Renting out a room or garage in your house is a traditional method of making extra money. Allowing people to rent a room is a fast way to add several hundred dollars to your budget. However, it's important to do your homework first.
1The Pros and Cons of Renting Out Your Room or Garage
Additional Income - Clearly the biggest benefit of renting out your unused space is that it can add additional income to your monthly budget.
The Company - Another benefit is just having another person in the house. This is especially true for people who live alone, but prefer to be surrounded by people.
Tax Breaks - You will also get generous tax breaks when you rent out a portion of your home.
Extra Security - Having an additional person in the house makes you less attractive to criminals who may be thinking about breaking into your home.
The Cons - Lack of Privacy - Of course the loss of privacy is the biggest drawback to renting out a room in your home. You will have to be more discrete and you will also have to adjust to sharing some of the amenities like the kitchen, laundry room, etc. Your renter will also likely bring friends home occasionally that you will have to deal with.
2What To Consider Before You Decide to Rent Out a Room
Make a List
If you are undecided about whether or not it is a good idea to rent out a room in your home, make a list of the pros and cons. This is a great way to get a clear understanding of the changes you will have to adjust to. The additional income will be great, but only if you really understand what you are getting into.
Check Your Insurance
You should also check with your insurance company to determine if your policy covers a housemate or tenant so that your new renter will know whether to get an insurance policy that protects their belongings.
Learn About Taxes
There are also tax issues that come with rental income. You should consult a tax expert to make sure you are aware of how the rental will influence your taxes the following year.
Decide On Your Rental Amount
Determining the rental price is an important factor. To do this you should research on the normal rates within your neighborhood to establish the base rental price of apartments. From there you should consider the amenities you are providing such as room size, separate kitchen or wash rooms and then add or deduct those costs from the base price.
Decide How to Document Financial Records
The other consideration is to determine how you will maintain accurate financial documents. This is especially important for the tax deductions for rental property and also to avert conflicts over rent with the tenant.
The best case is to sign a lease (see below), make sure that both people have signed it, and have copies of the lease. Any adjustments to the terms should be updated and re-signed by both parties so there can be no misunderstanding.
It is also a good idea to keep a ledger showing all the payments received from the tenant as well as any expenses you incur as the landlord (for tax purposes).
3Finding a Tenant
The next stop is to determine how to find a tenant. You can advertise in the local newspaper, put up a notice in the local drug stores, etc. One of the better places these days to find a potential tenant is to place an ad on Craigslist. Your ad should be very specific about what areas of your home will be available to them and what areas will be off limits.
You should also describe your ideal housemate. For example, if your home is quiet and you want it to stay that way, that should be in your ad.
Important: Once you have a potential tenant, you should carefully screen him/her to establish his/her background. The most popular option is to do an online background check. You will allow this person to live in your home and you should take every precaution possible to ensure that you will be able to trust them.
4Renting Other Areas Of Your Home
If you don't want to rent out a room in your home, there are other areas of your home that can still be rented out to provide additional income.
These are some other popular options:
- Garage or parking space
- Renting your car
- Storage space
- Recreational vehicles
5What to Include in a Legal Contract
Even though renting a room is different than renting an entire home or apartment, you should still have a signed lease agreement. This will include specifying the rights and obligations of the tenant and the landlord. It should also include the following:
- Payment amount, schedule and method
- What utilities are covered
- Notice required for termination of the agreement by either party
- Late payment amount if the rent is late
- Shared areas of the home
- House rules
- Rules about overnight visitors
- Pets
What Do You Think?
Have you thought about renting a room in your home? Do you have any tips to offer others who have done this?
