Is it Worth Renting Out a Spare Room or Guest Wing this Holiday?
If you’re a homeowner, dealing with a mortgage can be seriously intimidating – not to mention expensive. With that in mind, it’s no wonder that many homeowners look into renting out their spare guest bedroom as a way to save money.
However, there are tons of variables to take into account before going down this route. For example, are you planning on offering up the room or space long-term? Do you have enough bathrooms to support a tenant? How will you vet your potential tenants? Is it legal to rent where you live? These are just a few of the questions you’ll need to know the answer to before renting out a room.
Below, we’ll give you our guide to renting out part of your house and tips to find the right, responsible tenant:
Know your local renting laws
Before you post an ad for an open space in your home, it’s important to make sure it’s legal to rent in your area. Some areas may have different requirements regarding outside access, for example. To find out the answers to these questions, call up your local housing authority.
Make sure you have insurance that approves it
Another essential part of your renting process is ensuring that your homeowner’s insurance policy will cover your rented room. In some cases, your insurer may increase the rate you pay for insurance, so be sure to ask before you rent.
Pick the space in your house you’re renting
The main component to keep in mind when you choose a room to rent is privacy. Ideally, you will choose a space in your home that allows both you and you tenant adequate privacy.
Figure out rent and where to post your listing
It’s very important you do your research for this step. Check out Craigslist to get an example of a fair market rate for the room you want to rent. Then, you need to make sure you place your ad on a variety of listing sites to cast the widest net.
Comply with all laws
As you go through the process of reviewing applicants, you need to adhere to all laws. One very important law is the Fair Housing Act (FHA) which prevents landlords and property managers from discriminating against applications based on race, religion, physical disability, sex or race.
Screen your tenants
A tenant background check is essential if you’re going to rent part of your home to a stranger. Not only could this protect you from living with a bad egg, it will also inform you of the applicant’s general financial responsibility. Beyond what a thorough background check can tell you, here are some screening questions you should ask potential tenants:
- Where are you living now?
- How long do you want to rent?
- When do you want to move in?
- Why are you moving?
- Where do you work and how long have you been there?
- Will anyone be living with you?
- Do you smoke?
- Do you have any pets?
- Have you ever been evicted?
- Do you have landlord references?
The questions above are a good starting point – remember to be careful about phrasing these questions so they can’t be used against you as an FHA violation.
Claim the rental income on your taxes
Whatever you make from your rental is taxable. The amount you pay in taxes on your rental income will depend on your marginal tax rate.
Create ground rules and a lease
Create a lease agreement that lays out the expectations you have for your new tenant when it comes to living in your home. For example, does your new tenant have free use of the kitchen? Are they expected to help clean the common areas? After all, a person can only follow the rules if he or she knows them in the first place. You may want to consider hiring a lawyer who can either draft the lease or look it over to make sure that it’s legally sound.
Keep your valuables hidden and secured
While it’s natural to look for the best in everyone, it’s crucial to tuck away your valuables in a safe when your new tenant moves in. Until they prove themselves to be trustworthy, be careful with what you leave out.
While saving on your mortgage sounds like a great idea, make sure you know what you’re getting into! Use this list as your guide and you’ll be on your way to a lucrative rental side hustle.