Renting out a spare room can help you put unused space to good use. Maybe your children have flown the nest and their bedrooms are empty. Perhaps you just purchased a larger house than you need and want to recoup some of the extra cooling and heating costs.
Homeowners often find themselves in these or similar situations, and if they want some extra money, the logical choice is to rent their spare room out. However, doing so isn’t as simple as it sounds and could backfire if it’s handled improperly. Here’s how to get the most out of renting out your unused room.
Set a competitive rent
While it would be nice to rent a room for $1 million a month and retire in a year, that’s not going to happen. You’ll need to set a competitive monthly rent to attract prospective tenants.
Check local ads to determine the amount similar rooms are going for and craft your asking price accordingly. You may want to consider factors such as location and size. PadMapper is a great resource for this, showing the median rent price for a given neighborhood and number of rooms.
List your room
Real estate websites are typically geared toward apartments and homes, so try listing your empty room on a site such as Airbnb or Craigslist.
On Airbnb, you’ll post your room and the relevant details (availability, fees, etc.). And since hosts and tenants can review one another, you can get a sense of whether someone will be worth their rent or not. Once you agree to host a tenant, the site will deduct three percent from your rental income. The only downside is that this site is geared toward travelers, so it’s only ideal if you don’t want a full-time tenant.
If you’re looking for a more permanent arrangement, try Craigslist. It is incredibly easy to post a fee ad on the site and there are few restrictions. Be very careful, though, since scammers seem to favor the site. One scam involves someone copying your ad, offering your room for a drastically reduced price and leaving the renter accountable, which could be very awkward when someone shows up unexpectedly, ready to move in.
Screening tenants is a proactive way to minimize problems. To do so, require prospective tenants to fill out an application with the following information:
- Credit history
- Employment information
- Past bankruptcies or evictions
You may also choose to require documents such as bank statements and pay stubs.
Finally, verify key information by checking the mentioned documents, contacting employers and references as well as running credit reports.
Choose someone you’re comfortable with
If you’re thinking of accepting the first tenant who passes screening, imagine listening to the worst music in the world as it shakes your home at 3 am until the police arrive with a final warning to turn it down. The importance of compatibility and mutual respect cannot be overstated. And if you need another reason to be more selective, remember that a year is generally the standard length of an initial lease. All the money in the world won’t suffice if you can’t get along with your tenant, so choose someone you trust and are comfortable with.
Collect a security deposit
Unfortunately, renters have a reputation for being more careless than homeowners – after all, it’s not their property. Collect a security deposit to ensure you’re reasonably covered if the renter damages your home. The standard amount is one-month’s rent in most areas.
Stay within the law
Various local and state laws exist to protect renters. To comply, you typically need to:
- Ensure the room doesn’t exceed the legal occupancy limit (you probably shouldn’t rent a single room to more than one person anyway)
- Follow eviction laws precisely (you typically can’t just kick someone out on a whim)
- Maintain the quality of the room
- Obtain permission or provide sufficient notice before entering the rented room
- Provide all promised amenities (ex: access to pool)
- Provide sufficient cooling and heating
- Return the security deposit in a timely manner
Check with your local and state governments for a full list of laws you’ll be required to follow. Also, remember you’ll have to pay taxes on your rental income. Contact a tax professional for specific advice. Once you’re done, sit back and count all the extra money you’re making by filling that empty space in your home!