Let me start out by clarifying that this is not a how-to for putting a room on sites like Airbnb. This is intended to be a guide for homeowners, not renters, who are considering the idea of renting out a room in their home to generate income. Alrighty, then. Lets move on.
Homeowners often find themselves with an extra room in their home and like the idea of renting it out. It can be an easy way to help pay off the mortgage, cover a childs college tuition, or fund a vacation.
Additionally, renting multiple rooms in a home can be more profitable than renting the entire property under one lease. In fact, the number of shared households increased to more than 22 million in 2012. And of those, 9.7 million were young adults renting a room from the homeowner.
If you think youre ready to rent out a room in your home, consider the following steps for making it happen. But first, check with your city/county/state to make sure youll comply with local laws and housing requirements.
Related: Landlord-Tenant Laws in Your State
Step One: Prepare the Property
Before you even think about inviting a stranger into your home for a showing, start by renter-proofing it. Go through your home, garage, and outdoor spaces and make the following preparations to ensure the safety of your prospective tenants and your belongings.
- Have deadbolts installed on each bedroom door
- Repair or replace anything that is damaged or broken, like old appliances, a loose stair step or railing, dilapidated fence, etc.
- Store jewelry and other valuables in a safe or other secure location
- Clear out any and all personal items or knick-knacks from the room to rent
Step Two: Figure Out What to Charge
You probably already have an idea of which room you would rent out, but consider this: Youll get a lot more applications and be able to charge more rent if the room has its own bathroom even more if it has its own entrance.
So, you may want to consider renting the master bedroom and moving into the smaller vacant bedroom. A basement setup with a kitchen and/or bathroom can also be lucrative, but even more so if you move downstairs and leave the entire main floor(s) for the renter.
Once you finalized the space to rent, check out the listings on Craigslist or Zillow. Similar rooms for rent in your zip code should give you a ballpark figure for what you can reasonably charge.
Side note: The rent money you collect is taxable income, which means you can now claim expenses and deductions for the part of the property that is being rented. For example, if you install new flooring throughout the house, including the renters dwelling, you can only claim the expenses for the renters flooring.
Related: Top 10 Tax Deductions for Landlords
Step Three: Create a listing
Before you begin interviewing applicants, take a moment and be honest with yourself about what you want and dont want. If you dont want smokers or pets, mention that they need not apply. If youre looking for someone who can stay for a specific period of time, note that in your ad as well. This can save you a lot of screening time.
Be sure to list the necessary details, like the rental fee, which utilities are included, whether or not theres parking, and when the room will available. Dont forget to include your contact info. You might want to create a separate email or phone number for contacts in this regard.
Next, describe some your homes desirable features. If youre walking distance from shops and restaurants, have access to a gym or pool, live near schools, allow pets or offer any other perks, include them in your listing.
Its also critical to upload photos of the home and room for rent. If you dont, most renters wont even read your headline.
Related: 15 Things to Include in Your For Rent Ad
Step Four: Trust Your Gut, But Dont Discriminate
As you interview each applicant, find out what you can about their situation and look for any holes in their story. If they say they work in a local coffee shop, ask to see a pay stub. If they say theyre a student, ask for proof of enrollment. Ask for references and call them.
If you get a good feeling from the person and everything checks out, run a credit check. Based on the report, you should be able to decide if theyll be a good fit.
Above all else, its imperative that you provide an equal housing opportunity, and avoid even the inkling of discrimination.
Related: 8 Common Fair Housing Mistakes
Step Five: Use a Written Rental Agreement
Its a much safer to have a written lease or rental agreement instead of an oral arrangement with your renter. People tend to remember different things and that makes disputes more difficult to handle in court. Your written rental agreement should specify the following terms, which you and your tenant will agree to:
- The rental amount
- The day rent is due
- Which utilities, or percentages thereof, each party is responsible for
- How shared spaces and appliances shall be used
- Other pertinent concerns like parking, cleaning, and quiet times
When the cash starts rolling in and you begin to reach your goals, youll be suggesting that all your friends start renting out rooms in their homes too. Real estate can be addicting, too! Dont be surprised if this is the start of a very lucrative endeavor.