Renting a Room


#1

Hi Rockstars :slight_smile:
I have recently re-entered single life, and my ex boyfriend is moving out of my house sometime between now and June. I bought my house last June, and the PITI costs about 22% of my take home income, so i would like to make some rental income to reduce my cost of living.

I would like to rent out the master bedroom in this house as i think its wasteful for a single girl like myself to have a 3/2 single family home just for me and the cat. I would like to ask a couple of questions to think this through.

  1. How do I calculate what I would charge for rent?
    50/50 on all bills is the most logical to me with a roommate, but owning the house is a little different maybe?

  2. What are the tax implications?

  3. How would I design a lease?

  4. How would I screen potential roommates?

TIA for any insight you have.


#2

I’ve never been a landlord but I am a single renter, so I have some comments about question 1.

For rent I would look at the listings online in your area to see what the typical rates for similar listings are. If you’re overpriced you won’t get much interest, but if you’re underpriced you might get some tenants that aren’t reliable.

For bills I think 50/50 for utilities is great, I would be upset if I was your roommate and paid more than half of the shared utilities while also paying off your mortgage. The other way you could do it is increase the rent by however much you think utilities are and say “includes all utilities” and that would allow you to change that ratio a bit.


#3

I think the ‘includes all utilities’ is the way to go too, makes it ambiguous about what the mortgage actually is and it makes it a cleaner transaction each month too than trying to divvy up bills like when i rented an apartment with roommates in college. Thanks for the suggestions. Ive also found some good information online about how to make the space “rent-able” and good ideas for setting up a lease/not messing up on equal housing opportunity laws.


#4

Happy to help you as much as possible. I also had (and still own) a 3/2 house as a single person. I rented both rooms out to cover my expenses.

Look on Craigslist, redfin, zillow or a local publication to see what rooms are renting for in your area.

I highly recommend splitting all utilities equally (either 2 or 3 ways depending how many people are living there). You might take longer showers but your roommate might leave more lights on. Keeping it evenly split makes for an easy compromise.

I would highly recommend having a real estate attorney prepare/review any lease agreement you might have.

Regarding the tenant - first, since you’ll be living with them - make sure you actually like the person and can see yourself getting along. Maybe even meet with the person multiple times. I highly recommend a credit/background check. Also verify employment and income. Check previous landlords for references.

Lastly, make sure to collect a security deposit.

Hope this helps. Please let me know if you have any questions. Happy to help.

side note working on an article about selecting tenants.


#5

@Apkanne

When you look at how much comparable rooms rent, you should adjust for the circumstances (smaller bedroom versus master versus own bathroom versus share versus basement, etc).

Personally, I’d rather do a utility split too. Utilities included in rent tends to promote waste, sort of like an all you can eat buffet and a lot of times you can’t charge enough additional rent and get quality tenants to come close to covering their share of utilities anyway.

I’d rather charge a bit under market and have greater selection of quality tenants to choose from.

Look into federal and local housing discrimination laws. Landlords can get caught up by listings that they think are okay but that are discriminatory (women looking for women, no kids, etc).

There are tenant screening services that you can pay to run credit and background checks. I’ve never used them, but Bigger Pockets (in my opinion the absolute best real estate investing website) partners with Smart Move for tenant screening. That will give you an idea of what a screening service provides and costs. If you search tenant screening (or basically any other question) on Bigger Pockets, you’ll get tons of results from other landlords on who they use. Second the employment check and calling landlord references. Some people call references pretending that they are prospective tenants first just to screen out fake references. It’s quite popular in my area to insist upon an impromptu house with a tenant you’re interested in where they currently live to see how they keep the place. But that’s usually with lower end type rentals and I don’t know how more well to do prospective tenants and tenants in your are might react. But the best way to tell how they will treat your place is how they treat their current place.

There are tax implications, perhaps have an accountant, CPA, or service do your taxes for the first year or so to get an idea of the considerations and then decide for yourself if you still want help or feel confident on doing it on your own?

Some attorneys will charge you a few hundred to do your first lease for you and then you can continue to use and update it. Worth it. Don’t look up just any old attorney, but rather a real estate attorney. If you use a real estate agent or a tenant placement service to do lease up for you, they often can provide you a sample lease. You could try Legal Zoom or some other online provider. If you know a landlord in your locality, you might ask them for their lease. Quality of the lease will obviously vary.

Good luck and hope it works. P.S. if you’re in a good vacation area that allows it and have the right mentality and willing to do the extra work, you can often make much more Air B&Bing the room than simply renting it.


#6

We use Airbnb, it allows us to:

  1. Meet new people.
  2. Get a higher rate than rents so we can have a guest for only 2 weeks and it is the same as normal monthly rent.
  3. Guests don’t get too cozy and start leaving dirty dishes everywhere, they know they are guests.
  4. Get all the insurances from Airbnb
  5. Fill up all our rooms if we would want to (we have a 5/3 house as a couple).
  6. It is really not that much work if you set your minimum stay at 2 weeks + we just wash the sheets for them in between each guest but usually get month-long stays. We leave the guest clean their own things during their stays if they want.

#7

I would suggest marketing a price that covers the utilities. It’s annoying to have to chase people for additional money.


#8
  1. Whatever you can get and feel is fair. I use a combination of rentometer.com, craigslist.org, https://www.jefftk.com/apartment_prices/ (Boston only, but I live in Boston, so…) and zillow.com to determine to determine more or less what the going rate is in my vicinity. 50/50 may be logical, but may not be fair or may not be suitable. I like your idea of including all utilities in the rent, and it is what I would do in this situation. Just make sure you build in buffer for the potential abuse that may occur.

  2. Consult an accountant. You’ll have to claim your rental income on your taxes, but you will get to offest that income by a portion of your mortgage, insurance, maintenance expenses, and partial depreciation.

  3. Either find one online or pay for an existing lease. I use rocketlease.com.

  4. BiggerPockets.com has a great tenant screening guide. I use rocketlease.com for background checks. Biggest thing to check on is protected classes and ensure that you are not accidentally violating the law. I personally require a evidence of a minimum annual salary >= 3x rent, 1st/last/security deposit (essentially three month’s rent up front), and a background check. That alone is a screening tool.

  5. Keep in mind there may be rules in your state about discounted rent, late fees, pet fees, holding a security deposit in escrow, lock fees, and on and on. The easiest way to find this is look for a local tenant advocacy group. While their target audience is tenants, as a landlord who wants to follow the law, it’s a pretty convenient way to find out what you should or should not do.


#9

We AirBnB our place too - but we have a smaller townhouse, a 2/2 for a couple.

We set it for 2 nights minimum, and block the dates as necessary. Some months we have enough to cover HOA + mortgages, some months we only have enough to cover the utilities + HOA, but every little counts.

That said, once kids come into play then this income stream will dry out for a year or so, or until the kids are more behaved/older.


#10

Renting a room may sound easy, but after all, you’ll have a stranger living in your home. There are a number of important considerations, including drawing up written agreements and complying with the relevant tax regime. My uncle recently rented a room in his house, but before giving a room to someone he took the help of the real estate lawyer over here to draw up a proper agreement including all the details, terms and conditions. This is very useful for the future point of view as all the things would be cleared between an owner and a tenant.