20 Mar 2020

Should You Allow Home-Based Businesses in Your Rentals?

Does your new or prospective tenant have a home office? Zoning ordinances and neighborly sentiment should guide you in how much to encourage WFH entrepreneurs in your rentals.

The remote workforce. The side hustle. The WFH SAHM. Even if you don't know what these terms mean (the last one is work-from-home stay-at-home mom), they're describing employment trends that impact how people occupy their homes.

And if you've got rental properties, then it may impact how people are occupying your homes as well. What are they doing, making, and selling out of the spaces that they pay for the use of but you have legal responsibility over? How much do you want to know?

The home computer station

With about 4 in 10 Americans working side hustles and a further 4.7 million working

remotely (as of 2017), it's probable that some of your tenants will wind up turning the spare bedroom into a home office. If it's a computer-based job, it's hard to know, let alone regulate.

So if your tenant has a job in something like tech support, writing, or social media management and works from home, you likely have nothing to worry about. In fact, you might even count it as a positive, because they'll probably be more available/flexible in the middle of the day.

Neighborhood zoning and home-based businesses

Once the work-from-home business entails more than merely a computer, or starts bringing lots of customers to the front door, though, things get trickier. This is from a legal perspective according to zoning ordinances, but also from the standpoint of needing to get along with neighbors.

Neighborhood zoning is different from one place to the next. Some neighborhoods and communities don't allow home-based businesses whatsoever, and you should be aware if that's the case in your neighborhood, so you can at least be legally compliant as a landlord and inform your tenants of the rules. But most set and enforce zoning regulations as a way to keep the neighborhood quiet and peaceful.

What's the business plan?

So when your potential tenant wants to refurbish bicycles out of the garage or run a life-coaching business with occasional vision-boarding sessions in their living room, you'll need a bit more detail. Like:

  • How much of this activity will spill outside, especially into the street-facing yard?
  • How many visitors/customers will come by weekly?
  • How will it affect street parking?
  • Will special equipment or supplies be kept on the property?

Once you have these answers, check your local zoning ordinances (at city hall or the local zoning office or on the municipality's website) and see what's legally allowed. It is common for local ordinances to limit foot traffic, outdoor signage, and number of vehicles allowed in front of a home.

After familiarizing yourself with the legalities, gauge generally how disruptive the business will be to the neighborhood. That is the biggest concern, and one you need to be proactive in assessing.

When a team forms…

Semi-regular meetings and small gatherings are a very normal occurrence in the age of home-based sales businesses. It's hard to police -- or begrude -- Pampered Chef parties every couple of weeks, as long as the neighbors are undisturbed.

But when a work-from-home gig turns into a business with other partners showing up daily to work with your tenant, this could become a problem quickly. Residential zoning and commercial zoning for office space are decidedly not the same, and with the sheer number of coworking spaces popping up in every community, it's very reasonable for you to suggest to your tenant that they and their three colleagues move the startup venture over to a shared office space.

What if your tenant has a business with lots of package drop-offs and pickups?

In the days when people buy their entire lives on Amazon (NASDAQ: AMZN), this one's tricky. How do you even know when someone's dipping their toe into retail arbitrage -- buying products locally and selling them online -- versus when they're just that super-OCD personality type who loves to track and stock up on awesome Walmart (NYSE: WMT) discounts?

Again, the gauge by which you measure quirky shopping addiction versus disruptive home-based business is the question Is this spilling outside of the home? If the garage is stacked full of boxes and delivery drivers are stopping by multiple times daily, it's time to pry a little. The neighbors might tip you off, especially in the era of community apps and doorbell cams.

What about a business where a product is being made or assembled?

This is another area where zoning ordinances tend to set some specific parameters. Just as one example, handcrafting Christmas ornaments to sell on Etsy (NASDAQ: ETSY) might be fine. Running a home-based bakery is likely to be trouble. As the property owner, you need to be aware of what the law allows in the neighborhood. And in this category more than others, you may not want to turn a benevolent blind eye.

The one thing you absolutely don't want in a home-based business

Even if your tenant is incredibly reliable with the rent and so skilled at what they do that you're a personal fan, the one thing you can't let slide is a noisy work-from-home profession. It doesn't matter whether they lead a brass band or make the most gorgeous wooden furniture from driftwood. Once the noise of the electric saw or trumpet chorus starts making the neighbors miserable, sentiment will spiral downward rapidly.

You could, if you wanted to be kind, permit/encourage soundproofing the garage, but even this won't always be a solution. If your property is on a smaller lot with other houses nearby, noisy tenants will not work out long-term.

How much should you encourage your home-based entrepreneur tenant?

Since so many people are exploring this path that you can't be entirely against it -- and realistically, in many cases, you won't even know if the tenant doesn't tell you. So, part of this decision is based on how much you like and trust the tenant.

The other part is, of course, down to the rules of the neighborhood. And as with all property rights, activity will be more restricted and heavily watched if the home's in a HOA-governed community.

So, as a general rule:

  • Know the zoning regulations.
  • Be clear about them with tenants.
  • Make sure the ones that could get you into trouble are written into the lease as rules.

With everything else, let your judgement guide you.

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SOURCE : https://www.fool.com/millionacres/real-estate-investing/articles/should-you-allow-home-based-businesses-your-rentals/

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