Renting out a room can be a lucrative business for many homeowners who might want extra cash to cover utility bills and a monthly mortgage, all without significant effort. However, there are valuable things to learn about having a fruitful room for rent business.
Pros and Cons of Renting Out a Room
Pros of Room Renting
1. Get Extra Cash
Perhaps, this is the most valuable advantage of renting out a room. You’d get a good flow of extra cash each month. That would be enough for some bills or your monthly mortgage. You can also keep the cash in your savings or investment funds.
2. Have an Extra Hand for Some Household Work
Some renters are willing to do house work. Think of mowing the lawn, cleaning the house, grocery shopping and other tasks. It can be part of their lease agreement or performed for discounted rent.
3. Have a Home Companion
A companion is another pro to having a renter when you live alone. This can be especially beneficial for seniors and people with disabilities since a home buddy can help them during emergencies.
Cons of Room Renting
1. Feeling Uncomfortable
If you aren’t careful about who you rent to, you could end up with someone who isn’t the right fit for your lifestyle. This can lead to fights and/or feeling uncomfortable in your own home. If things get bad enough, you will then have to go through the eviction process to get them out.
2. Less Space for You
Renting a room means less space to store your items, and now more are being brought in by the renter. Don’t rent a room solely for extra cash if it doesn’t make sense with how much you have and where you would put it. Also, you will be sharing a bathroom, living room, kitchen and other areas with this person. Make sure you are prepared to do so.
3. Safety Risks
There are some security risks when you let a renter stay in your home, too. Think of stolen valuables or having strangers in your house while you are away. You’ll also have to change your locks when the seller moves out.
How to Prepare When You Plan to Rent Out a Room
If you decide to rent a room, what are the steps from start to finish?
Choose a Room to Rent Out
Begin by picking a room in your home. The best real estate agent suggests a room that is an actual bedroom, or a finished basement is also a good consideration. The more spacious the room is or if it includes its own bathroom will cause the price to rise.
Prepare the Room
Make sure all lights and other necessities are working. You can furnish the space, or you can leave that to the renter. The walls and any included furniture should be clean and properly functioning.
Obey the Rules
States have laws regarding rooms for rent. You must know and follow such rules in your local area to avoid legal repercussions. Check your local zoning laws regarding rooms for rent as well.
Other rules you must follow come from any homeowners association that might govern your area. Don’t try to fly under the radar because your neighbors may report your activities to the board members and cause problems.
Consult Your Insurance Providers
The best real estate agent also reminds you not to skip this critical step. Most insurance companies have rules about rooms for rent, too. In many cases, they wave insurance claims when there is an unknown renter in a home. Communicate immediately when you take a renter so you know how or if your insurance will be affected.
Prepare a Rental Agreement
A rental agreement is an essential document that you and the renter must sign. Yes, the renter may negotiate and make changes to the contract, but the document should generally carry these details:
- Rental Charges
- Payment Schedules
- Rates for Utility Fees (Optional)
- Maintenance Responsibilities of the Renter
- Rules and Restrictions for Property Use
- Security Deposit
You can consult your realtor for some guides about drafting a rental agreement. After all, you wouldn’t want to miss anything and suffer consequences later on.
Prepare the Room for Listing
When the rental agreement is prepared, you can now find a renter. Take nice photos of the room and write out a paragraph long marketing description. Highlight the benefits of the room, the house and the area it is located. You’ll also want to mention the rent cost, utilities, and any major points in the rental agreement. Then choose listing platforms where you’ll post the room.
Do not hide anything from potential renters and be open to clarifications when they inquire.
Choose a Renter Wisely
Do not accept a renter just because they seem capable of paying the rent. You must do a background check to make sure you’re not dealing with somebody who has ill intentions or bad behavior. You should also feel confident that your personalities and lifestyles will work together well. Keep all these in mind during the interview and go with your gut.
Take Taxes in Consideration
Lastly, remember that renting out a room is a business and it gives you profit, which means you must declare it to the IRS for taxes.
On the bright side, however, such a move also helps you with tax deductions. That is because there are plenty of deductible activities from a room for rent. Think of repairs, maintenance, advertising, insurance, among others. You may even claim for a depreciation tax deduction too.
You Should Now Rent Out a Room Successfully!
Renting out a room is a fantastic idea for many homeowners and it can work for you as well. Just remember that it has a set of pros and cons for you to weigh. You wouldn’t want to stumble on unneeded headaches while earning, after all.
That is why you must follow the tips above to guide you along. Prepare your room accordingly, follow necessary rules, post your listings properly, and choose a potential renter wisely!
Featured Photo by Christopher Jolly on Unsplash