Is Renting Out a Room in Your Home the Right Decision?

In the current economic climate, many people are looking for ways to make money quickly. There is a huge demand for both short and long term rental accommodation at the moment and renting out a room in your home may seem like a logical decision. But, there are some considerations and potential pitfalls to understand before you take the plunge. In this article, we will go into more detail to help you make a choice that’s right for you. 

Short Term or Long Term Room Rentals?

With the popularity of Airbnb and similar platforms it’s natural that some homeowners might favor a short term rental over the alternative. A short term rental is easier to set up for renters that are starting out with property management. The room may be profitable to rent if you happen to live near a popular tourist attraction. But, contrary to popular belief, people can be very picky about where they choose to stay and there’s a lot of competition. So, it’s likely that some upgrading may be required to bring the room up to a standard that people are prepared to pay to stay in. This could be some simple home decoration or it could be appliance upgrades and/or new furniture. The best upgrades will bring in new visitors and encourage them to leave a positive review. 

This all sounds great, but the turnover is high and to keep everything to a high standard to keep the short term bookings coming in can be a significant challenge. Everything must run smoothly and the income is seasonal which can be a drawback for some. For these reasons, some homeowners prefer long term rentals because they get a regular monthly income stream. After the initial screening and cleaning, it’s up to the renter to keep the room clean and tidy. But, this brings new potential problems, there are likely to be common areas to share, such as the kitchen, laundry room, outdoor spaces, storage areas and more. The renter will be a stranger until you get to know them and some people are harder to live with than others. But, if you’re pretty easy going and you choose the right renter, you may even enjoy renting and feel bad when they finally move out!

The Pros and Cons of Room Renting

Once you’ve made the big decision between short-term and long-term renting there are several pros and cons to carefully consider. They are:

Pros:

• Supplemental Income: If you have a room that you’re not using it makes good financial sense to rent it out to offset the mortgage costs and monthly expenses. 

• Flexibility: if you’ve set your sights on short-term renters it’s relatively easy to make extra money and maintain some privacy when nearby attractions are closed for the season. 

• Property Management Experience: If you’re considering property management as a side gig or a new career this can be a great way to learn about the process.

• Tax Deductions: Depending on the specific rules and regulations for where you live you may be surprised to learn that you can qualify for tax deductions.

Cons:

• Potential Conflicts: If you have a long-term tenant you will need to have clear guidance on how you deal with late rental payments, contract problems and other issues.

• Tenant Screening Protocols: It’s important to use these protocols to ensure that you’re not letting an unsafe person into your home.

• Monthly Bills: These need to be shared with your renter, the monthly bills will rise when an extra person is living in your home.

• Legal Restrictions: The rental contract should include restrictions on how and when you can enter the rented room to ensure that the renter has privacy.

• Taxable Rental Income: Funds need to be set aside to cover the taxable rental income to ensure that it’s paid on time.

• Privacy: Renting a room out is not a good idea if you’re a very private person and you like your own space. This can be equally true for short-term and long-term rentals depending on the layout of your home. 

How Do I Rent Out a Room?

If you’re not deterred by the potential pitfalls and you’re ready to rent a room here are three tips to make the process easier:

1.Make the Room Ready for Tenants

The room must be habitable, as a landlord you are subject to the “Implied Warranty of Habitability” which states that the room is fit for human habitation when the tenancy begins. There is a requirement to keep the property in a fit and habitable state for the entire duration of the rental agreement or tenant lease. Carefully consider the immediate changes that may be required and any continuing maintenance to meet these requirements. Some maintenance tasks are easy and others may require some professional help and that drives up the costs. As a landlord, you need to understand the financial burden to cover upgrades and emergency repairs.

2.Set the Correct Rent Price

Research how much you should be charging for a room in your home to secure a rental income. If the rental price is too high, it’s unlikely that you will get your ideal tenant and people are prepared to search for fair and affordable rentals. Consider the average income of the tenant that you want to attract and use Rentometer.com to find average rental prices. Alternatively, you can check Roommates.com, Craigslist and other sites for “Rooms to Rent” in your area to help you set your rental price.

3.Understand the Landlord Laws

If m don’t understand the landlord laws, you could place yourself at risk with tenant litigation. There are federal HUD guidelines concerning tenant applicants, you cannot refuse to rent based on the following sex, race, religion, familial status, ethnic background, national origin and mental or physical disability. There are local laws to consider which can vary a great deal depending on where you live. Look into how you should qualify or deny rental applicants to protect yourself from potential tenant issues in the future. If you’re unsure, seek legal counsel from a local real estate lawyer. They will help you to navigate the local, state and federal regulations to ensure that you’re compliant.