Are you struggling to pay your bills? Maybe you are looking to generate some additional income and increase your positive cash flow? Regardless the reason, renting out a room in your home could be a great opportunity. If you have the extra space in your home, why not consider getting paid for that space?
Renting out a room in your home has several advantages and disadvantages. On the positive side, if you purchased a home that is way too big for you and your family (as most people seem to have done), then you can at least get some relief in your mortgage payments. Since you are already paying for that space, why not get some of it back? It can help you pay down your debt and increase your cash flow.
On the other hand, renting a room to a stranger or even someone you already know can be a stressful situation. That is why it is so important to have a plan. The following list are a few things to consider before jumping into the rental game.
- Interview – Once you have identified a potential list of candidates to rent to, sit down with each of them for an interview. Treat this interview as you would a formal business interview and ask specific questions. Be sure to allow time for the potential renter to ask questions as well.
- Lease – Be sure to create a formal lease agreement between you and the renter. You can find tons of information online along with free rental contracts. It is also a good idea to have your attorney review the contract to protect yourself. Having proper legal guidance is critical when setting up a cash flow income stream.
- References – Ask a potential renter for both professional and personal references. Remember that you should treat this as a business transaction so references are a must!
- Do your Homework – Now that you have some references in hand, check them out. Call around to current and past employers to validate employment. You obviously want to make sure the renter can pay their monthly bills and are employed. Calling personal references will help you understand the character of the renter to ensure they are a good person and will be respectful of your home.
- Set the Ground Rules – Don’t forget to setup some guidelines and rules with a potential renter. Think of things like phone, cable, and utility bills. Are you planning on charging a renter for some of these costs? Also layout plans for meals and other activities around the home. You want to make sure the renter understands the expectations of living in your home outside of the signed contract. In addition, you should respect the renters space as they are paying for it.
- Negotiate – You should consider negotiating with a renter if they are looking to lower their payments. Maybe you could have them do certain jobs around your home like cutting the grass in place of lowering their monthly payments. This can help a homeowner save time as well as save money for the renter. While this option may not directly increase your cash flow, it will free up more of your time which is priceless.
- College Students – Look at attracting local college students who are searching for affordable housing. Provided you lay the ground rules, a college student can be a great fit as a renter in your home. There will always be a supply of these renters searching for affordable housing.
- Sex Offender List – ALWAYS check your state’s sex offender list to ensure the candidate is not on it. This is so important, especially if you have young children in your home. Safety and protection should always come first when renting out a room in your home.
- Friends and Family – Be cautious renting a room to any friends and family members. While you know their background already, it can be very difficult renting to someone you already know. Since you should treat renting out a room as a business transaction, it is hard to separate your personal relationship with a professional one.
There are obviously a lot more items you may want to consider before opening up your home to a stranger. If you have the available space in your home and are looking to generate some money, renting out a room can be a great way to build your cash flow. It can be one of the quickest and simplest ways to build an income stream that will pay you each month.
Have you had any experience renting out a room in your home? What are the pros and cons of renting your space?
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I’ve thought about doing this, although I have done everything I could to avoid it. I am just not someone who enjoys living with others. However, I noticed on Craig’s List a number of people who needed a room for just a month or two – students waiting for dorm rooms, people switching apartments or relocating, even some job transfers. I admit, that kind of roommate interested me far more then a year long “permanent” one. Setting up a lease for a short agreed upon time would make it much easier if the situation didn’t work out.
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pfincome Reply:
May 8th, 2009 at 10:10 pm
@Dawn – I thought you had a roommate? Or do you rent out a separate apartment?
pfincome’s last blog post..Build Cash Flow by Adding a Roommate
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Although it’s definitely a business transaction, and I would also be wary of renting to a friend/family member, regarding these “interviews” I would really not make them very elaborate. Having been through this process several times, most college students just need a place fast and many probably won’t contact you if there’s an “interview” involved – it’s fine to meet face to face but I would not advertise this as a formal interview. Just blend in the questions when you first show them the house/space. Also, if you appear too “micromanaging” that will steer some students away because from their point of view, if you’re already that uptight about renting, then any little thing they do after might have the fear of being some problem with you as the owner and that causes undue stress. So I would just recommend still being a bit more laidback about it than a professional job.
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pfincome Reply:
May 8th, 2009 at 10:07 pm
@MoneyEnergy – I appreciate your perspective in regards to interviewing potential roommates. I guess I would prefer to err on the side of caution having two young children in the house. To me if someone does not want to have an interview, I guess I would be okay with losing out on a potential renter.
pfincome’s last blog post..Build Cash Flow by Adding a Roommate
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This is a great idea, if you can be flexible. I had good friends who were newly married. They took on a roommate early in their marriage. I don’t know if I would have had that same courage, especially since the boarder lived in the room right next to the master bedroom. But, they are financially savvy, for sure. I like your list of guidelines for interviewing prospective boarders. It’s a good list for any landlord to pay heed to.
Steve’s last blog post..6 Secret Success Factors For Leading the Field
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passivefamilyincome Reply:
May 10th, 2009 at 12:05 am
@Steve – Sounds a little risky being a newlywed and having a new roommate at the same time! My wife and I attempted to rent out a room in our home last year to a relative. It was one of the worst things we ever did. But I still think about the two extra bedrooms we have sitting vacant and the money I could get for at least one of them.
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