Renting out a room in your house is sometimes favorable to leasing the entire property.
It offers more flexibility for your own private use of the other rooms, and renting multiple rooms can often be more profitable than renting the whole house under one lease.
People who live in shared households are an increasing bunch. In 2012, some 22 million households had this arrangement, and of those, 9.7 million were young adults living in someone else’s house.
Lots of homeowners find themselves with an extra room or two on their hands that they never use.
Renting one out might be the solution to some extra cash. However, please check your state and local county laws to ensure compliance with housing, license, and fee requirements.
Here are six tips you need to know before you start marketing your room.
1. Prepare the House
If you’ve ever had kids, you probably know about baby proofing – painstakingly going through every room to ensure you took all the right safety measures to keep your little one from harm.
You need to go through your house just as thoroughly, “renter proofing it”, before you consider even showing it to strangers to ensure the safety of your belongings.
- Put keyed deadbolts on each bedroom door (use SmartKey locks)
- Remove self-locking door knobs to prevent lockouts
- Put that diamond tennis bracelet in a fireproof safe.
- Fix anything that needs a little TLC. If you have to hit the microwave on the side to get it to start, it’s time to buy a new microwave.
You then need to decide which room or rooms you’ll rent.
You can get more money if the room has its own bathroom. You might consider renting the master bedroom and taking a smaller bedroom for yourself. A basement setup with a kitchen can be even more lucrative since it provides more privacy than a shared level.
2. Figure Out What to Charge
Look at the ads on Craigslist, or sign up for a service such as Roommates.com or EasyRoommate. This should give you a ballpark figure on what you can expect to get based on your ZIP code and type of room you’re offering.
Any money you receive is taxable income. The good news is that you now have deductions and can claim expenses – at least for the portion of the property that is being used as a rental. For example, new carpet in the renter’s bedroom is a deductible expense, but new carpet for the entire house is not.
A tax expert (or TurboTax) can help you with this.
3. Determine your Non-Negotiables
Be honest with yourself. If you can’t tolerate a smoker or a party-prone college student, say so in your ad. If you want someone who can stay for at least six months, indicate that, too. You’ll save yourself a lot of time that way.
Otherwise, you’ll be tempted to accept a smoker/pet/whatever, because you didn’t set clear boundaries for yourself.
If you live within walking distance to restaurants, have access to a pool, live near a college, allow pets or have any other perks, list them in your ad.
Don’t forget to post amazing photos. If you don’t, many people will bypass your listing.
4. Use your Intuition, but Don’t Discriminate
Think about what you want to ask a potential renter in your initial conversation. We provide a screening checklist in The Landlord’s Guide to Tenant Screening, which will help you evaluate each candidate fairly.
Find out what each applicant’s situation is and look for holes in their story. If the applicant says he or she works or claims to be a student, ask to see proof, such as pay stubs or proof of college enrollment.
Also, make sure you not only ask for references, and contact information for previous landlords, but call them too.
Above all, make sure you provide an equal housing opportunity, and avoid discrimination (and the appearance thereof).
5. Verify with a Credit Check
If the interview and reference checks go well, run a credit check. Cozy makes it super easy and quick to check tenant credit. It’s free for landlords too.
With Cozy, you’ll get a report from Experian, and based on what the report says, you’ll be able to decide whether the candidate will make a good renter for you. The report will automatically be paid for by, and shared with the tenant, so it doesn’t cost you anything.
6. Use a Written Rental Agreement
Make a written lease instead of an oral arrangement. Everyone remembers a verbal agreement differently and it is tough to prove in court.
When creating a written lease, remember to specify the following attributes, in which both you and your tenant will sign to:
- How much the rent will be
- The date the money is due
- Whether the renter will pay utilities, and if so, which ones or what percentage
- How you will handle food, fridge space, laundry, common areas
- Any other concerns you have (cleaning, parking, quiet time, etc.)
Once you start covering a good percentage of your mortgage from having a tenant in your home, you might wonder what took you so long to start doing this.