After Luke* graduated from college, he found himself with a new job and nowhere to live. He looked for a place to rent in Washington D.C.’s Capitol Hill neighborhood, which was near his new office, but the nice places were too expensive and he wasn’t willing to live in a basement studio without windows.
He started looking into getting a mortgage, which seemed easier than getting a lease (it was 2005, after all). Because of the high rents, Luke realized he could afford to buy a house, but only if he could find roommates who would help him cover his mortgage every month.
“I found my first room renter on Craigslist, and we got along great,” he remembers. “Not to mention they were paying a third of my rent every month.”
His experience with his first roommate went so well, he decided to rent out the two other empty bedrooms.
“I couldn’t believe it, but I was able to live in my own house for free,” Luke says. The equity he built in that first place led him to buy five properties over the next 10 years.
Lots of homeowners find themselves with an extra room or two they never use. Renting one out can be a good way to earn some extra cash and help pay down the mortgage.
It’s an increasingly common situation. In 2012, some 22 million households were shared households, which are defined as having at least one “additional adult.” Of those households, 9.7 million of the additional adults were age 25-34 (a demographic you should consider targeting when you advertise your room for rent).
In some cases, renting out a room in your house can be better than leasing the entire property. For one, renting one room lets you use the other rooms in your house. And renting multiple rooms can be more profitable than renting the whole house under one lease.
But before you empty out that spare bedroom, be sure to check your state laws and county laws to ensure you’re complying with all the necessary housing, license, and fee requirements.
Do these 7 things to successfully rent out a room in your house:
1. Prepare the house
If you’ve had kids, you know about baby proofing—painstakingly going through every room to make sure everything’s safe for your little one. You need to go through a similar process to get your whole house, and your rental room, ready to show to strangers.
- Put keyed deadbolts on each bedroom door. (Use SmartKey locks.)
- Remove self-locking doorknobs to prevent lockouts.
- Put that diamond tennis bracelet, and any other valuables, in a fireproof safe that’s bolted to the floor.
- Fix anything that needs a little TLC. If the microwave won’t turn on unless you hit it on the side, it’s time to buy a new one.
2. Decide which room, or rooms, you’ll rent
Is there a room you can rent that has its own bathroom? You can get more money in that case, which is what inspired Mary*.
“I rent out the best two rooms in my townhome, and I moved to the tiniest one,” she says. “I’m happy as a clam knowing I’m bringing in a large chunk of money every month.”
A basement setup with a kitchen can be even more lucrative, since it provides more privacy than a shared level.
3. Figure out what to charge
Look at ads in your area on Craigslist, or sign up for a service such as Roommates.com or EasyRoommate. These sites should give you a ballpark figure for what you should charge for rent based on your ZIP code and the type of room you’re offering.
Any money you receive is taxable income. The good news is that now you have deductions, and you can claim expenses—at least for the portion of the property that’s being used as a rental. For example, new carpet in the renter’s bedroom is a deductible expense, but new carpet for the entire house is not. A tax expert (or TurboTax) can help you with this.
4. Be specific in your advertisement
Be honest with yourself. If you can’t tolerate a smoker or a party-prone college student, say so in your ad. If you want someone who can stay for at least six months, indicate that, too. You’ll save yourself a lot of time that way. Otherwise, you’ll be tempted to accept a smoker, pet, or 1 a.m. laundry washer because you didn’t set clear boundaries.
If you live within walking distance to restaurants, have access to a pool, live near a college, allow pets, or have any other perks, list them in your ad. Don’t forget to post great photos. If you don’t, many people will skip over your listing.
5. Use your intuition, but don’t discriminate
Think about what you want to ask a potential renter in your initial conversation. You can find a good screening checklist in The Landlord’s Guide to Tenant Screening, which can help you evaluate each candidate fairly.
Find out about each applicant’s situation, and look for holes in their story. If the applicant says they work or are a student, ask to see proof, such as pay stubs or college enrollment. Also, make sure you ask for references and contact information for previous landlords—and actually take the time to call them.
Above all, make sure you provide an equal housing opportunity and avoid discrimination (and avoid actions that appear to be discriminatory).
6. Verify with a credit check
If the interview and reference checks go well, run a soft inquiry credit check. You can request a credit report and background check from a prospective tenant through Cozy, which lets tenants pay for the reports and share them with you.
Based on what the reports say, you’ll have the info you need to decide if the candidate will be a good renter for you.
7. Use a written rental agreement
Create a written lease instead of an oral arrangement. Everyone remembers a verbal agreement differently, and it’s tough to prove the details in court.
Bill Biko is a landlord who operates “rooming houses,” properties where individuals rent rooms and Bill doesn’t live. After renting out rooms for 10-plus years, he’s learned a thing or two about ways to help people share homes. “Establishing the rules upfront makes a huge difference,” he says.
Bill includes quiet hours, laundry hours, and even snow removal rules in his rental agreement. Why is he so specific?
“There’s nothing like doing laundry at 1 a.m., keeping everyone up as your shoes bounce around inside the washer,” he says. He also adds a clause about respecting the other tenants.
Although Bill admits that his rules may be common sense to many people, he spells them out in his rental agreement to be safe.
When creating a written lease, be specific about these things:
- The rent amount
- The date the money is due
- Whether the renter will pay utilities, and if so, which ones or what percentage
- How you will handle food, fridge space, common areas, and laundry
- Any other concerns you might have (cleaning, parking, quiet time, etc.)
Once you start covering a percentage of your mortgage with payments from a tenant renting out a room in your house, you might wonder why you waited so long to get started.
*Names changed for privacy