Remote work is becoming more mainstream. As a result, more tenants would love to have a home office space when renting your property. As a rental property owner, you may be debating whether carving out office space in your units is worthwhile. Doing so can make your listing more attractive in a competitive rental market, but it also requires careful financial and logistical considerations. Read the article below as we discuss the benefits and drawbacks of adding an office space to your rental property.
Top 3 Considerations for Landlords
Let’s examine the top 3 factors to consider when adding an office space to your rental home.
Legal Considerations
Before converting part of your rental property into an office space, be sure to investigate any zoning restrictions or building codes that may apply. For example, some areas limit floor space dedicated to commercial rather than residential use, and any structural changes will likely require permits. Consider the following legal implications:
- Zoning laws: Check if your property is zoned for mixed-use with both residential and commercial spaces. Adding an office may not align with zoning rules.
- Safety codes: Safety codes for egresses, electricity, ventilation, etc. Ensure to meet any updated requirements for an office workspace vs. strictly residential rooms. This will protect tenants.
- ADA compliance: Though exceptions exist for small properties, be aware of accessibility needs like wider doorways and halls for wheelchair access to the office area.
- Insurance needs: Notify your provider regarding use changes. You may need more liability coverage for business activities on-site.
Consult with a professional property manager in Northern Virginia about compliance with legal requirements before adding this option to your property. It can help you to be on the safe side.
Practicality as a Landlord
Creating functional office space requires more than just adding a desk to the corner. Tenants will expect professional-grade amenities. Determine if changes like these make sense:
- High-speed internet and sufficient electrical outlets/capacity for office equipment. Hardwired Ethernet connections may be ideal.
- Good lighting, both natural and artificial. Can existing fixtures provide enough illumination?
- Expanded phone lines, networking cables, and possibly voicemail systems.
- Access to printing/copying resources like a shared printer room tenant can use as needed.
Think through how to deliver the infrastructure and tools a modern workforce relies on.
Financial Implications
Converting existing space or adding new office areas entails significant expense. Cost considerations include:
- Construction costs for any structural changes, drywall, electrical, etc.
- Furniture like desks, chairs, shelving units, and small couches for collaboration areas.
- Equipment such as printers, phones, laptop docks, and monitors/TVs for video calls.
- Ongoing utility costs from increased internet and electric needs.
Factor ROI into the decision too. Will upgraded units with office space warrant charging 10-15% higher rents? Run the numbers to see total costs vs. revenue potential. With strategic planning and competitive pricing, you may attract tenants signing longer leases who then cover costs over time.
Weigh all facets of functionally executing office areas along with the spending required. With due diligence, you can determine if offices suit your property vision and make prudent financial sense too.
Pros and Cons of Adding an Office Space in Your Rental Home
Adding office space to a rental property has benefits and drawbacks. Let’s explore them in detail.
Pros of Adding an Office Space
Upgraded Rental Prospects
Landlords acknowledge the fact that remote work has changed the rental industry in the last five years. In the remote work era, a dedicated home office caters to in-demand needs many tenants have. Listings offering workspace self-advertise to desirable prospects, including:
- Tech and other remote employees need productivity hubs outside corporate buildings
- Hybrid professionals working partial on-location/at-home schedules
- Business/consulting services using offices to meet clients and have an admin room
- Those wanting quiet work areas separated from living spaces
Having move-in ready offices adds unique value that helps rental units stand out.
Higher Rental Rates & Tenant Retention
Tenants getting workspace worth thousands of dollars may reasonably pay 10-15% higher rent. Over longer leases common with desirable company-footnoted units, premium rates quickly offset upgrade costs while increasing revenue. Add to this easier tenant retention from not needing to vacate well-outfitted live/work accommodations.
Property Improvement
Office additions indicate investing back into your asset. Enhanced buildings hold value well, keeping market comparisons favorable if selling down the road. Units stay modernized, too, as remote work sticks around.
Cons of Adding an Office Space
Zoning Restrictions
Not all neighborhood zones are for mixed commercial-residential use. Permitting may impose size limits on non-living areas too. Offices can run legally afoul without due diligence.
Remodeling Expenses
Even simple changes add up, like drywall adjustments, floors/walls to soundproof offices, electrical and lighting needs, etc. Equipment plus furnishings also require substantial budgeting.
Increased Foot Traffic & Usage
Offices inevitably enable increased noise and passersby challenges compared to strictly residential settings. Similarly, utility costs spike with the energy demands from lots of electronics and such. If there are dog owners working from the office, things will get even more challenging.
Insurance & Liability Factors
Introducing office space escalates risk should clients/others have accidents on-site. Review insurance policies to ensure adequate protection against expanded liability claims tied to business activities.
Balancing Act
Adding well-equipped office areas has tangible upside yet comes with clear costs too. Strike the ideal layout/size that appeals to target tenants while penciling out financially long-term. With due diligence in navigating regulations and expenses, leasing upgraded live/work spaces can elevate investment value.
Final Words
Deciding whether integrating office space aligns with your rental investment objectives requires weighing several interwoven factors. There’s no universally right answer. Benefits like capturing growing remote work demand and earning higher income streams may warrant taking on the risks of zoning constraints, upfront costs, and liability considerations.
You may deem it better to avoid hassles and keep units purely residential. Assess your target tenant profile, property type, neighborhood, personal financial goals, and more. With vision and numbers that pencil out, office spaces could prove prudent additions. Just be sure to make informed evaluations so any improvements undertaken make strategic sense to your situation.
