Being a homeowner can be fantastic. You have the house to yourself, and you get to make the rules. However, sometimes we may face financial difficulties. Houses need repairs, renovations, and mortgage payments. So, to address these issues, we may have to be resourceful in finding ways to make some extra money. If you have some spare space, you might want to consider renting out a room in your house. For those of you who are new to this, here are some tips on doing it most efficiently.
Deciding on the Room to Rent
When deciding on which room to rent, you have to know that your room’s size and amenities will significantly raise the rent. It’s best to go with a room with its own bathroom. That’s how you’ll avoid busy morning bathroom traffic and having to share the cleaning chores. Usually, people who want to earn more money rent the best rooms in the house, especially if it’s a short-term arrangement. But, if you want the most convenience and privacy in your own home, you might want to consider turning your basement into an apartment. It could take some work and investment to renovate the place and add a small kitchen and bathroom, but it will pay off. Making your basement or attic functional and turning them into living space is a great idea that will help you to add value to your home.
Check the Local Laws
Many states in the US have different local laws regarding renting out a room in your house. Many cities require a license or impose certain limitations, especially when it comes to short-term rentals. If you are caught violating your city rules for homeowners, you may end up paying a significant fine that is not tax-deductible. Also, be sure the check all the potential rules your Home Owners Association has to avoid any penalties.
Maximize the Use of Space in the Room You’re Renting
Preparing the room for your new tenant is crucial when becoming a landlord for the first time. The place has to satisfy all the needs of the person living there. Think of it as a mini studio apartment. If you do some DIY renovating, like wall painting and optimizing the use of space, you can be sure to rent the room fast at a good price. That’s why it’s essential to get rid of all unnecessary things and declutter the rental space. Your new tenant will be bringing in many of their own things, so you need to reduce the amount of stuff in your place. After you have finished tidying up, write an inventory list of the things in the room you’re renting and your whole home. If there are some valuable items, store them safely or make sure they are safe.
Tax Deductions for Landlords
The money you receive for renting out a room in your house is taxable income. Luckily, there are a variety of tax deductions for landlords, so you can drastically reduce the income you must claim. Some of the most common deductions are for:
- Property tax,
- Mortgage interest,
- Operating expenses,
- Repairs and maintenance,
- “wear and tear” depreciation,
- Home office,
- Advertising
- Utilities
But you are only entitled to a deduction for the percentage of your home that is actually rented (based on square footage), so if for instance, your basement rental is 1/3rd of the total square footage of your house, you can deduct 1/3rd of your utility bill.
Notify Mortgage Lenders and Insurers
After you are sure you’re legally allowed to rent a room in your home, the next step is checking out your home insurance policy. Usually, most companies don’t have issues with it, but some of them might. However, in some cases, renting out a room in your house might increase your premium. Disclosing the issue to your insurance agent is the safest way to know you’re doing everything right. The same goes for mortgage lenders. Make sure they know about your plans because some of them might have different policies when it comes to real estate businesses.
Advertising Tips
As in any business, a good advertisement can do wonders. Use more than one media to promote your renting space. That way you will get some great offers. Plus, it will get the room off the market fast. Uploading great photos is a must since it’s the next most important thing next to a location that draws attention in the advertisement. Still, it’s imperative to be honest with yourself and your future tenants. The photos and the descriptions must be authentic. When putting up the requirements in the ads, make sure to mention every potential issue like non-smoking policy, pet policy, or preferable target group of renters. That way, you will avoid any potential dispute and disagreement with your room occupant. It’s also important to mention the benefits, availability of the internet, and proximity of significant amenities.
Prepare for the Interview
Every potential occupant should have a live interview. That way, you will get to meet the person you will share the living space with and check their references. Some landlords even check the credit and do a thorough background check on their future tenants. This might seem a bit overboard, but financial stability and recommendations are essential factors of any business. And especially when your home is your business. Also, it’s important to be professional and honest regarding everything, especially ground rules, the size of a security deposit, and special privileges. No matter how nice everything looks on paper, some things might be deal-breakers, so make sure not to skip anything significant. However, it’s necessary to ask some personal questions and habits of your potential tenant. After all, this is a two-way interview.
Have a Written Agreement
If you don’t set rules at the very beginning and have a written agreement about following them, you might soon have unnecessary misunderstandings. The document should contain the rent, the dates when the rent is due, the cover of utilities, and the details about the share of common areas.
Having a tenant can be a blessing because renting out a room in your house can help in many ways. You can use the rental income to pay off a credit card, student debt loan, mortgage, or even save some money for home improvements. Who knows, after the money starts coming, you might even consider expanding your business.
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