Rental rooms started as a trend, but they’ve become a need within the real estate industry. Many house-hunting apps now offer the “individual room” search filter to make finding a room for rent even easier.
Whether renters don’t yet have the money, they’re trying to save, or they’re living somewhere temporarily and not ready to settle, rental rooms can be a solution you may be able to provide.
So, how can you capitalize on this trend? Those with extra space looking to make a few extra dollars (raise your hand if that’s you!) might consider marketing a spare room. And all you need now is to know how to make it happen and bring in that additional income.
Making the Decision to Rent Out Space in Your Home
Choosing to rent out a room in your home isn’t an easy decision. Sure, when you think about it financially, it seems like a no-brainer, but there are a few more things to consider beyond, Would you like to make a few extra dollars? Some issues to consider:
1) Do you like living with other people?
When there’s someone else living in your space, everything changes. You could share a bathroom, kitchen, living room, and more. Even if you have an entirely different rental area with a separate entrance for tenants, you’ll still notice less privacy.
2) Do you have the extra space?
Do you have the room to accommodate someone else? If you don’t have an extra room free of your personal belongings, it doesn’t matter if you have the best personality for the job or need the extra cash—renting space isn’t an option.
3) Is it legal where you live?
We’ll dive into landlord responsibilities a little further in this post, but laws vary, and before you get someone moved into your home, you need to ensure you’re not breaking any laws.
Check with your zoning laws, occupancy laws, and your Homeowners Association to start. There are laws to prevent too many people from living in one place. But two people to a bedroom is a good rule of thumb.
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Preparing Your Home for Tenants
Make space.
Are there empty rooms or rooms that serve no functional purpose in your home? Chances are, the space would benefit you more as a rental than sitting empty. The more space you have, especially a room with a private bath, the more money you can potentially make.
Renter-proof it.
Before renting out your property, it’s crucial to assess it thoroughly. Take a critical look at the space to ensure it's secure and appealing.
- Install proper locks.
- Remove self-locking doorknobs (to prevent lockouts).
- Secure high-value items.
- Make minor repairs.
Determine a fair rental rate.
Look at comparable listings in the area and keep square footage and amenities like parking, bathroom, kitchen, and laundry access in mind. Know the local BAH if you intend to rent to military members. Your listing will likely appeal to single service members who either don’t need a whole house, are trying to save money, or are geo-bachelors living away from family temporarily.
Consider including utilities in the rent.
No one wants to argue about who's using more electricity or taking longer showers. Include a buffer in the rental price to ensure that utilities are covered. If usage increases, discuss increasing rent to accommodate the usage and move on.
Keep an open mind about payment timing.
Being flexible and matching your potential tenant's paydays is marketable and reduces your risk in the arrangement. For example, charge weekly rent for tenants paid weekly, bi-monthly for bi-monthly paydays, and monthly for monthly.
Selecting a Tenant
Advertise your room for rent.
Advertise your space on MilitaryByOwner if you're marketing to military members. We do our best to ensure that your listing reaches the military members and families moving to your duty station.
Screen applicants.
As with any potential tenant, require a completed rental application, verify income, run a background check, and call references. But, since you’re renting out a room in your home and this isn’t an average rental property, you’ll also want to talk in person to ensure they're a good fit.
Need help with the legal side of renting? Check out our partner US Legal Forms, where you can find rental applications and more.
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Understand the Fair Housing Act (FHA).
The Fair Housing Act protects buyers and renters from discriminatory practices during real estate transactions, including securing financing. It ensures that a landlord can’t overlook an applicant based on race, military, familial status, and more.
Create a contract.
Bottom line: get everything in writing. As with any rental, you risk the integrity of your property when renting out a room. While it’s unlikely for major issues to arise since you’re present, you do assume risk. None of us want to think about anything going wrong, but getting the details like lease terms, rules, due dates, and penalties in writing will help protect you.
What happens if the tenant doesn’t pay? Or the tenant loses their job but doesn’t want to move out. The best thing you can do to avoid an escalating problem is to include penalties in the contract. It’s okay to let them know that if they fail to pay rent, they will be evicted and potentially sued for back rent.
Setting Boundaries
Communicating boundaries in early interactions is one of the best things to avoid frustrations in your landlord/tenant relationship. Aside from establishing ground rules for space, there are a handful of other items to address.
Pets
Do you have pets? Do they? Maybe a fish is okay, but will you allow dogs? Pets often mean more noise and more mess. So, clarity of rules is crucial. For example, if you expect them to pick up waste in the yard immediately, don’t allow digging, and want pets crated while the tenant is away, it needs to be included in the written contract.
Visitors
How social are they? Find out if they often host friends or frequently bring home dates. Are you comfortable with guests and overnight visitors? Talk about quiet hours and visiting times to verify you’re on the same page.
Common Areas
What space is available for rent? Ask yourself if you expect tenants to use the hallway bath, share the kitchen, and watch TV in the living room. What about groceries? How will you divide the kitchen? Are they free to cook anytime? Do you want to create an alternating schedule?
You may be comfortable with an open setup with flexibility or find that a regimented schedule to create firm boundaries and maintain some privacy is necessary. Whichever you’re most comfortable with needs to be communicated to potential tenants upfront. Not only are you trying to find a good fit, but they are, too.
Emotional
Aside from setting boundaries for the tenants, set some for yourself. It’s much easier with a traditional rental property to leave well enough alone. But, since your tenants will be living in your home with you, it's important to give them their space.
Their door right next to yours doesn’t permit you to enter at any time. State laws vary, but most require you to give the tenant twenty-four hours' notice before entering the rental space. So even though it may seem like a less formal agreement (it will when you see them grabbing a snack at 2 a.m. in their bathrobe), it’s your job to keep it professional.
Understanding Legalities
As with all rental properties, you must ensure your rental property is habitable. The laws may flex by state, but there are a few things you should follow regardless of location.
Structural Safety
Since it's your primary residence, verifying that common areas, hallways, and staircases are safe and clean shouldn't be difficult.
Fire Safety
Building codes determine the proper window dimensions that are safe for a bedroom. Assuming your home is up to code, you shouldn't need to do much. However, you should verify the space is compliant before posting the room for rent.
Security
While you’d think a double deadbolt lock would suffice, some cities require specific locks for rental room properties. It's essential to consult local laws to ensure compliancy.
Plumbing
The tenant must have access to running water, both hot and cold.
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Tax Implications
All income is taxable. The money you make from a rental room is no exception. However, there are a few things in mind to help maximize your deductions and cut you a break come tax season.
In the article, Tax Issues When Renting Out a Room in Your House, Stephen Fishman shares that,
"If you rent out a room in your home, the tax rules apply to you in the same way as they do for landlords who rent out entire properties. This means you get to deduct the expenses arising from your rental activity. There is one big difference however: You must divide certain expenses between the part of the property you rent out and the part you live in, just as though you actually had two separate pieces of property."
Expenses must be properly divided include:
- Mortgage interest
- Repairs for your entire home
- Improvements for your entire home
- Homeowners’ insurance
- Utilities
- House cleaning or gardening services
- Trash removal
- Snow removal
- Security system cost
- Condominium association fees
You can divide these expenses using a couple of different methods:
- By square footage
- By the number of rooms
However, you may qualify for the 20% Pass-Through Deduction that Stephen also shares:
"Started in 2018 (and scheduled to last through 2025) pass-through business owners—that is, owners of any business other than a regular C corporation—may deduct up to 20% of their net business income from their income taxes (less if taxable income exceeds certain levels). Renting a room to short-term guests can qualify as a business, especially if you earn a profit each year. Thus, if you own and operate your room rental activity as an individual (or tenant in common) or through an LLC or partnership, you may qualify for this valuable deduction."
Keep records of any purchases you make and consult a tax professional for any questions.
Renting out a room in your home can be a fantastic opportunity to create passive income while helping fill a need for people in your community. Just be sure that before you dive into landlord and roommate status, you understand exactly what you’re getting into. Consider your personality, space, and goals before making this exciting step a reality.
When you’re ready, use MilitaryByOwner to get your room in front of potential tenants. As always, contact us if you have any questions or concerns. We’re here to help!
