Most landlords live on a different property than their tenants, but what if you have extra space in your home and would like to rent out a room? Whether you’re already a professional landlord or this is your first time renting to anyone, renting out a room in your home makes you a landlord just as much as if you were renting out another property.
Keep in mind that laws about renting out rooms can vary quite a bit depending on where you live, so it’s important to do some research to prevent legal issues. However, you can use many of the same tips and procedures that you would if you were renting out a separate property to make sure you’re conducting everything fairly and legally.
From spare bedrooms to in-law units, renting a room on your own property can be an excellent way to earn some extra income. Regardless of the type of space you’re renting, though, you’ll still be sharing your space with another person. Some days you may get along fabulously, and others they may get on your nerves. If that’s something you can deal with, then renting out a room may be an ideal solution. Here’s everything you should know to get started.
Renting a Room in Your Home: Is it Legal?
It may seem like renting out a room in your home would be completely legal, but there are some conditions that could affect whether you actually can.
An example of this is if you own a condo or home in a neighborhood with a homeowner’s association; in some cases, the HOA may prohibit residents who aren’t family members. There may be zoning laws in your town that prohibit you from renting to anyone who isn’t family without a license or permit, or restrictions on the number of unrelated people you can rent to.
There may also be certain conditions for renting a room in your home. For example, your city might require that the rental space has its own separate outdoor access. In other areas, you may need to have the space inspected before you can legally rent it out.
To make sure you’re in compliance, check the following laws in your area:
- – Local laws
- – City ordinances
- – Zoning laws
- – State laws
- – Homeowner’s Association bylaws (if your property has an HOA)
Steps to Take for Renting a Room in Your Home
If you’ve determined you can rent a room in your home, here are the steps you’ll need to take to get the room ready, market it, and find the right tenants:
- Prepare the Room
Like renting out a property, it’s important to make sure the room you’re renting is habitable. The space should have working heat, electricity, and plumbing. If you have more than one bathroom, you’ll need to decide which one you’d like the tenant to use. Since your tenant has a right to privacy, it’s also a good idea to install a lock on the bedroom door.
Another thing to consider is that many renters are interested in finding a room that’s already furnished. If you decide to offer a furnished room, be sure to take inventory of everything in there and have your roommate complete a walkthrough inspection before they sign the lease. You may also want to consider taking photos of the room beforehand, as well as photos of all the furnishings so you have a visual record of what it looked like before it was rented out.
- Considerations for marketing the Room
When you’re ready to start marketing your room, it can be helpful to think about who would be your ideal roommate, as well as the standards you’ll use to select them. You can create the same type of criteria as you would if you were renting out an entire property, but be sure to keep Fair Housing Laws in mind.
Federal Fair Housing laws do allow some exceptions to the traditional protected classes when selecting a roommate for your home, but you’ll still have to be careful about how you’re marketing the room. Although you can’t use discriminatory language, you can specify a preference for the sex of your roommate. However, you’re not allowed to add any other quantifiers to the ad.
When you’re ready to make a decision on which applicant to pick, you can base this on your own personal criteria, even if it’s discriminatory. This is backed up by the 2012 decision of the 9th Circuit Court. The court ruled that forcing nondiscrimination requirements when selecting a roommate is a serious invasion of privacy because both parties share a space; the FHA provisions don’t apply. In addition, the court recognized that having a roommate increases the homeowner’s personal risk, as well as their quality of life.
However, if you were to sell or rent an entire unit that was separate from your living space, you would be required to follow FHA nondiscrimination laws.
- How to List Your Room
The next step is to create your listing and post it in areas where your future roommate will see it. This is where having an ideal roommate in mind can come in handy.
For example, if you’d like a roommate who’s a college student, consider posting your listing on college campus bulletin boards or contact a college campus housing agency. If you’d prefer a retiree, you may want to post your listing in a senior citizen center. By focusing on a niche that fits what you’re looking for (rather than casting a wide net, like posting on Craigslist), you’ll be more likely to attract your target demographic.
Don’t overlook the value of telling your friends and family about your open room as well. Networking can be a great way to find a roommate, especially if your friends or family know them personally. However, even if they’re a close friend of a family member, make sure you’re screening the applicant just as you would any other tenant. This can eliminate a lot of issues down the road.
It’s also a good idea to ask for references from previous roommates and landlords. This can give you more insight into how the person is to live with day-to-day, while landlord references can give you a good idea of how they behaved as a tenant.
- Tenant Screening
Whether a tenant or a roommate, it’s essential to have a good renter who will be reliable and treat your property with respect. Since you’ll be sharing your space with your roommate, normal tenant/landlord issues can be amplified. This makes finding the right roommate even more important than it would be otherwise.
Start by having the applicant fill out a rental application that gives you permission to run a credit check, background check, and contact their references. Once that’s complete, you should run the screening reports. At TSCI, we offer all the tenant screening services you need to make the most informed decision. Click here to get started.
- Writing a Lease/Room Rental Agreement
If you have rental properties, writing a lease should be pretty familiar to you. A room rental agreement for your home should be very similar to a lease agreement for a rental property. The agreements should go over the specifics of what’s expected of the roommate, as well as your responsibilities as the landlord.
Many states see oral room rental agreements as legal and binding contracts, but it’s always recommended to have the agreement in writing and have both parties sign it. This prevents miscommunication, forgetting what was agreed on, or other potential problems. It also gives you and your roommate something to refer to in case any issues come up. Here are five things you should include in addition to the typical lease items:
- The length of time that the tenancy will cover.
Although lease agreements typically last for six months to a year, you may want to adjust the length of time depending on your needs and those of your roommate. For example, if you’re renting to a college student, consider making the lease for a nine to ten-month period that will coincide with their school year. If you want to see how you like living with a roommate before committing to a longer length of time, consider making your lease period shorter.
- Define what’s considered a common area.
Common areas are spaces you’ll share with the roommate. It’s important to discuss which areas will be shared upfront to prevent confusion and conflict. Unless you’re renting an in-law unit, most roommates will likely need access to the kitchen, bathroom, laundry room, and living room. You should also make sure to discuss things like parking in the driveway or garage, using the backyard or balconies, and other shared areas.
If there are any rooms that are specifically off-limits, be sure to discuss these as well. You should also be sure to include any rules you have about the common areas, like cleaning up after themselves or certain times you’d prefer they don’t use a particular area.
Another thing you’ll need to figure out is how you’d like to share the utility responsibilities with your roommate. Some of the most common options include:
- Splitting the cost of the utilities 50/50
- Increasing the price of the rent to cover the roommate’s portion of the utilities
- Have the tenant pay for specific utilities, like cable or internet
Take a look at your situation to determine what will work best for you.
- House rules.
Something else you should take time to define in your rental agreements is your expectations on how the roommate will behave. This includes factors like noise, guests, pets, and overnight vacations. Make sure you clearly outline what is acceptable (as well as unacceptable) behavior so applicants will understand what’s expected of them if they’re chosen as a roommate. You should also provide them with a hard copy of the rules and refer to them if the roommate doesn’t follow them.
- Set the rate and deposit amount.
Along with the above items, you’ll also want to include the rental rate, when rent is due, and the security deposit amount. You should also include any penalties you’ll charge for late rent and information about your eviction process, should the tenancy not work out. You’ll also be responsible for following the law when it comes to providing official notices, performing maintenance, and returning the security deposit, so it’s a good idea to have your process for these things outlined in the agreement, too.
If you’re going to have more than one person renting the room, you should also make sure to have every adult listed on the rental agreement or lease. This is particularly helpful if you ever need to evict your roommates in the future.
How to Handle Taxes
Any income you receive from renting a room in your primary home is considered taxable income unless you rent the room for less than 15 days. However, you’ll be able to claim expenses and deductions that you wouldn’t be able to claim otherwise. For example, if you need to replace the carpet in the roommate’s room, you’ll be able to deduct the cost of the expense in your tax returns.
Another thing you’ll need to do if you’re planning on renting out a room is to determine the square footage of your roommate’s room and what percentage of your home it takes up. So, if you have a 2,500 square foot home and you’re renting a room that’s 500 square feet, that room would account for 20% of your home. That would mean your roommate is responsible for 1/5 of the mortgage interest, utilities, or rental estate taxes. These expenses can be deducted as rental expenses on Schedule E.
Subletting and College Students
If you select a roommate who’s attending college, there’s a good chance that they may want to return home during summer vacation. This means you may have several months out of the year where the room is vacant.
One way to work around this (and ensure you continue to receive rental income) is to offer the college student the option of subletting their room over the summer. If they’d like to return to your home in the fall, this could very beneficial option for you both.
With subletting, your tenant will still be financially responsible for the room, even if the subtenant doesn’t pay rent. You can let the student find a subtenant on their own, but it’s often better to assist them with the search. Ultimately, you’ll have the final say about who occupies the room.
When you’re figuring how much to charge for rent, it can be helpful to look at comparable rooms and rental prices in the neighborhood. Specifically, look for situations that are similar to your own, such as other landlords renting out single rooms. This will give you an idea of what the market is like in your area.
Next, you’ll want to look at the traditional rents (ex: rent for a whole unit or home) in the area and compare your home to them. Keep in mind that the type of renter who is looking for a room rental probably can’t afford (or isn’t interested in paying for) a one-bedroom studio, so keep your pricing below the rates you see for this type of housing to make sure you’re offering a desirable rate.
Renting to Friends
As long as you’re following your local laws, you can rent to anyone you wish, including friends. However, this can put you in some tough spots, and in some cases, it could even ruin the friendship.
On the positive side, you’ll have someone you know living with you and you’ll probably have a pretty good idea of how they’ll treat your property. On the downside, you’re now adding a financial component to your friendship that can cause it to become strained. How will you both handle situations like late rent or disputes over property damage?
Most landlords feel it’s better to rent to a stranger because this creates clear boundaries in the tenant/landlord relationship and allows you to treat your room rental as a business.
There are several things you can do when renting a room to protect yourself, your property, and your finances:
- Have an iron-clad rental agreement in place
- Screen your tenants thoroughly
- Check to see if you’re eligible for additional insurance protection
- Perform move-in and move-out inspections and document any and all damage
Fortunately, most of these tips are probably things you’re already doing in your rental business. Written lease agreements, inspections, maintenance, handling rent, and evictions are all part of being a landlord, whether you’re renting a room or a separate rental property. By following this guide, you can make sure your room rental is a successful experience.