Guest Suites in Multifamily Housing: HUD Compliance and Opportunities Beyond

The inclusion of guest suites in multifamily housing is gaining momentum as both a desirable resident amenity and a potential revenue stream. However, for operators of HUD/FHA-backed projects, staying compliant with regulations is critical. HUD Notice 2018-10 offers clear guidelines on what is and isn’t permitted. At the same time, the very existence of these restrictions suggests a growing interest in guest suites—and their recognized value. This post explores compliance requirements and highlights the untapped opportunities for non-HUD/FHA projects.

HUD/FHA Compliance for Guest Suites: What You Need to Know

HUD Notice 2018-10 provides vital guidance on the inclusion of guest suites in multifamily assets insured or held by HUD under the National Housing Act. To maintain compliance, operators must adhere to the following restrictions:

• No Short-Term Use: Guest suites must not be rented for less than 30 days to avoid resembling transient or hotel accommodations.

• No Revenue Generation: Operators are prohibited from charging rent for guest suites. The only allowable fee is a one-time cleaning charge, strictly limited to cost.

• Exclusive Use for Residents' Guests: Guest suites must be reserved for residents’ invited guests and cannot be made available to the general public.

• Documented Policies: Projects must establish clear policies for the use of guest suites, ensuring they align with HUD regulations and serve the community appropriately.

By following these guidelines, HUD/FHA-backed operators can enhance resident satisfaction without jeopardizing compliance.

The Untapped Potential for Non-HUD/FHA Projects

For non-HUD/FHA multifamily assets, guest suites represent an exciting opportunity to innovate and enhance profitability. The fact that HUD deemed it necessary to release a notice on this topic reflects the growing demand for guest suites in multifamily communities. Moreover, HUD's own acknowledgment of their role in increasing marketability underscores their value.

Guest suites can:

• Generate Revenue: By offering guest suites for short-term stays at competitive rates, operators can create a lucrative income stream.

• Enhance Resident Experience: Residents appreciate the convenience of having comfortable accommodations for visiting friends and family.

• Boost Asset Value: Amenities like guest suites improve the overall appeal of a property, making it more competitive in the rental market.

The Bottom Line

For HUD/FHA-backed projects, guest suites must be thoughtfully implemented to stay within compliance. However, for developers and management companies operating in the non-HUD/FHA space, guest suites offer a unique way to differentiate properties, enhance the resident experience, and drive profitability. By embracing this trend, non-HUD projects can unlock the full potential of this sought-after amenity.