electric connections for a stove (if you plan to put one in).
    • Plumbing – you may have existing plumbing such as a basement floor drain, but, you will need to determine any additional plumbing needs for adding in a bathroom or second kitchen.

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    2. Set a Budget

    Identify the cost of making the space habitable and compare the amount you have to work with.

    If you plan to rent the basement apartment, you can include the monthly income in your budget, Check out how much similar spaces are renting for in your area. Compare the features offered to your potential space.

    You should also calculate your monthly loan payment (if borrowing to finish the basement). Compare the loan payment to the monthly income you can generate from the rental. Ensure you will come out ahead each month or that you have additional funds to pay the loan. After your loan is paid off, the basement rental income is profit.

    Receiving extra monthly income may make adding certain features, such as a second kitchen, worth the cost.

    3. Determine Space Layout

    A basement offers different opportunities than a regular room in your house. Depending on the space, a basement has the potential to be a full, separate living space.

    Walk around your basement and determine the potential layout. Consider adding specific features to make the space separate from your living quarters. Be sure to identify areas that are required by law such as adding a separate entrance/exit for fire safety.

    Be realistic about your plans. Determine if the space is large enough to be a separate dwelling and could function as an apartment. Look at this table to see the minimum space suggestions :

    Area Minimum Suggested Space
    Studio apartment 500 – 600 square feet
    1 Bedroom apartment 500 – 1,000 square feet
    Kitchen Small kitchen: 70 square feet

    Countertops: 158 inches lengthwise, 24-25 inches deep

    Egress window Less than 44 inches from the floor
    Half bathroom (sink and toilet) 15 square feet
    Full bathroom (shower, sink, and toilet) 30 -36 square feet
    Full bathroom (bath, sink, and toilet) 40 square feet

    Consult a professional to design your potential basement apartment floor plan. A professional will have experience getting the best bang for your buck AND creating a functional flow for the space.

    4. Decide What Upgrades and Renovations are Needed

    After inspecting your space and determining a floor plan, you can define which items have the highest priority. As much fun as a full basement remodel could be, you first need to focus on making your space habitable.

    Building a rental space is different from a place you are living in. While you still want to make it nice, you want to keep it profitable. When making your selections, you don’t need to choose the most expensive countertops or vanity.

    Here are the top upgrade options to consider for your basement:

    • Additional windows for natural light and ventilation
    • Kitchen (required by law to have one)
    • Bathroom(s)
    • Laundry hookup
    • Flooring
    • Paint

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    5. Get a Bid

    It’s a good idea to get a bid (or a few) from a professional contractor. Although many homeowners want to DIY their projects, unless you are experienced, this may end up costing you more money.

    A licensed contractor will help you get needed permits and ensure the job is done right. If you plan to add an entrance, kitchen, or bathroom, taking a risk to do it yourself is probably not worth it. A contractor will also be able to help you complete the renovation with a set timeline.

    Estimates from a contractor are usually free or cost a nominal amount.

    6. Kick Off Construction

    The construction timeline depends on how much work you have to complete and who is doing the work. If you have chosen to work with a contractor, be sure you have paint colors, flooring, and fixtures picked out in advance to eliminate any holdups.

    If you are completing the work, be sure you have submitted your floor plans and have the proper building permits. Building without a permit may cause the following:

    • Fines
    • Removal of completed work
    • Improper work leading to infrastructure problems that cause major safety issues
    • Issues with your insurance
    • Decrease in home resale value as only permitted additions can be counted in your total square footage

    Luckily, if you did not get the proper permit in advance, you can obtain a retroactive permit. You will need to meet with your local inspector, apply, and make any changes needed to meet code requirements.


    After construction is complete, you will also need a certificate of occupancy. This validates that the space is up to code and meets all maintenance standards.

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    7. Rent Out Your Space

    Your new basement apartment is ready to rent. Here are a few steps to follow to help you be successful in your new rental business:

    • Learn landlord laws  landlord laws help define boundaries between you and your tenant.
    • Talk with your insurance provider – a new home addition and tenant may change the amount and type of insurance you need.
    • Set a rental price – research rental prices in your area and compare amenities to your new space. Set a fair price and determine how you will handle utilities.
    • Create an application – applications allow you an opportunity to ask for permission to run a background and credit check. They also offer insight into their rental history and employment.
    • Advertise your space – create an attractive advertisement. Include photos, details about the space, the general location, and what is included in the rental price.
    • Accept and screen applications  tenant screening allows you to narrow down your list of potential tenants and find qualified applicants.
    • Interview Applicants  although your new tenant may have a separate entrance, they are still living in your house. Be sure to ask a variety of questions (legally) to ensure they are a good fit.
    • Background and reference checks – this is your opportunity to confirm everything your applicant has shared with you.
    • Create and sign a lease agreement  lease agreements allow you to protect yourself as a landlord. Include all information about how and when rent should be paid, house policies, rental deposit, and how to handle maintenance issues.

    How Much Does Turning Your Basement Into an Apartment Cost?

    The cost to turn your basement into an apartment varies depending on your current space and how much work you want to complete. Here are some general price ranges:

    Area: Cost:
    Full Basement Renovation $61,000 – $121,000
    Basement Kitchen Only $25,000 – $50,000
    Separate Entrance Only $2,125 – $11,000

    There are a few measures you can take to help bring the costs down. You can save upwards of 25% by managing subcontractors and doing simple work yourself. Tasks like painting and sanding are manageable to do yourself and will save you thousands.

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    What Do I Do If My Basement Ceiling Is Too Low?

    If your basement doesn’t meet the minimum height requirements by a few inches, your options are limited. The only real option is to dig out the floor, but that requires breaking through the cement, digging out a ton of dirt, and then hauling all of that out of your basement.

    You’ll need a structural engineer and possibly a foundation expert, all of which might make turning your basement into an apartment financially impractical.