Renting a Room in My House: 13 Things to Consider First
It doesn’t matter if you rent out your building, home or a space in your building or home. You are still called a Landlord no matter what.This means that you have a tenant or customer who pays you rent and you have a taxable business in the eyes of the government.
Although renting out a room in your house might seem an informal affair, this is a real business in the eyes of your tenant and the government. Contracts between tenants should be signed and permits from the government need to be acquired if required.
These are a few things you should consider when renting out a room in your house:
Note: These information were based on actual experience renting out apartments as well as several times renting rooms in homes myself.
13 Things to Consider First:
1. Why Rent a Room in Your House2. Rise of Shared Households
3. Impact on Your Social Life and Privacy
4. Laws Related to Renting a Room in My House
5. Preparing the Tenant’s Room and Your Home
6. Marketing Your Room
7. Screening a Tenant
8. Lease Agreement
9. Paying Taxes
10. College Tenants and Subletting
11. How Much Should You Charge?
12. Renting to a Relative or Friend
13. Evicting Unlawful Tenants
Final Words
The Steps:
1. Why Rent a Room in Your House?
Homeownership costs in general have always been going up not only in the US, but with the rest of the world as well.
As of April 2019, just to be able to pay their mortgage payments, 21% of US homeowners got a second job or found an additional source of income .
In countries such as Australia, China, and the US for example, rents have become so unaffordable that people literally end up sleeping in their cars and even in the streets.
While getting a second or even a third job might help home owners to pay their mortgage and everyday expenses, if they have unused rooms, why not rent them out so they have an extra source of income without having to work extra?
Or maybe you don’t need the extra money but is planning to be a real estate mogul one day. Renting your rooms might just be the experience you need to become one.
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2. Rise of Shared Households
But don’t think you’re alone, according to research from the Pew Research Center in the US, shared living has become more prevalent in the decade following the Great Recession in the US.
A shared household is defined as a household with at least one “extra adult” who is not: - The household head
- The spouse or unmarried partner of the household head
- An 18 to 24 year-old student
According to the research: as of 2017, almost 32% of the adult population lived in a shared household. Compare this to the pre-Recession numbers of 2004 where just 27% of adults shared a household.
It’s clear that in the US, almost 1/3 of households today rent out a space in their home. I have lived in Australia and the Philippines and being a landlord and renter at varying stages in my life, I can definitely say that this moneymaking activity is prevalent.
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3. Impact on Your Social Life and Privacy
While renting out your extra rooms is a good way to earn money, do consider that this is very different from renting out your complete building, apartments or homes.
This is because you have to live with your tenant which not only occupies one of your bedrooms, but your tenant would also likely have access to your living room, kitchen, bathroom and all the other facilities in your home.
In short, you would also be sharing your life and possessions with your tenant. If you are a private person or family, renting out rooms in your house might not be best for you.
You for example, might have your young children exposed to the different lifestyle of your more “mature” tenant. If you’re used to dressing in your robes when you’re in your house, you might not be able to do this when you have a tenant inside your house.
Renting out a room is similar to subletting, which happens when you are renting a place you don’t own, but rent your space to someone else. You might be the one paying the landlord, but you still have to share your social life with your tenant.
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4. Laws Related to Renting a Room in My House
There are a number of conditions that might affect whether or not you can even rent out space in your home to make extra money.
For example, the homeowner’s association in your condominium or apartment complex might have a law that forbids you from adding tenants that aren’t your family members.
There are municipalities that have restrictions on using your home’s rooms as rentals, make sure that you are compliant with the law before accepting tenants.
There are even municipalities where you might need to get an inspection completed in the room before you can rent it out.
In particular, you should check:
- Local Laws
- City Ordinances
- Zoning Laws
- State Laws
- Homeowners Association Laws
Generally, most lending companies allow you to rent out a room of your house while you have a mortgage. The rules however differ depending on your specific lending terms. Make sure you comply with the rules of your lending company.
1. If You are not Living in the Home You’re Renting Your Rooms:
Generally, renting out rooms in your home is allowed by the law as long as you’re also living in your home.
If you are not living in your home, you need to check your local laws to see if it is allowed. Many areas limit the number of families that can occupy a single home, or they require you to register it as a boarding house.
2. Your Home Insurance Terms Might Need to be Changed
In the eyes of your home insurance company, you tenant is a risk in your home. Your tenant might steal your home contents, damage or even destroy your home.
It is more than likely that your insurance company will ask a higher insurance premium from you to offset the potential risk of your tenant. They might even refuse to insure you.
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5. Preparing the Tenant’s Room and Your Home
According to the law, as a landlord, you must have a habitable living space for your tenant. You are subject to what is often referred to as the “Implied Warranty of Habitability.”
This implied law for all residential leases basically states that the premises you are providing must be fit and habitable for human habitation from the start to the end of your tenant’s stay.
This is why it is important for you to know if you can maintain the upkeep of your home for your tenant’s sake.
Being unable to do this means that you are not only breaking your contract with your tenant but is also technically breaking the law. Consider this if ever you want to be a landlord.
Your tenant should have proper heating, electricity, and plumbing to begin with. Access to the kitchen, toilet and bathroom, refrigerator, washing machine and so on is also important.
Just like you, your tenant also need privacy for themselves and security for their belongings. This means that your tenant must be able to lock their room as they please.
If you are providing a furnished room, make sure that you and your tenant agree to the inventory of the furnishings. It is suggested that you take pictures of not only the furnishings in the room you are renting out but also your entire home.
This ensures that during your tenant’s walk-in and walk-out of their tenancy, all your and your tenant’s possessions would be accounted for.
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6. Marketing Your Room
6.1 You must know the US Fair Housing Laws:Firstly, you should be aware of
The law doesn’t allow you or anyone to use discriminatory language when advertising for a tenant roommate. However, you can include your preference for the sex of your tenant in your ad.
For example, if you are a female, you can advertise for a female tenant, but you can’t include any other qualifiers in your ad.
In the US, new court rulings have opened the door to allow homeowners and tenants seeking roommates to choose based on their own personal criteria, even if it is discriminatory.
This is the same for the countries which I have lived in which is Australia and the Philippines. I won’t be surprised if homeowners from other countries are doing the same.
6.2 Listing a Room for Renting:
You can post an ad on online classified ads sites like Gumtree, Craigslist and so on. You can also try campus bulletin boards and newspapers if you’re looking for college students. You can also contact senior centers if you’re looking for mature tenants.
To get a faster response, make sure that you add the advantages that a tenant would have living in your room for rent.
For example, you can highlight the proximity of your home to transportation, campuses, local bars and other entertainment areas. If you live in a secluded area, you can highlight the relative quietness of your area.
To screen out potentially undesirable tenants, you should clearly state out your expectations regarding who your tenant should be.
However, if you’re living in the US, be very careful that you don’t break the HUD (United States Department of Housing and Urban Development) guidelines regarding choosing a tenant. It’s generally illegal to refuse to rent or sell a home to anyone based on:
- Familial status
- Mental or physical disability
- National origin or ethnic background
- Race
- Religion
- Sex
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7. Screening a Tenant
You should have an ideal tenant in mind. Maybe they’re a college student? A female? A student? A retiree? Someone with no criminal record?…
It is advisable that you try to source a tenant from friends and family because at least they would know a lot of information about the tenant. If you’re really serious about it, you can even pay for professional services that screen out your tenant for you.
If possible, ask your prospective tenant for references like their previous roommates and landlords. You could ask what its like to live with the prospective tenant. You could ask the prospective tenant’s past landlord if they pay their rent on time.
However, do remember that you need to do these background checks legally. This is the reason why you should ask permission from your prospective tenant.
Here are a few examples of what you should consider in a tenant:
- Has enough income to pay the rent
- Proven record of paying rent on time
- No past evictions
- No criminal record
- A non-smoker
- Don’t own a pet
If you do allow pets and you have a pet yourself, do consider how your pets would behave towards your tenant’s pets. Would your pet or theirs harass and even injure each other? Would one eat the other?
7.1 Conduct Preliminary Screening and Talks with Your Prospective Tenant: Send out online rental applications to your prospective tenants. This saves your prospective tenant’s time because they don’t have to apply to you personally.
Set up initial interviews, either by phone or in-person. This helps you to quickly screen out unqualified tenants which saves you a lot of time.
7.2 Verify the Basic Tenant Checks: Verify with the prospective tenant’s previous landlords if the prospective tenant pays rent on time and how they treated their previous rentals. If you can, make sure that the supposed landlords you contact are not fake.
You should also complete an employer reference check to make sure your prospective tenant is really employed. This assures you that your prospective tenant has enough income to cover rent each month and any damage they cause in your property.
7.3 Eviction Histories Tell a Lot: In the US, landlords worry about payment problems and eviction history. Past evictions may be an indicator of a troublesome tenant and many landlords are highly incentivized to avoid evictions at all costs.
In the US, up to 8% of tenants have an eviction record. US landlords are wary about expensive evictions which may cost upwards of $3,500. This why this information must be known at the onset.
7.4 Check for any Criminal History: This ensures that you and your neighbors are safe. In the US, up to 24% of prospective tenants who applied have a criminal record. With 1 in 4 prospective tenants having a criminal record, it is important this is verified upfront.
7.5 Credit Check: A full credit check allows you to know if your prospective tenant won’t renege on their rent payments after some time. This is especially important if you are using your prospective tenant’s rent payments to pay off some of your mortgage.
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8. Lease Agreement
A lease agreement establishes the condition of your landlord and tenant responsibilities with each other. While many states accept an oral rental agreement as legal and binding, it’s much smarter to put everything in writing and have both parties sign it.
Should you and your tenant have conflicts regarding the tenancy agreement, you could always use your lease agreement as a reference to negotiate with each other.
A room lease agreement should contain the specifics of your expectations of your tenant and them of you.
Here are a few things you should really include in your lease agreement besides the general lease agreement requirements:
8.1 The Length of the Lease Agreement: One year is the typical length of a lease agreement. After this, you can elect to renew, change or cancel a lease agreement.
Don’t make the mistake of tying yourself in lengthy lease agreements as your housing situation can change in an instant like needing the rental room as a room for your new child.
8.2 Laying Out Common Areas: Your tenant can expect privacy in their own room, but the shared space in your home between you and your tenant can lead to some conflict down the road if not discussed upfront.
Unless the room you are providing is complete with a kitchen, bathroom, laundry and even living room like facilities, your tenant would need access to your home’s kitchen, bathroom, laundry room and even living room.
You should also discuss if your tenant would have access to other facilities in your home like parking spaces, balcony, swimming pool, gym and so on. Make sure that your lease agreement clearly outlines which facilities are accessible to your tenant.
8.3 Utility Bills: Your tenant would definitely use your home’s utilities like electricity, gas, water, internet, movie streaming and so on. You should make sure that your tenant pays for their share of the utility bills through their rent payment.
You could opt to start by splitting the utility bill in half between you and your tenant and then later adjusting the utility bill payment sharing when you have a full grasp of your tenant’s pattern when it comes to utility consumption.
8.4 House Rules: Your lease agreement should clearly specify what are your rules regarding your tenant’s allowable noise threshold, overnight guests, pets and so on. Making these clear at the onset saves you from problems later.
Make sure you remind your tenant the moment you see them breaking your rules. A tenant might think that your rules are not really binding if you always let them get away from breaking your rules.
8.5 Rental Price and Terms, Due Date, Deposit Amount and Any Subsequent Rent Increases: This is a no brainer. You must specify the amount of rent you intent to collect regularly, how regularly it should be collected, the deposit amount and any rent increases.
You should also make sure that your tenant knows how you want to be paid rent whether it is by check, cash, or by online transaction.
You should also specify how much interest you would collect if your tenant pays their rent late and how many times they could pay rent late before you start the eviction process. The standard late rent fee is 5% but check with the laws on how high you can set it.
However, you are also responsible for following the law when it comes to official notices, maintenance service, and returning a security deposit to your tenant.
Security deposit limits are set by the law so research the laws that apply to you. When a tenant moves out, you can deduct any unpaid rent they owe and the cost of any damages they brought to their room and in your home.
8.6 How Many Tenants are Allowed and What are Their Names: If you are renting out your room to more than one person, then it is important that you set just how many tenants are allowed in the room you are renting out.
You should also jot down their names so your tenants can’t bring in more people and interchangeably use the room you are renting out.
8.7 Pet Policy: You must clearly inform your tenant if you allow them to have pets. If so, clarify if their pet would be confined to their room or would be free to roam the other areas of your home.
If you have pets, your tenant’s pet can conflict with your pet which could turn into a nasty situation. Specify also if your tenant has to pay extra if they are bringing in pets.
8.8 Move-In and Move-Out Conditions: You should specify how soon your tenant can move in and also move out. What days they can move in and move out, when should they first pay their rent and security deposit.
You should also make it clear to your tenant when they can expect to receive what’s left of their security deposit and how they would receive it: by cash, check, online transaction and so on.
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9. Paying Taxes
When you rent out a room in your home, you earn an income. This means that you have to pay tax whether you like it or not.
However, you’re entitled to claim deductions on the cost you incurred in renting out your room. If you refurbished the room you are renting out, you can claim deductions. If you replaced something in the room like a bed or carpet, you can claim these as deductions.
Here’s a tip: In the US, you’ll want to figure out the square footage of the room your renting out and what percentage it accounts for in your home.
For example, if you have a 3,000 square foot home and the room you rent out is 500 square foot, this means that the room occupies about 17% of your home’s square foot.
The fraction of the mortgage interest, utilities, or real estate taxes that is due to your tenant is 17%. These expenses are deductible as rental expenses.
Here’s a tip: if you rent out a room in your house for less than 15 days, you don’t have to pay tax as long as you use the residence as your general housing for at least 15 days yourself.
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10. College Tenants and Subletting
Annual college terms usually lasts 9 months in the US, if you intend to have college students as tenants, you might face the possibility that they intend to rent your room for only 9 months and then leave.
This is why you should set one year lease agreements and make sure that you are able to collect rent for the entire 12 months of the lease.
But there is a common practice in many towns and cities in the US where the college student tenants are allowed to sublet the room they’re renting.
But to be clear, it is still the college student tenant who is responsible for the landlord being paid the full rent amount of the 12 month lease agreement.
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11. How Much Should You Charge?
Real Estate prices tend to follow the pricing standard in a particular neighborhood, town or city. If your neighbors or any people you know in your area are also renting out their rooms, ask them how much they charge for renting out their room.
If you don’t have such neighbors or people you know of that you can ask, check real estate websites that rent out rooms and find rooms for rent that matches your own. You can then use their prices as a basis for your own pricing.
Check classified ads as well. There would be people looking for rental rooms complete with the places they want to live in and how much they intend to pay. You can use their information also when you set out your pricing.
Theoretically, you can charge as much as you want for the room you are renting out. However, there are certain areas where the law sets a price cap on just how much you can charge for the room you are renting out.
However, in most cases, the landlord and the tenant negotiate with each other regarding how much the rent price should be.
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12. Renting to a Relative or Friend
There is no law against renting out your room to a family member, relative and/or friend. However, this is generally frowned upon. Some real estate experts consider this as one of the cardinal sins of property management.
The upside is that you already know the person you are renting out your room to and you’ll generally get along well.
The downside is that rental money can get in the way of your relationship between your own family member, relative or friend.
For example, what happens if they’re late on rent payment or damages the room you are renting out and even your home? Would you be comfortable asking them for payment?
Many real estate experts advise that you’re better off renting to a stranger after a thorough screening process of them. There will be clear lines in the social and business relationship between you and your tenant.
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13. Evicting Unlawful Tenants
If you have followed the instructions before on what to include in your lease agreement, you should have no problems serving out the notice of eviction to your tenants.
By law, you cannot serve an eviction notice if you don’t have the details of your tenant details according to your lease agreement. That is why it was said before that you should also include the eviction terms in your lease agreement.
If your tenant added another tenant without consulting you, then it is wise that you evict both parties.
You should act as fast as you can before your tenants gets the idea that you are liable to permitting additional tenants even if they didn’t consult you or ask your permission.
By law, you as the landlord have the right to evict a tenant for housing unapproved tenants in the room you are renting out.
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Final Words
When you rent out a room in your house to a tenant, you are basically a landlord in the eyes of your tenant and the law.
This means that you have to pay taxes on your rent income and must maintain a habitable living condition for your tenant.
Do understand that you will be sharing your home life with your tenant and would lose a certain amount of privacy in the process. If you are a private person, it might be best if you don’t rent out any space in your house to people you hardly know.
Renting out a room in your home is a great way to earn money without having to work extra jobs. It also allows you to gain experience of what’s it like to become a landlord.
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