August 13, 2018
Many homeowners, especially empty nesters, have mulled over turning their spare bedroom, in-law apartment, or room over the garage into a side income stream. But what does renting out that extra room actually entail—and does it make sense for you and your goals? In the interest of preserving both your home and your finances, here are five key questions to help you decide whether or not to rent out a room in your house.
First things first: Does your city allow you to rent out a room? According to Airbnb, some local jurisdictions require permits and/or licenses while others prohibit certain types of rentals altogether (e.g., short-term rentals). Speak with your local housing authority to gain clarity on what’s allowed for your specific municipality. Once you learn the legal requirements, follow all conditions to the letter to avoid fines or other penalties.
Will your rentals be short-term stays or long-term leases? The type of room rental you select will impact what you charge for rent (and what you’ll spend on upkeep, which can impact your rental rates).
Short-term rentals will afford you higher per night rates while also requiring more hands-on property management on your part. Your short-term rental income will also be more erratic based on travel trends and seasonality. Long-term rentals will have a lower per night rate but with the trade-off of a longer guaranteed income stream and (most likely) less frequent maintenance. Consider each rental type’s specific overhead and time involvement when determining what to charge to rent your room.
Of course, you’ll want to make sure your rental rates fit the local market. For short-term rentals, look at per night rates for local properties similar to yours on vacation rental sites like Flipkey or HomeAway. For long-term rentals, Cozy, a property management software company, recommends doing pricing research on local listings from craigslist and Roommates.com.
Look at the room—and your overall property—as though you’re the potential renter. How can you make the space more attractive? Or one better: Which improvements and upgrades can result in a higher rental rate?
In preparing a space for rental, Zillow recommends first changing the locks then repairing any problem areas (such as holes in the walls or eroding caulk), adding a fresh coat of paint, and getting the space professionally cleaned (including carpets). If the room is part of common areas that overlap with your living space, Cozy’s experts advocate for individual smart locks on each bedroom as well as moving valuables from common areas to private and secured storage.
Depending on your current homeowner’s insurance policy, you may already be covered for losses, damages, and liabilities should you rent out a room in your home. Contact your homeowner’s insurance representative to go over your rental plans and how the coverage you currently have protects you, what gaps exist, and which services should be added to protect your home.
You may also want to ask your renter to look into renter’s insurance. According to Foundation Insurance Group, your homeowner’s insurance may not cover any damages to the renter’s belongings in case of fire, damage, or an accident. Renter’s insurance will also cover the renter should their actions cause damage to your home or belongings.
For listings, go back to the sites where you researched your rental prices and use these listings as examples of what to include when you post your own rental. Necessary details include rental type, how many people the space can accommodate, pricing, neighborhood/location, photos, availability calendar, and amenities. The team at Guesty has a step-by-step tutorial of best practices for Airbnb listings, including ideal summary length (spoiler: 250 characters or less) and optimal photo sizes. Additionally, most room rental sites have a tips and resources section with recommendations for how to make your listing stand out from the pack.
Regarding leases, at minimum, the lease for your room rental (both short- and long-term) should cover both the owner’s and renter’s rights and responsibilities, including the amount of rent, the dates of the rental, security deposit policies, and lifestyle factors such as pets and guests, says the team at RocketLawyer. Many free lease templates are available online to get you started, and it’s always a good idea to have a legal professional review any final documents before you get your first tenant.
Done wisely, renting out your spare room can bring in much-needed funds to help you reach your goals. Know your local laws, vet your renters thoroughly, and foster good communication with your renters and you’ll protect the value of your home while also accessing its income potential.
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