If you need extra income, renting out a spare room can be a great solution. However, it’s not as simple as it looks. There are several things you need to consider before moving forward, especially since the tenant will be sharing your home. By renting out a room, you can help cover your mortgage, property taxes, utility bills, and more. To make the right decision, establish clear rules for renting a room in your house. Here’s what you should know before getting started:
Article Contents
- Pros and Cons of Renting a Room in Your House
- How To Set a Competitive and Fair Rent Price
- Rules for Renting a Room in Your House You Should Implement
- Why It’s Critical to Sign a Lease with Your Tenant
Pros and Cons of Renting a Room in Your House
Renting out an extra room in your house can be a lucrative side hustle. It could be your child’s old bedroom, converted attic, or garage. In any case, you can turn virtually any extra space into a rental. After all, it’s your house, and you can choose how to use it. However, this idea comes with both pros and cons. So, are you thinking about renting out a room but don’t know where to begin? The top property management companies in Northern Virginia will guide you through it. Let’s explore the pros and cons.
Pros
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Extra Income
By renting out a room, you can earn a steady stream of additional income. Needless to say, this can help you cover expenses like mortgage payments, utility bills, groceries, or even savings for future goals. All this can make your financial situation more stable.
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Shared Responsibilities
When you have a tenant, you can share responsibilities around the house. For example, they might help with minor tasks like yard work, cleaning, or even splitting household bills. This way, you don’t have to shoulder it all yourself.
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Shorter Rental Vacancy Time
The good news is that spare rooms are sometimes easier to rent out than entire apartments or houses. Essentially, they often cost less to rent, and as such, can be more affordable for potential tenants.
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Possible Tax Deductions
When you rent out a room in your home, you may be able to deduct related expenses. For instance, you could be able to forego repair, maintenance, or property taxes. However, you should consult a tax professional to make sure you’re following the law.
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Individualized Leases
The advantage of individualized leases is that they let you customize the rental agreement terms based on the tenant’s unique situation. So, you can adjust your lease to fit tenants with different needs. This customizability can appeal to a broader range of tenants. In turn, you can fill your vacancy faster.
Cons
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Lack of Privacy
Renting out a room means sharing your living space with someone else. As a result, you might lose some of the privacy and quiet you’re used to. This holds especially true if the tenant uses shared areas like the kitchen or bathroom.
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Responsibilities and Time Commitment
As a landlord, you’ll need to handle issues like collecting rent, maintaining the space, and addressing any problems the tenant might have. Therefore, these responsibilities can take time and effort, especially when something breaks or needs repair.
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Possible Legal and Financial Issues
As you can imagine, renting out a room in your home comes with some legal responsibilities. First, you must ensure that the room follows various laws, such as federal and local housing codes. Also, you may need special permits before renting it out. Additionally, you may have to update your insurance or pay taxes on the extra income, which could require more paperwork and additional costs.
How To Set a Competitive and Fair Rent Price
There are certain must-haves you must nail down before renting out a room in your house. One of the most critical is setting a competitive and fair rent price. However, this can be tricky because your rental is unique. It doesn’t have the same scope as a full apartment or house, so it also lacks the same standard pricing structure as those properties. So, there are few direct comparisons you can refer to. Here are the key parameters to consider:
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Location
In real estate, the name of the game is location, location, location. Your neighborhood’s location plays a huge role in its value and marketability. Because of that, rent prices can vary based on how close the property is to city centers, public transportation, schools, or popular spots. As a consequence, if your house is in a more desirable area, it could attract a higher rent price.
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Room Size and Layout
The size of the room is also critical to consider. Larger rooms or rooms with unique features like walk-in closets or en-suite bathrooms tend to justify a higher rent. Also, the layout of the house (e.g., how private the room is) can play a role in pricing.
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Condition of the Room and House
A well-maintained, clean, and updated room can command a higher price. For instance, if you’ve recently renovated or updated the room (new paint, floors, appliances), this can increase the rental value. Likewise, the house’s overall condition matters, such as shared spaces like kitchens and bathrooms.
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Utilities
Consider whether the rent will include utilities like electricity, water, gas, Wi-Fi, or cable. Many tenants prefer an all-inclusive rent because it simplifies budgeting. That said, if you decide to include utilities, you might want to factor in those costs when you set the rent price.
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Shared vs. Private Spaces
If the tenant will be using shared spaces, like the living room, kitchen, and bathroom, this gives them less personal space. As such, it may adversely impact the rental rate. On the other hand, as we mentioned earlier, private spaces or bathrooms may justify a higher rent.
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Market Rates for Similar Rentals
Even though your room’s situation may be unique, it’s still helpful to check local rental listings to see what other landlords charge for rooms in similar homes or areas. This can give you a better idea of an appropriate rate to offer. Then, you can ensure your price is both competitive and reasonable for what you offer.
Rules for Renting a Room in Your House You Should Implement
“Good fences make good neighbors.” This old saying is a reminder that clear boundaries and rules can lead to better relationships. They make life smoother for everyone. So, you must get yours right, right from the start.
All this is why you should enshrine these rules in a legally binding lease before your tenant moves in. Moreover, you should have a lawyer comb it over. That way, everyone is solidly responsible for following those rules. Here are some core rules for renting a room in your house you should add to that lease:
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Shared Spaces
Even before a tenant moves in, set up clear rules about living in shared spaces. Clarify any expectations you have. For example, you can establish how the kitchen, bathroom, and living areas should be used (e.g., cleaning up after cooking, limiting guests in shared spaces).
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Parking & Pet Policies
If you have available parking, then make sure you specify where your tenant can park and whether any fees or restrictions apply. Furthermore, if your tenant has a pet, establish clear pet policies—like whether pets are allowed, size restrictions, or rules about cleanliness and noise.
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Payment of Rent
Set a clear payment schedule (e.g., monthly, due on the 1st). Additionally, specify the payment method (bank transfer, check, etc.). Decide whether late fees will apply, and make sure to include the consequences of non-payment in your rental agreement.
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Maintenance Responsibilities
State who is responsible for routine maintenance tasks, such as taking out the trash, cleaning shared areas, or minor repairs. On the other hand, landlords are usually legally responsible for addressing larger issues, like a broken roof. So, those are problems you must handle yourself.
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Noise and Quiet Hours
It’s a good idea to agree on some simple rules about noise and quiet times. This way, everyone can enjoy a peaceful living space. For example, you might agree with the tenant on quiet hours in the evening or early morning when it’s important to get some rest.
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Lease Renewal and Termination
You should set clear terms for lease renewal or termination, including the notice period legally required by either party. For example, in many states tenants should give a 30-day notice before leaving. Also, you should set out the process for renewing or ending the lease.
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Consequences of Rule Violations
On that note, you should clearly define which consequences tenants will have if they break your lease terms. This could range from anything like a warning to even an eviction if grave violations occur. Most importantly, having these consequences in writing can help you prevent misunderstandings later.
Why It’s Critical to Sign a Lease with Your Tenant
Like we said earlier, you should have rules for renting a room in your house put into a formal lease. If the benefits of doing this weren’t clear before, hopefully this section will convince you. They include:
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Provides Legal Protection
Having a lease helps you handle any issues that may arise with a tenant. For instance, if the tenant doesn’t pay rent, causes damage, or breaks any rules, the lease outlines how to deal with these situations. Also, it gives you the legal backing you need as a landlord to enforce the terms and take action if necessary.
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Ensures Compliance with Local Laws
A legal lease agreement makes sure that the rental terms follow local laws, including tenant rights, rent controls, and safety regulations. Without a legal lease, you might accidentally break housing laws, which could lead to fines or other penalties.
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Outlines Eviction Procedures
The lease can outline the specific process for an eviction if it ever becomes necessary, including the grounds for eviction and legally required notice period. This component can protect your rights as a landlord. Additionally, it can ensure the tenant has a clear understanding of the consequences of breaking the lease terms.
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Protects Your Property
A lease provides a legal record of your agreement with the tenant. As we said earlier, it can include clauses about how the tenant can and can’t use the property. For instance, you can clearly state that smoking or subletting isn’t permitted. Such clarifications provide proof that the tenant is accountable for adhering to those rules and restrictions.
Rent A Room in Your House with BMG
Renting out a room in your house is a smart way to make money from empty space. It’s just sitting there, so you might as well make use of it. And since there is such a shortage of affordable places to live, this is a great opportunity to take advantage of that demand.
At the same time, you must remember you are responsible for a person’s living arrangement. That comes with huge legal responsibilities. If you make a mistake because of your inexperience or gaps in expertise, it could cost you greatly. That’s why it may be a smart idea to leave legal compliance to the professionals.
Professional property managers can take care of legal compliance, from following the Fair Housing Laws to the Americans with Disabilities Act and more. What’s more, they can also develop sound lease agreements on your behalf, screen tenants, conduct inspections, and more.
Ready to explore how property managers can support you on your rental journey? Contact Bay Property Management Group today to learn more!
