Editor’s Note: This story originally appeared on Point2.
If you’re a homeowner looking to earn a little extra income to help pay off your mortgage, you may have considered renting out a room in your house. In the right circumstances, it can be a great solution.
You just have to make sure you go about it legally and efficiently.
With that in mind, let’s look at the steps to successfully renting out a room in your home.
What You Need to Know About Renting Out a Room in Your House
When you rent out a room in your home, you will essentially become a landlord, and whoever moves into your room will be your tenant.
The process is similar to renting out an entire unit, though your tenant will most likely be sharing facilities such as the bathroom and kitchen with you. This can feel similar to having a roommate, but the relationship is quite different. As such, renting out a room in your home should always be treated as a professional decision.
The pros:
- Extra source of income
- Prevents wasted space from falling into disrepair.
- You may qualify for tax deductions.
- Flexible lease terms
The cons:
- Strict penalties for not complying with local regulations and laws
- Less privacy
- Risk of conflict
- It requires time and effort.
If, after weighing up the pros and cons, you’ve decided to rent out a room in your house, here are the essential steps you need to ensure success.
1. Understand Local Landlord-Tenant Laws
Before you get started, it’s essential that you get to grips with your local laws and regulations, bearing in mind that different areas will have different rules.
The laws will impact various aspects of the landlord-tenant relationship, from the vetting process to collecting rent to declaring earnings.
Now is also a good time to check that your mortgage lender will allow you to rent out a room in the first place.
2. Check If You Need Landlord Insurance
Another thing to check before you start searching for tenants is whether your current home insurance will cover you if you rent out a room.
In some cases, you may be required to take out a separate landlord insurance policy. This offers more comprehensive coverage that deals with issues that could arise from leasing your space, such as damage to your property, loss of income, or lawsuits.
3. Prepare the Space
Whether you’re renting out a spare bedroom or an entire annex, the space must be properly prepared for your future tenant.
At the very least, you’ll need to carry out a deep clean, but you may also wish to renovate the room so it’s fresh for the tenant. At this point, think about whether you’ll rent out the space furnished or not.
Finally, make sure the room offers full privacy, with a lockable door and good access to shared spaces.
4. Figure Out How Much to Charge
Before you market your room, you need to decide on a fair yet competitive rent price. Striking the right balance is essential. Too high, and you’ll struggle to attract renters; too low, and you’re leaving money on the table.
Working with a real estate agent can help here; otherwise, look at comparable listings in our area to get an idea of how much to charge.
5. Set Your Vetting Criteria
With any rental, it’s important to screen potential tenants to ensure you choose reliable renters who won’t miss payments and will treat your property with respect.
However, it’s even more important to think about your screening criteria when you’re going to be sharing the house with them.
As long as you abide by your local laws and regulations, you can screen tenants any way you wish to find someone you’d be comfortable living with.
6. Market Your Room
The more information you give on your listing, the better. Include plenty of photos and make it clear that the rental is for a room in a shared house. Talk about the local neighborhood amenities as well as the facilities on offer in your home.
When you’ve created an ad, post it to a multiple listing site for the best reach.
7. Screen Your Applicants
Once the applications start rolling in, use your vetting criteria from before to screen them, filtering out those who aren’t a good fit. Make a short list of potential tenants and carry out credit checks.
You can also get more comprehensive reports that detail an applicant’s rental history, criminal background, and past evictions.
8. Meet With Successful Applicants
Since you’ll be living with the successful applicant, it’s important to meet with them before you agree to give them the space. This is a good chance to show them around the property, so make sure it’s clean and welcoming and be prepared to answer any questions they might have.
While you’re showing them around, it’s also a good idea to go over the ground rules.
9. Draw up a Lease Agreement
Once you’ve chosen your tenant, you’ll need to create a room rental lease agreement. This legally binding document details the rights and responsibilities of both the landlord and the tenant and is designed to protect both parties.
It should detail all the important information, such as:
- Lease duration
- Security deposit amount
- Rent price
- Late policy
- Maintenance policies
- Utilities (whether they’re included in the rent or how they’re calculated if they’re separate)
- House rules (shared spaces, quiet times, etc.)
- Any pet policies
You can download templates online, but your lease agreement can also be tailored to your individual needs.
10. Keep on Top of Your Accounts
Track your income and expenses and keep any important paperwork safe. You’ll likely need to declare any income earned from renting a room in your house, but you may also qualify for tax deductions for certain expenses.
If in doubt, work with a professional to ensure all your accounts are above board.
Renting out a room in your home is a great chance to earn some extra income and put any empty spaces to good use. It’s a particularly effective solution for empty-nesters who suddenly find they have several rooms sitting empty.
