Renting a room out in your home can be a profitable and often fun way to earn some extra cash. You can rent out multiple rooms in your home and actually make a pretty interesting profit provided you get the right tenants.
Renting a room is fast becoming one of the most common forms of leasing as tenants find it harder to afford the sky high rents demanded in some cities and so have to look to rent rooms rather than whole properties. If you are a landlord with a spare room or two, why not use the extra space and start earning a little on top of your salary every month.
Renting a spare room to a lodger can have lots of benefits, beyond simply earning a little extra cash. In this section I aim to look at some of the positives you will experience by renting out space in your home.
Being able to earn flexibly is something that a lot of people are looking for and being able to earn money from your home certainly eases some of the financial worries that modern day society can give us.
If you earn a modest salary in your professional life being able to top up your earnings by renting out spare space at your property seems like a pretty great idea. It also gives you the benefit of being able to charge what you feel is a fair price for the space.
Use a local website such as Gumtree or Craigslist to help you get an idea of the value of rooms in your area and aim towards the figures it suggests. You can also of course use these platforms to market your space too.
Pay Off Mortgage Quicker
You may choose to have your lodger’s rent cover your mortgage payments which is obviously a great bonus. However it is becoming more and more common for owners to continue to pay their mortgage as they were, but add the lodger’s rent onto their mortgage payments every month.
If you have a mortgage that won’t hit you with early repayment charges this is a really good way to pay off your loan quicker than you may have been able to without the lodger.
Having an additional person or people at your property helps massively with security. If you are someone who is away a lot or works long hours which means that your home is left unattended for large portions of the day having a lodger can help you keep the place secure.
Having additional people at home or coming and going frequently can give you added peace of mind and in some instances can even lead to lower insurance premiums; which is a benefit that most people don’t even consider.
From a pure profitability point of view renting properties on a room by room basis is significantly more profitable than renting out an entire space. If you live in a three bedroom property and rent out each room for $650 per month you will find that your earnings far outweigh what a similar two bedroom property in your area would earn.
An example would be that the average two bedroom place renting at $1,100 per month would rent room by room for between $600 to $700 per room, topping you out at potentially $1,400 per month. So you can see that renting rooms separately can be very lucrative.
As you can see there are a number of potential benefits, but there are of course some negatives that you have to consider. These negatives may make renting to a lodger something you are not keen to consider or they may be fairly minor issues to you and may make you push ahead with your plan.
You may have only lived alone before or have only lived with friends or family and will find living with a stranger stressful. Of course this can be tricky and you will have to get to know each other and understand how to behaviour to make the living environment a happy one for both of you.
Of course the flipside to this is that meeting new people and potentially making new friends through your lodger is a nice caveat to living with someone you don’t know. This is particularly true if you are moving to a new area or city as your lodger may be able to expose you to more people than you may normally have had the chance to meet.
Behaviour Can Cause Issues
Living with a lodger that is constantly noisy, messy or causing problems can be tricky. They will be in your home when you have guests and family to visit and also you will be there when their friends come by. This may unfortunately coincide with times that you are unwell or are trying to focus on work, etc. and having your lodger’s friends stop by may cause you no end of problems.
It is important that you work out a way to live fairly together. You have to understand that there are risks with allowing someone into your home. They may be noisy, may smoke, have lots of gatherings or carry out criminal activities that you simply cannot stand for.
So, remember that it pays to learn a little bit about your potential lodger is advance of them moving into the property. Try to carry out some background checks and get a sense of their character so that you can feel confident that you are compatible as housemates.
Non-Payment of Rent
This can be particularly stressful as unlike a tenant of a private property that doesn’t pay rent it is fairly likely that you will be seeing your lodger everyday and them not paying rent or missing rental payments can put a massive strain on your relationship.
It pays to be firm but fair with lodgers and ensure they understand that whilst you may get on well and may have a fun as friends you are also their landlord and as such expect rent to be paid on time. If you are firm about the issue as soon as it arises you will be able to avoid any further issues in the future.
When deciding whether to rent out your spare space or not it is important that you check the rules and regulations that your city imposes on lodgers and their landlords. Most areas will have rules that mean your property must meet minimum health and safety requirements and some areas even go so far as to make landlords of lodgers apply for special licenses.
There may be requirements relating to fire safety and even a fee when applying for these licenses, so make sure that you do your research and understand if anything is required of you before allowing a lodger to move in. The potential fines for non-compliance can be hefty so do make sure you do what is necessary.
Tips and Tricks
As with renting an entire property there are some tips and tricks that you may find helpful when planning to rent out a room at your property. In this section we will look at some of the things that you should consider doing to make the process a smooth one.
Ready the Space
You will need to do some checks on the property yourself and ensure that any faults or issues are taken care of. The last thing you want is a strained relationship with your new lodger because the TV doesn’t work properly or there is an issue with the toilet leaking. Have a thorough check of your property and be honest with yourself, if you would put up with it that’s fine but it is unlikely that your new lodger will.
Add locks to bedroom doors. You will need to be able to lock away your belongings and will have to provide your lodgers with the same luxury. Anyone you rent to has the right to privacy and giving them the ability to lock their room when they go out will give them the peace of mind in knowing that you or any of your guests can’t gain access to their personal belongings.
Decide Which Room to Give Up
Have a think about which rooms within your home you are happy to rent out. You may wish to lease out all of your spare rooms to maximise your income or would prefer to lease out one of your rooms and keep one for your own use as an office or home gym for instance.
It pays to think of the value of the room at this time as you may wish to allow the lodger the master bedroom with ensuite thus affording you the ability to charge a higher rate.
Use local spare room websites to gain an idea of the achievable rates of rent in your area and then decide how you want to go about dividing up the space. Think carefully and once you are sure it may be a smart idea to use the same websites to market your room for rent.
When posting your advert it pays to understand what you want from a lodger. Are you looking for someone more settled who will be staying longer term or are you happy to rent weekly or daily on airbnb type websites.
Also, think if there is anything you cannot accept. Maybe you are not happy to take a smoker or somebody that has a pet. Make a note of this in your advert and do not deviate.
Being honest with yourself will avoid you wasting your time and anybody else’s and will also ensure that your advert is seen by the type of tenants you are hoping to attract.
It is a good idea to carry out thorough background checks on any lodger. You can pay a referencing company to do this for you or can carry out a simple credit check yourself.
If you are planning to do this yourself, my advice would be to also speak with any previous landlords your lodger may have as well as any previous housemates. This will give you an idea of their character and what type of lodger they may become.
The credit check will also help you make a logical decision as to whether to accept them or not as credit reports are often good indicators of a potential tenants attitudes towards paying rent or credit on time.
This may not be a full rental, but having some paperwork in place is a must. A tenancy agreement gives you something to fall back on when disputes arise and it shows your lodger that you are taking the rental seriously and expect them to do likewise.
You can download simple agreements online and are able to amend them yourself to factor in your tenant’s details, etc. Do the right thing and handle the process professionally and you will see your lodger do the same.
In my opinion renting a room in your home is both a great financial benefit and can add a benefit to your life in the form of meeting new people, gaining additional security and help with bills, etc.
Do your research and understand what you need to do to comply with any rules and regulations in your area and aim to meet a number of potential lodgers so that you can get an idea of what type of individual you would like to live with.
Carry out background checks and put a tenancy agreement in place and I am fairly confident that you will find the process to be both financially and personally rewarding.