Should you rent out your basement? (© Ivan Hunter/Getty Images)

© Ivan Hunter/Getty Images

As we now know all too well, many Americans are struggling to make their mortgage payments, while others are in desperate need of affordable housing. Enter the so-called mother-in-law apartment, which can fix both issues: Homeowners can fetch extra cash and in the process provide decent, below-market rentals.

"For someone who has surplus space in their house it's the most cost-effective way to get added income," says Patrick Hare, the owner of Hare Planning and a leading expert on "accessory dwelling units" — aka the in-law apartment, granny apartment, guest cottage or carriage house.

While reactions to this type of rental can vary widely by community, it has for the most part risen above its undeserved reputation as the neighborhood bad seed, proponents say, and will only grow more popular as suburban baby boomers age.

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"We have a lot of one- and two-person households," says Arthur Sullivan, permit manager for A Regional Coalition for Housing, a government partnership in Washington state focused on developing affordable housing opportunities. "The housing doesn't fit the profile of the households."

Elderly couples, divorced single parents, young, new homebuyers — how are they to afford and maintain the large houses we've designed? Accessory apartments are the answer, advocates say. They can provide:

  • Income: In-law units typically rent a bit below other apartments on the market but can still cover much of the mortgage. Hare, who also is a longtime landlord, and his wife covered their entire mortgage by renting out the lower half of their Washington, D.C., house.
  • Child care: Also known as an “au pair apartment,” it can be rented in exchange for baby-sitting services.
  • Health care:  The same applies to nursing care, an increasingly popular option given the high costs of health care facilities combined with an aging population.
  • Maintenance: Develop a rent deduction for hours worked and you've got an on-site helper.
  • House- and pet-sitting: Even in strict cash-rental arrangements, homeowners say they appreciate having a reliable person to call on to watch their house and animals.

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When you install a rental unit, Hare says, "You're setting up a sort of social shock-absorber system, so when families need it, they can use it."

Communities, meanwhile, can continue to thrive by drawing on a diverse, vibrant population. "This is a way to take neighborhoods and help keep them viable," Sullivan says.

Unfortunately, not all communities are as open-minded about rentals. As the housing market has made it increasingly tough to sell and homeowners look at renting out their unsold houses, some homeowners associations have started banning rentals.

Still, most people today probably live in neighborhoods that do allow them, Hare says. But the tensions make it more important to add one of these rental units properly. Here's how:

First, make it legal
Installing a rental apartment involves quite a bit more than punching out a basement door and buying a stovetop, unfortunately.

But you can start, experts say, by asking the following questions:

1. Is an accessory dwelling even allowed in my neighborhood?
The first piece of advice from experts: If you're interested in building a rental unit, go by the book. If you don't, repercussions can include fines, lost rent and potential issues with your lender. (Read more on the ramifications of illegal apartments here.)

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Even if your actual mother-in-law moves into the in-law apartment, and even if she pays only with baby-sitting services, you have still, by law, created a multifamily building, says Janet Portman, a housing lawyer and author of "Every Landlord's Legal Guide." "You need to find out first if your neighborhood is zoned to allow multifamilies."

Some neighborhoods allow units only for relatives. Others restrict the number, location or size and dictate parking requirements. All can affect whether a renovation is feasible.

One recommendation: Hire a design contractor who can check the city codes and provide a cost estimate for a legal renovation to fit your needs. Using a licensed contractor is the best way to assure that any installations will meet code and receive a certificate of occupancy, says Michael Hydeck, the third vice president of the National Association of the Remodeling Industry.

"The first thing we have to do is abide by local laws," says Hydeck, who also is a certified remodeler with Hydeck Design Build in Pennsylvania. (A Regional Coalition for Housing also provides a homeowners manual on “accessory dwelling units.”)