Income Streams: Tips for Successfully Renting out a Spare Room

If renting out a spare room or suite in your home is on your mind, you have lots of company. Many homeowners are looking for supplemental income in retirement or are saving for that milestone. Shared households are more common than most people realize. More than 22 million U.S. households fell into this category in 2012, meaning they included a primary resident and at least one other adult. Sharing is particularly popular with the younger crowd, 9.7 million of whom are between 25 and 34.


Income Streams: Tips for Successfully Renting out a Spare RoomPhoto by Kate Ausburn on Unsplash

Two Common Options

Homeowners can choose between two basic paths when it comes to renting out space. Some find hosting overnight or short-term guests through sites such as Airbnb. Hosts typically set a per-night price that includes essentials like clean linens. Their listings include photos and prices. Homeowners receive payment, minus a service fee, via electronic options and are able to message guests prior to arrival.

The second option is a long-term rental to one or more occupants, beginning a homeowner’s journey into real estate investment in a sense — or at least letting them dip their toes in to see if it’s something they’d enjoy. The homeowner rents space using a rental agreement that specifies the exact space, price, duration of occupancy, and any other important terms.

Regardless of which option is the better fit, a homeowner who becomes a landlord will need to manage the rental and maintain an arrangement that’s stress-free. Here are some important tips on how to do just that.

 

Understand Local Laws

One early have-to is being aware and keeping abreast of local laws related to rentals. Many locales have specific regulations on what they allow, the permits required, and occupancy taxes. Fines for non-compliance could be hefty. Communities typically restrict the number of occupants in a home. Some also require that each individual have a certain amount of square footage of space. If remodeling to rent is a consideration, it’s essential to check on rules regarding access to exits in case of an emergency. Sites such as Airbnb might offer guidance on requirements in major cities. However, a wise homeowner is one who regularly checks local regulations for updates.

 

Get Your Home Ready

Preparing to rent space requires making decisions to get a home ready. A major one is whether you’ll need to remodel or add one or more rooms. Homeowners with children typically have privacy concerns. The way to start is to go through each room and figure out what realistically needs to be done to make the property acceptable for a renter.

Getting ready might require updates such as a bathroom renovation. Ensuring the safety of possessions could require purchasing a fireproof safe. If kitchen privileges will be available, now is the time to replace that aging microwave.

 

Determine a Rental Rate

Sites like Craigslist are a good resource for learning about the local market. A homeowner should be sure to wrap into the rate the cost of home maintenance, utilities, and insurance.

For long-term rentals, some homeowners quote a weekly rent to make the rate more appealing.

 

Get Everything in Writing

Hosting sites take care of this in their terms and conditions. A landlord’s rental agreement should be written and signed by both parties. It should specify:

The dollar amount of the rent.
Date when rent is due.
How utility usage will be charged.
Usage specifics for common areas such as the kitchen and the laundry room.
Any special concerns such as cleaning or parking.
Talk to Your Insurance Agent.
Homeowner’s insurance might not cover injury of a renter on the premises or any losses from theft. An insurance agent can recommend the right policy.

 

Find the Right Renters

In addition to placing free ads on sites such as Craigslist, consider some fee-based sites. Many first-time landlords are surprised, however, at how well word of mouth sometimes works for finding renters. Great prior or present tenants are sometimes perfect sources to ask for suggestions of anyone they know looking for space to rent.

An interview and reference checks are the first step. A tenant credit check should follow.

 

Get a Grip on Taxes

Many would-be landlords don’t realize that rent might be subject to federal, state, and/or local income or other taxes. This applies whether the tenant pays directly or a hosting service collects it.

Landlords might also lose a property tax exemption. However, keeping accurate records can minimize taxes by documenting deductible rental expenses.



Wondering exactly how to get started with renting out your spare room? A local real estate professional can offer important tips on how to make the most of your experience as a landlord for short-term guests or long-term renters. An agent’s input is particularly valuable when considering whether to spend money on your home to create a suitable rental for meeting retirement goals.

 

This informative article was contributed to Leisure Freak by Preston Guyton.

Preston Guyton is a native of the Grand Strand and Broker in Charge/Managing Partner of CRG Companies.

6 thoughts on “Income Streams: Tips for Successfully Renting out a Spare Room

  1. We never did it for the money but we’ve let young people stay in our upstairs for weeks or months at a time when they were just getting started in adult life or were facing a long commute to our town for a job. We charged a nominal amount just to keep them from feeling like freeloaders and basically adopted them as surrogate kids since our three had left the nest. It was great fun and we now have two extra “daughters” making their way in the world, one an emergency room physician assistant and one a hot shot engineer for a huge oil company. We get to feel a tiny bit a part of their success. I realize your post is about doing this as a money maker and it is a good one but there can be the side benefit of forming some lasting relationships as well and that can be priceless.

    1. Thanks for the comment Steveark. You make some very good points and that is a very nice thing you are doing. I know of people who also open their homes for exchange students and missionaries. Like you say, there are side benefits that are or can be gained besides income. As we grow older it could be a way to have occasional assistance and company. Although this post was geared toward creating an income stream, there are many different ways to see extra space at home as an opportunity to make our lives and maybe other’s lives better.
      Tommy

  2. Really helpful article, will be referring back to it when we are ready to rent out our spare rooms. For now, we are only hosting friends and family, but the idea of an additional income stream sounds very appealing.

  3. It’s really nice post, but I used it before because I have a huge property for renting and for management I use property management software. You should also care these softwares if you have big property. the all software provided by VerticalRent, I hope you know to Vertical Rent,.

    1. Thanks for the comment Mathew. Having a good specialized property management app or software would be a benefit for managing multiple properties. Might be overkill for renting out a spare room but perhaps not.
      Tommy

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