Have a spare room and need a little extra income? We explore the pros and cons of renting out spare space in your home as well as some tips for making it a positive experience if you decide to give it a try.

by Gary Foreman

Can you give us any advice on the pros and cons of renting a spare bedroom? And, if we do rent it out, what can we do to make it work for everyone?
Seth

You’re right. Renting out a spare bedroom can be a great way to turn an unused asset into extra income.

But renting a spare bedroom doesn’t come without risk. There’s a right way and a wrong way to do it.

Let’s look at some guidelines to decide whether it’s a good idea and some tools to make it successful if you do decide to rent out a room.

Begin With a Little Self-Examination

Are you private people? Or do you enjoy having other people around? You may be the type who values privacy so much that having a renter isn’t realistic.

You’ll also need to be honest about how important the money is to you.

If the income from renting a spare bedroom is necessary to help you pay your mortgage, you’ll need to be willing to put up with some inconvenience. On the other hand, if it’s just a little extra income, then you’ll be less willing to change your lifestyle to accommodate a tenant.

Account for the Additional Expenses and Taxes You’ll Likely Incur

Estimate how much income renting will generate. In addition to extra income, you’ll also have increased expenses, especially utilities.

As far as the IRS is concerned, the rent you receive is taxable income. You will be able to deduct expenses, but there’s a good chance that you’ll owe some taxes.

Understand What It Takes To Be a Landlord

Finally, decide if you have what it takes to be a landlord.

Find out what the law is in your state regarding removing a renter from rental property. It’s very hard to do in many states, and that can be very frustrating, especially if they’re living in your home.

Will you be able to stand firm if your renter doesn’t live up to their side of the agreement? If not, renting a room might not be a good idea.

Use These Tips To Increase Your Odds of Success

If you decide to go forward, you’ll want to use these tools to increase the odds of success.

1. Begin with the renter.

Decide whether your new roommate will be more of a renter or a family member. Your decision will have a major impact on your next steps.

For instance, you might want to limit a renter to their bedroom and a bath, but a friend could have access to the entire house.

2. Try to find a renter whose lifestyle is similar to your lifestyle.

If you’re a quiet person, renting to a partier is likely to become a problem. Messy people shouldn’t rent to those who love neatness.

3. Choose your renter carefully.

A background check might seem silly, but it’s essential with strangers. Even with long-time friends, you’d be surprised at what you don’t know about them.

4. Work out schedules for any common areas.

For instance, if you’re allowing access to your washer and dryer, make sure that you don’t both want to use it at the same time. The same is true with the kitchen.

5. Anticipate household trouble spots.

Bathrooms and kitchens are potential problems. No one likes to clean up someone else’s mess.

6. Clearly define any house rules in advance.

Is your renter allowed to entertain guests? If so, is it allowed just in their room or in the common areas as well? Are overnight guests allowed? If so, how many nights are they allowed?

7. Have a written lease no matter what.

Next, you’ll want to have a written lease, and don’t kid yourself that you won’t need one if you rent to a friend. A written document is even more important with a friend.

Make your written agreement specific. It should specify not only the monthly rent but also when it’s due and what happens if it’s not paid on time. Specify if your renter is responsible for any household chores. Make sure you include a security deposit.

Work out in advance what happens if the rent is late. Will your roommate need to give you advance notice if they intend to move out?

It is important to resolve lease issues before someone moves in. You can coolly establish parameters, responsibilities, and consequences if necessary. However, resolving troubles after they occur will be much harder.

8. Allow for a trial period of two or three months.

At the end of that time, either side should be able to walk away without any hard feelings. If you decide to continue, have an ending date in the lease that will require both sides to agree to extend.

Renting a room isn’t an always an easy way to earn extra income, but if you have the right temperament and find the right tenant, renting out a spare bedroom can be a wonderful way to help balance your budget.

Related Articles

• 10 Ways Your House Can Make or Save You Money
• 4 Reasons To Take in a Renter and 7 Ways To Avoid Problems When You Do
• The Benefits of Living with a Roommate at Any Age
• Emptied the Nest? Consider Taking in a Renter for Extra Cash

Reviewed March 2024

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletter. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.