How to Rent a Room Overview
Renting out a room in your home to a stranger can seem like a daunting task, especially if it is the first time. There are four steps to follow to ensure you are complaint and that you have a successful tenancy. Let’s have an overview of these four steps before we get into the details of each action.
Step 1 – Compliance:
Check the legal requirements for renting in your area. Review your insurance policy to see if you are covered to rent as a resident landlord. Check to see if your homeowner association has rules that prevent letting a room.
Step Two – Advertising:
Research prices in your area to set a benchmark. Prepare the room and take quality photos. Place an ad on a website.
Step Three – Tenant Screening: Use pre-viewing questions to eliminate some applicants. During the viewing, screen tenants & establish any house rules that apply to the letting. Run a background check.
Step Four – Sign a legal agreement & Collect the Rent: Once you have selected the tenant, sign a tenancy agreement. Colect the security deposit and one month’s rent upfront.
What are the Pros and Cons to Renting A Room in Your House
- Income: The most obvious benefit is the additional income. If you live in Ireland or the UK, there is a decent tax-free allowance for resident landlord.
- Shared bills: In addition to the monthly rental income, the bills are shared with the lodger.
- A stranger in the midst: Many people will find unnerving to have a stranger in their home. A proper screening process is essential. Personally, I had no problem when I rented out my spare room.
- Damage, Unpaid Bills or Rent: There the possibility that the lodger of one their guest’s damages someone in the property and refuses to pay for it, or they will leave without paying some rent or some bills.
How Much Can You Rent Your Room For?
I know this is the most important questions for many people. After reviewing several websites, I decided it would be easier if I did some research myself. I checked the price of a room for rent in each of the state capitals. The source of the data was roommates.com over a two-day period (02 & 03 October 2020.)
In each state capital, I searched for a house or apartment with a lease 12 months. I filtered so that I would not share a bedroom but sharing a bathroom was allowed. I described myself as a professional, non-smoker, no kids, and no pets. I did not specify my age, sex, or sexual orientation.
I calculated the rent range by averaging the five least expensive advertised properties (for the low), and the five most expensive listings (for the high). If there was less than 10 listing, then some ads were in both calculations. The search parameters remained the same for each area.
Table Summary of Rental Data
How Set the Price of Your Spare Room Rental
Now that you have an idea of the range of prices that can be found in your local area, let’s look at how you can specifically set the right price.
Amenities & Bills
Consider what your property has to offer that may differentiate it from the others. Is the room bigger or smaller? what furnishings are provided? do you have parking, fast internet, air-con, clothes washing machine, etc? Is the property in good condition? Do you allow pets? These items will add to the rental value. CNBC have a short article that lists some of the other factors that influence the price of property rentals.
Your Personal Situation
Consider what are your costs and income goals form the rental. Understand the difference between what you want, and what you need. Do you have the financial means to wait for someone who is willing to pay slightly above the market rate, or do you need someone as soon as possible?
Competition & Market value
It will come as no surprise to learn that the biggest influence of rental price is location. So, regardless of all the positive factors that your property has to offer, there will be a limit to the rental price. Consider, the competition in the area – if supply exceeds demand in your area, then you may have little option on the pricing.
How to get the best price for the room rental?
Use Superior Quality photos
Superior quality photos in the rental listing will put you at an advantage to many other listings in your area. It will make the property more desirable before the prospective tenant has even seen it.
Clean and Clear
The spare room in my house is also the junk room: old clothes, toys, and books were temporarily dumped and now sit happily. Be sure that the room is clean and free from clutter. Open any blinds to let in light.
Stage the Room
Even if the room will be provided unfurnished, making the bed, adding a lamp and wall picture will make it more attractive.
Rent the Main Bedroom
If your primary concern is income, consider letting the master bedroom. Typically it can earn a better price.
Where you do you find clients?
There are dozens of websites offering property advertising services. I tried a few of them and made some notes on the price. Honestly, I found minor differences between them.
|Roommates.com||$5.99 for 3-day membership to $29.99 for 60-day membership.||Free to join and for basic search. Membership allows advanced messaging and better profiles|
|Roomi||2.99 for three days at the top of search and caps at $9.99 for 10 days||Posting is free, but at least one of the parties — either the room poster or the person seeking a room — needs to be a paid member.|
|RoomieMatch.com||Free or $19.95||Several upgrade options are available for an extra fee to the $19.95.|
|Roomster.com||Free or paid||I couldn’t find the price on the roomster site. Perhaps it’s a secret?|
Paid members have better communication options
Screening & Selecting the Right Tenant
Putting some upfront preparation into an effective screening process can save you a lot of heartache, time, and money. A survey of 950 landlords indicated that almost 18% regretted not putting more time into tenant screening and an additional 14% regretted not performing a background check. The person that you select will live with you; so, you will also have to live with any issues that may arise. The following section will give you the necessary tools to ensure that you screen out any bad apples.
Advertising the Property – Being Legally compliant
The Fair Housing Act is federal legislation enacted to ensure all applicants and tenants are fairly considered. However, renting a room in the property that you live in may exempt you from provisions of the Fair Housing Act; The exemption does not apply to rental advertising. You cannot be obviously discriminatory in your listing. This legislation is designed to prevent discrimination based upon seven criteria described below.
- National Origin/Ethnic Background
- Familial Status
- Mental/Physical Disability
The exemption is also not uniformly applied in every state. Some states allow exemptions with conditions, and some states have no exemptions. Some states or municipalities have additional more strict legislation to adhere to. Examples of additional discriminatory factors include immigration status, sexual orientation, or medical conditions. This is not an exhaustive list. Be sure to check your local legislation.
Pre-Viewing Questions to Ask
You can ask the applicant via phone or email some questions to help you quickly eliminate people from the application.
Personal Preference Questions to Ask Prospective Tenants
There are things that some landlords are willing to accept while others are not, e.g., smoking and pets. Create a list specific to your preferences and ask the candidates.
Other Recommended Questions to Ask Prospective Tenants
- When do you want to move in?
- How long will you stay for?
- Will you sign a list of [your preference] months?
- Can you to pay security deposit and one month’s rents in advance?
- Do you want to have people visit/sleep over? If so, how often NOTE: be careful about asking about wives, children, boyfriends etc.
- What hours do you work? Note: Be sure they match your normal hours. You don’t want a housemate that is awake all night
- Have you ever been evicted?
- Have you ever filed for bankruptcy?
- Can you provide references that we can verify with previous landlord?
- I will run a background check, is there anything you want to make me aware of before
Once you have narrowed down the selection, invite people to view the property. During the property tour make small take. This will allow you to assess the persons personality, enthusiasm, ability to communicate and have a civil conversation.
During the viewing outline the “house rules” and tell them the expectations pertaining to lease. Watch for any warning signs as you chat: Do they ask about paying deposit and first month’s rent on instalments? Are they aggressive of dismissive of the rules that you outline?
When I rented the room in my first home, I always did a guided tour. It was for two reasons, first I can chat and answer questions and secondly, I can keep an eye on the person. While most are trustworthy, there are some people who will steal anything.
Once you have narrowed down the selection to a few candidates, its time to investigate them a bit further. The simplest way is to pay an agency such as RentPrep or SmartMove to do the check for you. The fee they charge is small. SmartMove background checks include:
If you go it alone, at least ask for landlord references for the last 4 years. If there are lots of landlords, that may be a sign that they will not stay for long, or that they have had issues.
Contact two landlords and ask if they experienced any antisocial behaviour issues, rental payment issues, or damage to the property.
The Rental Agreement
Before you arrange to rent out a room in your home, it is strongly recommended that you and the tenant agree some ground rules and put them in writing. Having a formal written agreement with the tenant may seem like extra unnecessary work, but I really recommend having one. Both you and your tenant will each sign and keep a copy. Later, should any confusion or disagreement arise, you can both refer to the document. I have summarised below some key points to considers.
Poits to Consider for the Tenancy Agreement
- What is the duration of the tenancy?
- What is the notice period should either of you chooses to end the tenancy?
- What is the rental amount? What is the frequency of payment (for example, weekly, monthly)? How will it be paid?
- What are the rules for communal areas – kitchen, parking, garden, laundry, etc?
- When are you permitted to enter their room?
- When will the rent be reviewed and how much notice will you give the tenant of a rent review?
- Are utility bills (such as phone, broadband, electricity, gas, TV, waste charges) included in the rent or will they be divided between you and the tenant?
- Are overnight visitors permitted?
- Is smoking allowed? Are Pets allowed?
- Are there noise restrictions?
- If the room furnished include and inventory
- Reasons for termination
How to End the Agreement
If your tenancy agreement is well structured, it will include a provision that breach of the agreement is grounds for termination of the agreement on short notice. You should also have a reasonable notice period to allow either party to terminate.
If the tenant doesn’t want to leave, the initial course of action is to talk to the tenant. After that, the only recourse is legal action via eviction. This is thankfully rare, and most people will just leave.
Your Rights & Obligations and The Tenants’ Rights
Renting out a roon in your house comes with legal obligations and rights for both the tenant and the landlord. The good news is that renting a room in your own home is less burdensome as renting a separate property.
That said, be sure to check the tenants’ rights as specified by U.S. Department of Housing and Urban Development (HUD). Usually each state or city will have additional resource that you can use. Here is the example from New York, but luckily HUD has a list for you to check the rules in your state. Be sure to look at the sections for renting a room only as opposed to a full house or apartment.
What Are the Tax Implications of Renting a Room
The IRS considers the rent that you collect from letting out spare room in your house as income. Therefore, it must be reported to the IRS and state taxing authorities. There is some good news; you can make certain deductions against this income thus reducing your tax liability.
In the UK, there is a Rent a Room Scheme that allows you earn up to £7,500 per year tax-free from letting out furnished accommodation in your home. If you earn more, then it is reportable and taxable. Unfortunately, it is per house, both you and your partner/spouse cannot claim £7,500
In Ireland, if the amount of rent collected including any additional paid for food, utilities, laundry or similar goods and services, does not exceed €14,000 in the tax year (1 January to 31 December), then it is tax free.
Renting the Spare Room: Quick Fire FAQ
Is it legal to Rent a Room in my House?
Generally, there are no laws to preventing you from doing so. The property must meet the minimum standards set out by your local authority. Some residence associations may have rules against.
Do I Have to Report the Income?
It varies from place to Place. In UK, Ireland there is tax free amount that can be earned. In the US, its income and must be report but deductions are possible. See the section “Tax Implications” above.
Do I Need Special Insurance?
Most insurance policies will allow you to rent a room in your house if you are a resident landlord. It is imperative that you check the specifics of your policy. If your policy does not allow you to rent a room, be sure to shop around for a cheaper policy that does include it.
Should I Rent to a Friend?
I have rented to two friends during the couple of years that I let out the spare room in my first property. For one friend we had a falling out and I kicked them out. It was messy as we had common friends. Also, some friends may expect a mate’s rate discount.
How Much Can I Earn from Letting a Room?
The price varies significantly. See “How Much Can You Rent Your Room For?” above
Should I have a rental agreement? What should it say?
A rental agreement is strongly recommended. Please refer to the section “The Rental Agreement“