9 Things To Think About Before Renting Out A Room
It seems like renting out a room is a very common idea for a homeowner to generate a little extra income. So popular has this idea these days that you might even suspect that it’s deeply rooted in some folklore.
In many ways, and from many angles, this looks like a logical way to squeeze out a little more money for monthly expenses. It would at least cover the grocery bills and even the utility bills.
But it is never always that straight forward with real estate. And the question remains… is renting out a room right for you?
Here are some questions you need to ask yourself before proceeding with renting out a room.
1) Is it even legal?
It could surprise some homeowners to learn that zoning codes in certain areas only allow for single-family residences.
This effectively means that if you are to rent out a vacant room, there will be 2 families in the house. Rendering your operations illegal.
If no regulations exist in your area that prevents you from converting your home to a “rooming house”, there’s something else you should take note of.
Property developments like condominiums and townhouses usually have homeowners associations that basically run the place. They set standards and rules for occupants in the estate. This also means that they often have the power and influence to “punish” homeowners who run afoul of the rules agreed upon by the community.
If you live in a condominium, and the stipulated rules restricts you from housing a lodger, you definitely don’t want to run the risk of going against the rules.
You neighbors could start being less neighborly altogether if you break the rules of occupancy.
2) Is there even enough space to rent?
Tenants who are willing to live in a rental room usually have 3 main living criteria:
- Space for single or twin bed
- Adequate storage space
- Even better if there is a bathroom attached to the room
You might be creating a basement suite or an extra room in the attic. Just remember to keep the living area humane for someone to live in.
3) How much can you realistically rent for?
You might think that an extra $400 a month would sure come in handy when you are already working extra shifts just to make ends meet.
But can your room realistically rent out at the price you assume is market rate?
Real estate agents will always paint a pretty picture early on so that they can get their foot in the door. Reality can bite sooner than you think. This is assuming that an agent would be willing to take on your business in the first place.
If you do find an expat student willing to rent a room for $200, you also have to consider where all the trouble is worth it for a measly $200 a month.
Don’t just look at the quantitative factors. Do analyze the qualitative factors too.
4) Will it complicate your tax filing?
Are tax deductions that you are eligible for. If there is, activating those rebates can be more complicated than you think.
Tax planning can be a huge challenge to many homeowners. When in doubt, do check out with a qualified CPA to get more information.
Ignoring this side of taxes is just plain silly.
If you are renting out a room for financial gains, then please go all out and maximize these gains. No point just getting things half done.
5) What’s the real reason you are bringing in a lodger?
The obvious reason to even think about this is for rental income.
But the world is a funny place. And it’s not a surprise to find yourself leaning towards renting out a room for reasons other than for financial gains.
Do you feel lonely? Do you want a tenant to do certain tasks in the house?
If the reason that you are going this route is not purely financial, do reconsider your decision. Lodgers bring certain problems on top of just inconvenience.
Don’t be motivated to undertake such an operation unless you need to do it for the money.
Privacy and peace of mind can be priceless compared to rental.
6) Who would rent from you?
By knowing who you are targeting, you can tailor make the room to suit their profiles.
Students for example might like brighter colors, wireless connections, single beds, TV sets, etc.
By knowing your audience, you already have the battle half-won.
7) Is there children at home?
Surely you don’t want any situations where your children are at home alone with a non-family member?
8) Are you ready to do housekeeping?
When you allow a tenant into your house, you immediately have more responsibilities on your shoulders. And you cannot fault them for having these expectations.
Cleaning for example, is implicitly expected by tenants. They would legitimately expect a clean and hygienic living environment.
Be prepared to make housekeeping to be at least a weekly affair.
9) What insurance do you need?
When you enter this industry, you open yourself to a number of potential liabilities.
If you think real estate is too easy… liability risks is the counter-balance that give the investment parity.
Imagine being sued for $10,000 just because you thought renting out a room for $400 a month is a good idea financially. And this is just because your tenant slipped on the soapy floor of the bathroom.
You’d regret the day you decided to rent out a room when tenant when you run into critical problems where tenants have little issues with making you pay.
In the end…
With the many inconveniences that come with renting out a room to a lodger, many homeowner ultimately still go ahead due to financial reasons. Just note that if the amount of income you expect to generate will not make a material impact on life, what’s the point?