Buying home for relative? You'll need license to 'rent'

  • Article by: NICOLE TOMMERDAHL , Star Tribune
  • Updated: September 22, 2009 - 8:45 AM
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Not a 'rentEr’ but … Ben Burrows lives in a house owned by his father. The house is paid off, and he doesn’t pay rent, but the city changed the rules for “relative homesteading,” and now his father, Clint, will have to pay for a rental license and get regular inspections of the house. “That’s really a bunch of silliness,” said Clint Burrow, who said his son maintains the house.

Photo: Marlin Levison, Star Tribune

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When Clint Burrow bought a home near Lake Nokomis in 1997, he never dreamed he would need a license for it.

Burrow and his wife bought it for their son, Ben, who has lived there ever since. It's been a good deal for all three. The mortgage is paid off, and Ben doesn't pay rent. It's a benefit for the Burrows because they split their time between Minneapolis and Jacksonville, Fla., and Ben can look after their property, four doors away, when they're not in town.

But that good deal is going to cost them something. After hearing concerns from neighborhoods around the University of Minnesota, the city has decided that the Burrows and 770 other Minneapolis homeowners like them will have to pay $65 a year for rental licenses. Now the city is hearing from unhappy property owners.

"It really isn't the money," Burrow said. "To me, it's more the process they're going through."

What the Burrows do is called relative homesteading: allowing a family member to live in a second home. Previously, homeowners could avoid registering their relative homesteaded properties as rental properties through a special exemption. But recently the city decided to change its policy.

Inspections District Supervisor Vu Tran said the new license is a response to a 2008 change in state law that requires homesteaded properties to be registered with the city if the owner or an occupant "receives compensation for allowing occupancy of any part of that property."

The statute is vague, Tran said, so the Inspections Department decided to require all single-family relative homesteaded properties to get licensed. Duplexes, triplexes and condominiums are not included. Properties had to be licensed by April 16 or face a fine.

The move isn't a money-maker. The licenses will generate only about $50,000 a year for the city. The goal is to increase safety by increasing inspections, Tran said.

"People view it as an inconvenience," he said. "In the long run [inspections are] going to improve the housing stock of Minneapolis even more."

Student housing problems

The interest in inspections stems from a surge of relative homestead properties near the university. Students were "driving the neighbors nuts," Tran said.

About 140 properties in three of the neighborhoods surrounding campus, are registered that way. Many were purchased by the parents of university students.

Relative homesteading is being used at the university in a way it was never intended, said State Rep. Phyllis Kahn, DFL-Minneapolis.

A son or daughter living in a home owned -- but not occupied -- by their parents fits the definition of a relative homestead. But when friends or other students are paying rent to live there, it's more like a rental property -- without the rental license and inspections.

Unlike most rental properties, a relative homestead property also gets a break on property taxes. A $100,000 single-family home with a homestead exemption would owe about $1,200 in property taxes, but a duplex or apartment building of the same value would pay roughly $1,800 per year.

"We wanted to make sure they were regulated so we had the ability to check and see if they were being used inappropriately," Kahn said.

Overcrowded properties are a big problem around campus, said Kris Nelson, neighborhood programs director for the university's Center for Urban and Regional Affairs. After the student graduates Nelson said, the property tends to be sold for rental property, which often deteriorates. "It really erodes homeownership and doesn't serve the long-term needs of the neighborhood," Nelson said.

Not so fast, says Vicki Devore. Devore said she and her husband, Robert, have invested about $60,000 in the Southeast Como home they bought in 2008 for their daughter, Sarah, to live in while she attends the U.

They maintain the property, Devore said, and the students who live there are courteous. They plan to pay the fee and continue to own the home at least for the next few years.

"We upgraded the home substantially," she said. "[Neighbors] should feel like we upgraded their value next door."

City may revisit the issue

For Clint Burrow, the change in policy means the house where Ben lives could also receive regular inspections.

"That's really a bunch of silliness," said Clint Burrow. He said the house is in a nice neighborhood and his son maintains it.

Council Member Cam Gordon, who represents the university area, said he has received about 10 complaints about the fee from residents who aren't charging rent to family members. That's an unusually high number of complaints, he said.

He also hears complaints about student housing, so he understands the need for some kind of policy change. "It's a step in the right direction, but I think we overstepped," Gordon said.

There may be ways to iron out the "wrinkles," Gordon said, but it will take some time before everyone, including Clint, is satisfied.

"If they're really going to be ornery about this I could just drop [the relative homestead exemption] as far as I'm concerned," Clint said. "If I was renting [the house] out to someone, I would expect to do that, but that's not what I'm doing."

Nicole Tommerdahl is a University of Minnesota student on assignment for the Star Tribune.

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