By: Adam Willis, President, Nestwell Group LLC
The short answer: Rent splitting means turning one Utah property into two or more rental income streams, usually with a basement apartment (ADU) or by renting rooms individually. It can improve cash flow, but only when the unit is legal, the split rents are realistic for that street, and the added expenses are accounted for. At Nestwell, we generally prefer permitted, self-contained units with long-term leases over room-by-room rentals. Every owner’s goals are different, though, so this guide lays out the trade-offs so you can decide what fits yours.
What “Rent Splitting” Means
In Utah, rent splitting usually takes one of three forms:
- Internal ADU (basement or mother-in-law apartment). A self-contained unit inside the home, with its own kitchen, bathroom, and entrance.
- Detached ADU. A separate structure on the lot, such as a converted garage or backyard cottage.
- Rent-by-the-room. Individual leases for bedrooms in a shared home.
All three can produce more total rent than a single-family lease. They carry very different levels of legal risk, tenant friction, and management work.
Why It’s Getting So Much Attention in Utah
Utah’s housing costs have made homeownership harder to reach, which keeps demand for rentals strong. Many owners are also looking for ways to offset higher mortgage payments.
[DATA SLOT: Kem C. Gardner Policy Institute. The original draft cited single-family asking rents up 8.5%, townhomes up 8.3%, and apartments down 2.3% across Salt Lake, Davis, Utah, Weber, and Washington counties. Confirm the exact report title, year, and link before using. If confirmed, present it as a simple table.]
[DATA SLOT: Median single-family home price and share of renters priced out of ownership. Cite Gardner Institute or the Utah Association of REALTORS®, with the year.]
If the divergence between single-family and apartment rents holds up in the source data, it points to something useful for owners: renters are still paying for space, privacy, and a yard. A well-built basement apartment competes more with a new one-bedroom apartment than with a single-family home. That matters for how you price it.
Start With the Street, Not the Metro
Online rent estimates usually pull a county or metro average. For a split property, that number can be misleading. Rents in Utah shift noticeably from one ZIP code to the next, driven by:
- Proximity to universities (University of Utah, BYU, UVU)
- Commute corridors like Lehi and Draper
- The age of the housing stock
- New apartment supply nearby
[DATA SLOT: U.S. Census ACS Table B25064 (Median Gross Rent) for 4–5 contrasting ZIP codes in Salt Lake County, with the ACS year noted.]
If rents vary that much across one county, the listing’s “$[X] for the basement” needs to be checked against comparable units on that street.
[DATA SLOT: U.S. Census ACS Table B25064 (Median Gross Rent) for 4–5 contrasting ZIP codes in Salt Lake County, with the ACS year noted.]
If rents vary that much across one county, the listing’s “$[X] for the basement” needs to be checked against comparable units on that street.
The Five Underwriting Realities
1. Legality determines whether the income is real
Utah’s 2021 law (HB 82) made internal ADUs a permitted use in many residential zones. It’s built around owner-occupied primary residences, though, and cities can still set conditions.
For investors who don’t live in the property, the rules can be very different. And an unpermitted unit may not count for financing, may create insurance problems, and may have to be shut down.
Before you offer: Ask for permits. Confirm the unit’s status with the city. “It’s been rented for years” is not a legal status.
2. Split rents don’t simply add up
The upstairs unit usually rents for less once it shares walls, parking, and sometimes laundry. The basement unit often rents below a comparable above-ground apartment. The real question is whether the two rents together beat the whole-home rent by enough to justify the extra work.
3. Your lender may not count all of it
Fannie Mae, Freddie Mac, and FHA have each updated how ADU rental income can be used to qualify, with conditions and limits. Lenders also commonly apply a vacancy factor to projected rent.
If the deal only works at full projected rent, your margin for error is thin.
4. Expenses change when tenants double
Plan for:
- Utilities. Often owner-paid or split unless the units are separately metered.
- Turnover. Two units means two move-outs, two cleanings, and two vacancy periods.
- Maintenance. Two households put more wear on shared systems like the furnace and water heater.
- Licensing and insurance. Some cities license each unit, and your policy may need to change.
- Property tax. Utah’s primary residential exemption can apply to long-term rentals that serve as a tenant’s primary residence. Confirm with your county assessor how each unit is treated and whether a declaration is required.
5. Two tenants under one roof take more management
Tenants in a split property interact: noise, parking, shared yards, and shared utilities. Each unit also carries its own habitability obligations under Utah’s Fit Premises Act. [Utah Code Title 57, Chapter 22.] Rent-by-the-room adds individual leases, roommate conflicts, and more frequent turnover.
How Nestwell Looks at Split Properties
We’ve managed Utah rentals since 1980, and experience has shaped a few clear preferences. These aren’t the only way to invest. They’re the standards we’ve found protect owners’ income and tenant relationships over time.
What we prefer to see before we take on a split property:
- A permitted, licensed secondary unit. Documentation from the city, not just a seller’s word.
- A self-contained layout. Separate entrance, kitchen, and bathroom for each unit.
- Fair, documented utility handling. Separate meters, or a clear utility arrangement written into each lease.
- Long-term leases. We generally favor 12-month leases over room-by-room arrangements.
- Adequate parking for both households, especially where the city requires it.
- A realistic rent premium. The split should clearly beat whole-home rent after added expenses, not just on paper.
Why we’re cautious about rent-by-the-room: It can produce strong gross rent. In our experience, the turnover, shared-space disputes, and occupancy rules in many Utah cities often eat into that advantage. Some owners make it work well, particularly near universities, with the right setup and hands-on management. We just want owners to go in with clear eyes.
Which Path Fits You?
There’s no single right answer. Here’s how the options compare:
| Keep as Single-Family | Legal ADU / Basement Unit | Rent-by-the-Room | |
|---|---|---|---|
| Income potential | Baseline | Moderately higher | Highest gross, most variable |
| Upfront cost | Lowest | Moderate to high if converting | Low to moderate |
| Legal complexity | Lowest | Moderate; depends on city | Highest; occupancy limits apply |
| Management effort | Lowest | Moderate | High |
| Tenant stability | Typically highest | Good with long-term leases | Typically lowest |
| Often a fit if you… | Want simplicity and steady returns | Have a permitted unit and want added income | Are near a university and can manage actively |
Questions to weigh for yourself:
- How much hands-on involvement do you want?
- Is the added income worth the added risk and work for you?
- Would the conversion cost pay back within your planned hold period?
- Do you plan to live in the property, now or later?
Test Any Split Deal Yourself
| Step | Calculation | Your Number |
|---|---|---|
| A. Whole-home rent | Local single-family comps | $_____ |
| B. Upper unit rent | Comps for shared-wall units | $_____ |
| C. Lower unit rent | Comps for basement units | $_____ |
| D. Gross split premium | (B + C) − A | $_____ |
| E. Added monthly expenses | Utilities, maintenance, licensing | $_____ |
| F. Added turnover/vacancy (monthly avg.) | Two units instead of one | $_____ |
| G. Net split premium | D − E − F | $_____ |
| H. Conversion or legalization cost | Permits, egress, kitchen, separation | $_____ |
| I. Payback period (months) | H ÷ G | _____ |
How to read it: If G is small or negative, the split adds work without adding much value. If I is longer than you plan to own the property, the next owner may capture most of the benefit.
Key Takeaways
- Legality comes first. An unpermitted unit may not count for financing, insurance, or resale.
- Price by the street. County averages can hide big rent differences between nearby ZIP codes.
- Split rents rarely add up neatly. Compare the combined rent to whole-home rent after added expenses.
- Expenses and management change. Budget for utilities, turnover, and more tenant coordination.
- Choose what fits your goals. Nestwell prefers permitted, self-contained units with long-term leases, but the right choice depends on your situation.
Frequently Asked Questions
Can I rent out my basement apartment in Utah?
Often, yes. Utah’s 2021 ADU law made internal ADUs a permitted use in many residential zones, mainly for owner-occupied homes. Cities can still set conditions like owner occupancy or parking, so check your city’s rules first.
Is rent-by-the-room legal in Utah?
It depends on the city. Many Utah cities limit the number of unrelated occupants in single-family zones, and enforcement is often stricter near universities.
Is rent control legal in Utah?
No. Utah state law prohibits cities and counties from enacting rent control. Rent is governed by the lease and market conditions, and owners still need to follow notice requirements when changing rent.
Does a basement apartment increase my property’s value?
It can, if the unit is legal and comparable sales support it. Appraisers need comps with similar units, which can be limited in some neighborhoods.
Should I hire a property manager for a split property?
It depends on how involved you want to be. Split properties typically require more coordination than a single-family rental, so it’s worth comparing your time against the cost of professional management.
Considering a Split? Get a Second Opinion First
Converting a property or buying one that’s already split is a big decision. If you’d like a local perspective, we’re happy to walk through your property with you: what it might rent for as a single-family home versus a split, what to confirm with your city, and whether it fits the standards we look for.
[Talk Through Your Property With Nestwell →]
