What if I told you that you can make an additional income with that spare bedroom in your house? Passive income is not just for those with separate rental properties.
Renting out a room in your home can be a great way to generate income but as with managing any kind of rental, it’s important to approach this with the right strategy for you.
There are a lot of things to consider before you open your home to tenants. Here are some guidelines to follow before you start renting
The pros and cons of renting out a room in your home
Sharing your home with a stranger has its benefits and drawbacks.
The main benefit of renting is creating a passive income for an underutilized space. You can use this additional income to make home improvements or invest in another rental property.
One of the biggest drawbacks is that you’ll lose the privacy of your home and the risk of damage. Having a security deposit usually covers this risk.
- Decide on the type of rental
Firstly, it’s important to decide if you want a long term tenant or rent out for a few days here and there on a short term basis. Both have their advantages but it’s up to you to decide on your availability and preference. If your home is located in a tourist destination and can be positioned well as an alternative to a hotel room, you can make more profits this way.
- Check your local laws and HOA rules
You’ll want to stay on the right side of the law so you need to find out the local laws in your city. The requirements vary from state to state and also the type of rental you implement.
If you live in an apartment building or a gated community, check with the homeowners association (HOA) to see if you can sublet your home. Many HOAs prohibit subletting.
- Prepare your home
It is important to get your home ready before your first tenant arrives. Now you might be used to your private space so you might have to change the way you operate in your home.
- Figure out which room you’ll be renting
- Remove your personal belongings from the room and common areas accessible to the tenant.
- Make sure the appliances in the room are working and are in good condition.
- Secure your valuables.
- Find the tenant
Once the home is ready, it’s time to find a tenant. The internet has made it easy to connect with possible renters and working with the right platforms
- Set your price. Compare local pricing with similar rentals on sites like Quikr Homes or Housing.com for long term tenants and Airbnb for short term rentals. If your neighbourhood has many available rentals, you need to have a competitive price.
- Create an online listing. When it comes to your listing, be specific as possible about your home – room features, shared amenities, neighborhood details, pricing, and deposit. If you don’t have a parking space for the tenant, be honest about it so you don’t waste time showing the property to someone who needs parking. You’ll save a lot of time this way. Don’t forget to post great photos.
- Screening your tenant. If you rent your property to the wrong person, you could wind up with more damage than not renting at all, especially when you are sharing your space with this person. Find out about the applicant – employment history, income status, and get references.
- Have a formal agreement.
Create a written agreement that spells out every aspect of the arrangement.
- The rent amount.
- The date the money is due.
- Whether a security deposit is needed.
- Utilities and bills.
- Access to common areas.
All these details need to be worked out before the tenant moves in.