Buying a first Utah home is an exciting milestone, but for Utah buyers, thinking about the future rental potential can turn that home into a powerful income-generating asset. Even if renting out part of the home isn’t the immediate plan, choosing a property with rental potential sets you up for flexibility, passive income, and long-term financial growth. Here’s a guide to selecting and preparing a home with future rental possibilities.
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Why Future Rental Potential Matters for First-Time Buyers
For first-time buyers, buying with rental potential in mind adds flexibility and an additional layer of financial security. Here’s why it’s so valuable:
- Generates Passive Income: A property with rentable space can generate income if you decide to move or need to cover costs. This rental income can help offset mortgage payments, freeing up your budget and creating a steady revenue stream.
- Increases Home Value: Properties with accessory dwelling units (ADUs) or extra living spaces typically appreciate well and are highly attractive to future buyers, making them valuable assets when it’s time to sell.
- Allows for House Hacking: Renting part of your home while living there—a strategy known as house hacking—allows you to reduce living costs, build equity faster, and save for future investments.
What to Look For in a Home with Rental Potential
Not all properties are created equal when it comes to rental income possibilities. Here’s what to consider to maximize future rental value.
1. Look for Properties with ADUs or Separate Entrances
- Why ADUs Work: Homes with accessory dwelling units (ADUs) or basements with separate entrances are ideal for rentals. These spaces offer privacy for tenants, which tends to attract renters and allows you to charge higher rates.
- Utah Zoning Laws: Check local zoning rules in cities like Salt Lake City, Provo, or Ogden to ensure that adding an ADU or renting out a basement is permitted. Some Utah cities have specific regulations regarding rental properties, especially ADUs. Utah ADU Zoning Regulations and Guidelines
- Example: Sam, a first-time buyer in Salt Lake City, purchased a home with a basement apartment. After moving, he rented the basement out to help cover his mortgage, effectively reducing his monthly housing expenses.
2. Prioritize Homes in High-Rent Demand Areas
- Why Location Matters: A home in a high-demand rental area will likely fetch a better rental rate and attract long-term tenants. Utah’s popular rental markets include Salt Lake City, Lehi, Provo, and Ogden, where job growth and population influx drive rental demand.
- High-Demand Neighborhoods: Proximity to major employers, universities, or public transit hubs often increases rental demand, allowing you to charge more for your space. Utah Housing Market: Prices, Trends, Forecast 2024-2025
- Example: Amy purchased her first home near Brigham Young University in Provo, a city with high student housing demand. Even though she didn’t plan to rent it immediately, the location provides her with flexibility for future rental income if she decides to move.
3. Consider Multi-Family Properties for Built-In Rental Potential
- Duplexes and Triplexes: Multi-family properties like duplexes or triplexes come with built-in rental units, making them ideal for first-time buyers interested in rentals. FHA loans allow buyers to finance up to four units with as little as 3.5% down if they live in one, offering an accessible entry into rental property ownership.
- Example: John, a first-time buyer, used an FHA loan to purchase a duplex in Ogden. By renting out one unit, he covered a large portion of his mortgage payment, making homeownership more affordable while building equity in a high-appreciation market.
4. Choose Homes with Unfinished Basements or Attics for Future Conversion
- Why Extra Space Adds Value: Unfinished basements or attics offer future rental opportunities and can significantly boost property value if converted into livable space. Many Utah homes come with unfinished basements, making them prime candidates for rental conversions.
- Plan for Basement ADUs: Converting an unfinished basement into an ADU with a separate entrance can add substantial rental value while preserving privacy in the main home.
- Example: Sarah bought a starter home in Sandy with an unfinished basement. Over the years, she converted it into a rental unit, adding an extra bedroom and bathroom. This addition increased her property’s value and generated monthly income to help pay off her mortgage.
Preparing a Property for Future Rentals
Once you’ve selected a home with rental potential, here are steps to get it rental-ready and maximize income when you’re ready to rent it out.
1. Focus on Low-Cost Upgrades for High Rentability
- Prioritize Essential Upgrades: Simple upgrades like new paint, flooring, and updated appliances make spaces more appealing to tenants without a huge expense.
- Separate Utilities if Possible: Separate utilities allow tenants to manage their usage and make the property more appealing for renters who want control over their own bills.
- Example: Jake purchased a home with a large basement apartment in Lehi. By updating the flooring and installing new appliances, he was able to charge a higher rent and attract long-term tenants.
2. Make it Private and Functional for Tenants
- Separate Entrance: Privacy is a priority for tenants, so if you’re creating a rental space in your home, a separate entrance is key. This setup ensures tenants feel comfortable and makes the rental more marketable.
- Add Necessary Amenities: Ensuring the rental has a kitchen, bathroom, and laundry facilities allows for complete tenant independence, increasing rental value.
- Example: Mia converted part of her home in Provo into a basement apartment. By adding a kitchenette and a private entrance, she increased rental appeal and created a desirable living space for students in the area.
3. Familiarize Yourself with Local Rental Regulations
- Understand Zoning and Licensing: Each city in Utah may have specific regulations for rental properties, especially for ADUs and basement rentals. Some areas may require rental licenses or inspections to ensure compliance.
- Avoid HOA Restrictions: If the home is in a community with an HOA, review rental policies closely, as some HOAs restrict rentals or impose additional fees for rental properties.
- Tip: Work with a local real estate agent who is familiar with Utah’s rental regulations to ensure compliance and avoid potential fines.
Real-Life Example: How Future Rental Potential Paid Off for a Utah First-Time Buyer
Consider Marcus, a first-time buyer in Salt Lake City. He purchased a single-family home with an unfinished basement in a high-demand rental neighborhood. Although he didn’t initially plan to rent, Marcus spent his first year updating the basement, adding a kitchenette, and creating a separate entrance. When he decided to move for a job opportunity, he was able to rent out the entire home, with the basement generating additional income. The rental income from his former primary residence now helps fund his new home and has become a valuable income stream.
Long-Term Benefits of Buying with Rental Potential in Mind
- Increased Financial Flexibility: A home with rental potential gives you flexibility if you need extra income or decide to move, allowing you to turn your property into an asset rather than simply selling.
- Faster Equity Growth: Rental income can help pay down the mortgage faster, increasing your equity at a quicker rate and building your wealth over time.
- Pathway to Additional Investments: With steady rental income, you can save for future investments, creating a strong foundation for building a real estate portfolio.
Final Thoughts
For Utah’s first-time buyers, choosing a home with rental potential opens up options and financial opportunities beyond traditional homeownership. By focusing on ADUs, high-demand areas, or multi-family properties, you position yourself to benefit from rental income, increased equity, and greater flexibility for future plans. With the right property, your first home can become both a place to live and a source of income that supports your long-term financial goals.
Ready to start your journey? Schedule a strategy call to discuss your Utah real estate goals and options.
