First-Timer Primer: Obtaining a Basic Business License For Your Rental

• June 17, 2014
• 20 Comments

by UrbanTurf Staff

This article is being re-published with updated links at the request of a number of UrbanTurf readers. It was originally published in April 2013.

Being a landlord in DC involves a bit of paperwork, including obtaining a Basic Business License (BBL). Whether you are renting out your English basement, a condo or a four-unit apartment building, you will need to get a BBL.

The process differs depending on how many units you are renting out (single-family rentals, two-family rentals and an apartment with three or more units) but the basic steps remain the same. All potential landlords should check the zoning map to make sure they are compliant with current zoning regulations and don’t owe more than $100 to the District of Columbia. Once those things have been cleared, here is the process:

1. Most, but not all, categories require a Certificate of Occupancy, which can be obtained from DCRA.

2. Register your business with the Office of Tax and Revenue. This can be done here.

3. Fill out the Basic Business License online.

4. Register to get a housing inspection to make sure the unit(s) is up to code. Though your BBL is in hand at this point, if you don’t get an inspection within 45 days, it may be revoked.

5. Next, you must file with the Department of Housing and Community Development (DCHCD), either to register as a rent-controlled unit or to ask for an exemption.

Here’s where UrbanTurf discovered one of the most interesting parts of the process: in part 7 of the application, DCHCD asks applicants to report the rate of return for the housing accommodation. Knowing the rate of return on the property helps determine a fair rent for the unit. DC wants to make sure that any increases in rent are not generating more than a 12 percent rate of return.DCHCD references a formula that can be used to determine this, which can be found here.

So, what is meant by rate of return? Here is the formula that is used to determine that number:

Take the maximum possible rental income in a given year, and subtract the following: the annual mortgage principal payments, maintenance costs, management fees (if applicable), taxes, depreciation as seen in tax assessments, interest payments, and a few other smaller costs (again, click here to see the comprehensive formula).
Take the resulting number — the net income — and divide it by the equity of your home. This determines the rate of return.

As a hypothetical example, say someone is renting out their Dupont Circle condo at a rate of $3,000 a month or $36,000 a year. Assuming monthly expenses for the unit of $2,000/month (or $24,000 a year), their yearly net income is $12,000. If they have $200,000 in equity in the home, their rate of return ($12,000/$200,000) is 6 percent. If they only had $100,000 in equity, the rate of return would be 12 percent. If they charge $3,500 per month ($42,000 per year) and have $200,000 in equity, their net income jumps to $18,000 per year and the rate of return is 9 percent.

6. Once all these forms are submitted and your inspection is complete, congratulations! You have a legitimate rental unit in the eyes of the District of Columbia.

Similar Posts:

• First-Timer Primer: A Condo Fee Tutorial
• First-Timer Primer: Interest Rates and Mortgage Points
• First Timer Primer: The Splitting the Rent Formula
• First Timer Primer: Tax Relief for DC Homeowners
• First Timer Primer: How Do Mortgage Payments Work?
• First Timer Primer: How Much Cash Do You Need to Buy a House?
• First-Timer Primer: The Mortgage Pre-Approval Process
• How a $100 Mistake Can Sink Your Credit Score

This article originally published at http://dc.urbanturf.com/articles/blog/how_to_get_a_basic_business_license_and_calculate_a_fair_rent/6961

20 Comments

1. A Homeowner said at 7:19 pm on Tuesday April 23, 2013:
   Do you have any information as to what the inspection people are looking for to bring the place up to code?

1. Seth Rogers said at 7:27 pm on Tuesday April 23, 2013:
   I have a single 1br condo and need to do this as I have had renters for a few months. Should I expect a penalty or fine? I had no idea this had to be done.

1. Shilpi Paul said at 8:00 pm on Tuesday April 23, 2013:
   Hi Seth Rogers, We'd recommend getting one quickly. I just reached out to DCRA, who gave us this response: "If we find an unlicensed landlord, we issue warning to them to apply for license ASAP. If they ignore, we issue $2k fine." Hope that helps! Shilpi

1. saladman8283 said at 9:46 pm on Tuesday April 23, 2013:
   We obtained a license without too much difficulty. The one hitch was that the inspector said the house had a code violation because of inadequate ground fault interrupter sockets. He was wrong, his supervisor came by and noted the error and gave us a "pass."

1. Billy said at 9:56 pm on Tuesday April 23, 2013:
   For those who need to get all the paperwork submitted and don't want the hassle of dealing with DC gov't, RentJiffy will take care of submitting all paperwork for you for a price of $300. Your responsibility is to fillout the paperwork and send to them along with meeting the inspector. I used them and it was a pretty seamless process as long as you fill the paperwork out correctly. Only issue was RentJiffy is it is hard to get in touch with them, besides email, when I had a few questions about the paperwork.

1. Jacob said at 10:30 pm on Tuesday April 23, 2013:
   second the rentjiffy recommendation.

1. Chris said at 3:12 pm on Wednesday April 24, 2013:
   QUESTION: Does anyone know whether and how this would apply to someone renting out a room in the house? I am a homeowner that has rented out rooms in the past as a roommate situation (i.e. not a separate apartment). Do I need a landlord license to do this?

1. The Editors said at 3:18 pm on Wednesday April 24, 2013:
   Chris, The comments in this article from a couple years ago will answer your question: http://urb.tf/17ifNNk The Editors

1. A said at 4:06 pm on Wednesday April 24, 2013:
   I was also happy with rentjiffy. As for being up to code, had an inspection recently and the focus seems to be on things that could be a fire hazard. There did not seem to be any "gotcha" approach to it, but just looking to ensure a safe environment. Several items were pointed out that required repair, the inspector came back again in about a month or two, signed off on the repairs, and soon thereafter DC sent documentation of passing inspection. The inspection is, I believe, good for 5 years.

1. Jonathan (RentJiffy) said at 4:12 pm on Wednesday April 24, 2013:
   Chris, The comments I made in the prior article which the Editors gave reference to have changed. The city does require you to have a One Family Rental Property License if you are renting a room in your property. If you are looking to rent out to more than 4 separate people then you will need a Certificate of Occupancy and license as a Rooming House. I would recommend shying away from this as this is a change of use which requires zoning and neighborhood approval. I have seen many customers get into nightmare situations when trying to do this. Also make sure you are renting out the room for at least 90 days. As of this writing, DC is saying less than 90 days is considered transient housing and may require you to pay a 14% daily tax (hotel tax basically). I hope this helps answer your question. Jonathan

1. Jonathan (RentJiffy) said at 4:15 pm on Wednesday April 24, 2013:
   First, I'd like to say thank you to our former clients who have so graciously endorsed us. I really appreciate it. We're a small company and promise an easy process but I will admit phone can sometimes be a little difficult if we are getting slammed. Leave a voicemail and we are happy to get back to you. Of course you can email us as well. One slight correction I wanted to make is that we charge $399 for condos, coops and single family homes as opposed to $300. If you have questions relating to the process we are always happy to answer. Our website is www.rentjiffy.com.

1. Chris said at 8:35 pm on Wednesday April 24, 2013:
   Jonathan, Thanks a lot for your reply. You've definitely found a great niche market for your service and I am definitely consdering it! Anyway, it's interesting you mention the requirement for housing tenants at least 90 days to avoid paying the hotel tax considering the proliferation of DC homeowners (and renters, no doubt) offering up rooms or basement apartments on Air BnB. There are hundreds of these places, and I doubt any are licensed, or even paying taxes (hotel or income) on the profits. Are you aware of cases where DCRA has levied fines for offering short term housing on Air Bnb, and do you think the District might be cracking down on this at some point?

1. Jonathan said at 6:03 pm on Friday April 26, 2013:
   Chris, AirBnB is new for the District and is having its own set of obstacles much like Uber if you're aware of that situation. While I am unaware of DCRA levying fines specifically for this I can say they have levied $2000 fines for many landlords who have been found to be renting without a license in general. On the other hand, Tax and Revenue would be the one to assess penalities and interest or bring charges against an owner who is not paying taxes. Not collecting the hotel tax would certainly be their jurisdiction and not DCRA. As you might imagine thats a little more difficult to determine what Tax and Revenue has or has not done. I do know you are going to see a lot more about AriBNB landlords over the course of the next few months. There is one neighborhood up in arms over a rental which is causing a backlash for several owners I am aware of. I hope this helps to answer your questions. If not feel free to reach out to us directly.

1. Emilie Fairbanks said at 4:28 pm on Sunday April 28, 2013:
   There are much more serious things that can happen than a $2000 fine if you fail to register your property. If you have a lease agreement it becomes essentially uninforceable because to issue a thirty day notice for lease violations in DC you need it to be filed with the Rent Administrator. If you aren't licensed they will reject your notice and you won't be able to use it as a basis for eviction. As an L&T lawyer in DC I see this all the time and once you have a conflict with the tenant it's extremely hard to get them to cooperate with the necessary inspections to get the licencing done. Please also remember when renting out your property "short term" in DC that unless you are a hotel, you are a landlord. The courts use a variety of factors to determine who is a tenant but a DC tenant can remain in your property indefinitely unless they stop paying rent or violate the lease. The end of a lease is not a valid reason to evict a tenant in DC. AirBnB has been my nightmare for a while and I know other lawyers who have clients trying to evict AirBnB tenants.

1. david said at 8:26 pm on Monday April 29, 2013:
   Yes, true Emilie Fairbanks... If you don't have a BBL, you just can't put them out. They can go to the courts, whom may very well side with the tenant, and the tenant can get away with out paying for months. Our grandmother's house in Petworth NW (Missouri/Ga ave) NW DC had a woman, along with her sons, grandchildren etc, renting the house since our grandmother's passing in 1985. My father(deceased 1997) and his niece owned the house which passed on to me, my brother and my father's son from a previous marriage, after my father's passing. My cousin, his niece, still 50% owner. The house always used a property mgmt service, around, 2008 or 2009, and after being notified of the condition of the house, trash up to the ceiling, roaches, rats in basement, along with a notice of lead, which the woman's grandson tested some %, we were scared to death. We didn't have a BBL and was told of how hard it is to evict someone out of your rented house. But my cousin convinced her that we need to get the trash out, fumigate and also do lead abatement which was true; she didn't want to move since her grandchildren attended school close by. My cousin offered $2000.00 when she vacated the house and if she agreed not to move back in. Also, the tenant has first dibs on the house if it goes on the market; but the tenant would still have to be able to afford the house, which we knew she couldn't, if she wanted to purchase. We had the house fixed up and sold it 2011. That was a close call for us.

1. hma said at 6:42 pm on Monday July 15, 2013:
   Does anyone know how to determine the "monthly expenses" of a english basement apartment? I own and live in the house above and rent out the basement.

1. Ferit said at 5:16 am on Monday September 30, 2013:
   Question: I live in a big house with 4 other people. I believe the landlord doesn't have any licence at all. One of our neighbor called the city and complained. An inspector came by and questioned me. It's been a few months and yesterday the neighbor told my roommate "The city figured out there are too many people living in the house and you guys will get evicted" is this possible? We might get evicted really?

1. Robb said at 9:26 pm on Wednesday April 30, 2014:
   This is excellent information, I'm looking to rent my condo in DC ASAP. But unfortunately all the links here are outdated. Do you have current information for these links?

1. Jamie said at 6:08 pm on Monday September 29, 2014:
   I recently obtained a BBL online for a single-family rental through DCRA's web site and am confused if I need to do anything else. I was issued a BBL via email. I scheduled & passed the inspection. Do I need to still fill out a RAD form, or was this done as part of the process online? The fees I paid online included the fee for this, and there was no indication during the process that I needed to do anything else, and indeed I have a license that was sent via email. There seems to be no one source of truth about what needs to be done here; there are some places that say DCHD will transmit something to DCRA when you fill out the RAD which results in your license being issued, but I already have my license. The form say to include a fee, but I already paid it. I certainly don't want to make a trip to Anacostia if I don't need to. It seems like some of the information may predate the online process which results in automatic issuance of the BBL.

1. Lark Turner said at 6:53 pm on Monday September 29, 2014:
   Hi Jamie, Thanks for writing in. Your best resource is probably going to be DCRA, because the number and type of required permits can vary. I'd recommend giving them a call at (202) 442-4400. Lark