Renting Out a Room in Your House: 10 Tips for Getting Started

This article covers the following topics:

2. Consider the Criteria of Your Ideal Tenant

If you rent out a room in your home, then you’ll become both landlord and roommate – are you comfortable sharing your personal space with someone else You must reflect on what you want from a roommate and a tenant, before the moving boxes start showing up.

Deciding on renter criteria early on provides several benefits:

• It makes it easier to write a rental listing
• It can help you tailor your screening questions when you start accepting applications
• It can help provide clarity into what you’re looking for

Here are a few examples of renter criteria you might consider:

• Enough income to afford rent
• Proven track-record of paying on time
• No criminal record
• No past evictions
• Doesn’t have pets
• Is a non-smoker

3. Create a Transparent Rental Listing

Once you’ve created your ideal tenant profile, create an effective rental ad to help attract prospective tenants. Within your listing, it’s important to highlight specifically what you’re offering and your property’s amenities, both shared and private. For example, if the only private space you are able to offer is a single bedroom within suite, then be sure to specifically note that as well as the specific living areas that will be shared.

In addition, it may be worthwhile to point out local attractions or conveniences that may help attract your ideal tenant. Think back to your tenant criteria – what kind of tenant are you looking to rent to

For example, if you’re hoping to rent out a room to a working professional, you might highlight local transit access for commuting. Or, perhaps you’d like to capitalize on seasonal college student tenants; in this case, your listing might highlight proximity to campus, local bars and recreational areas.

Your rental listing should be used to set clear expectations and explain basic requirements to potential renters. Notifying applicants of your requirements upfront can help you deter those who may be unqualified.

Beyond highlighting amenities, you should also explain rental application requirements such as:

• Completed rental application
• Referrals of previous landlords
• Current employer and contact information
• Authorization of credit and background check

Renting out a room in a primary residence comes with additional considerations. As you’ll be living with this tenant, you need to set behavioral expectations, as well. Be clear about what you’re looking for in a roommate, including your requirements surrounding:

• Quiet hours policies
• Use of communal space
• Frequency and amount of guests allowed in the space
• Access to shared amenities (Ex: garage, patio space, kitchen, etc.)

By setting these expectations upfront, you should be able to narrow down your pool of applicants more easily and increase your chances of finding a high-quality tenant that hits all your marks.

4. Set the Right Rent Price

No one wants to overpay for rent, so you’ll need to research on how much to charge when renting out a room in your home. Setting the right price can help secure your rental income, as pricing correctly could mean the difference between filling the room and dealing with a vacancy.

Before you even create a rental listing, learn how to set the right rental rate. Choosing the appropriate rent cost is important for several reasons. If you price too high, you may find it hard to rent out the bedroom. On the opposite end of the spectrum, if you price your room too low, then you may lose out on profit or attract no so great applicants.

Consider the average income of those who live in your rental market area. Your rental rate should target prospective tenants with similar earnings so you can fill your empty room faster and get paid sooner.

You might consider using Rentometer.com to help determine average prices, check out local forums, ask other landlords, or search “rooms for rent” on Craigslist, Roommates.com, and other similar sites to see what homeowners are charging in your area.

5. Become Familiar with Landlord Laws

Becoming a landlord means taking on a great deal of responsibility—and opening yourself up to the risk of tenant litigation.

Pay close attention to federal HUD guidelines governing tenants when choosing an applicant. It’s generally illegal to refuse to rent or sell a home to anyone based on:

• Race
• Sex
• Mental or physical disability
• Religion
• Familial status
• National origin or ethnic background

There are also local laws to keep in mind. Landlord-tenant law can vary from one city to the next, so you must read up on how to qualify and deny rental applicants the right way.

To help protect yourself from future tenant issues, consider seeking legal counsel from a real estate lawyer in your area to ensure you understand and follow local, state, and federal regulations.

6. Write an Airtight Lease

An airtight lease agreement is crucial, as it could serve as your protection if a landlord-tenant dispute ever arises. As you draft your lease or rental agreement, there’s plenty to keep in mind. Here are some of the terms you should consider in a rental agreement:

• Security deposits: A security deposit is used as a reimbursement in the event of damages or for other losses in revenue, such as rent non-payment. The amount you can charge for a security deposit is determined by state law, so do your research before settling on a price.

• Wear and tear: “Normal wear and tear” refers to the expected depreciation that naturally results from a tenant living in a property, such as faded carpet, peeling wallpaper, or worn-out floors. However, it’s important to distinguish between expected deterioration and damages due to tenant abuse or neglect, such as broken windows, carpet burns, or chipped flooring.

• Rent payment: You should designate how and when rent must be paid, and whether it’s paid by check, cash, or from an online rental collection.

• Late rent: Your lease should indicate what happens if your tenant pays rent late, including late fees and eviction processes if applicable. As a landlord, you are incentivized to collect rent in full on the day it is due. If you rely on rental income for your own bills, setting a precedent that late payments are acceptable can be a slippery slope. The standard late rent fee is 5%, but consider local laws when creating your lease.

• Pet policy: Will you allow your new tenant to bring pets into your living space Be upfront about your pet policy, and delineate pet deposits and fees if you do decide to allow animals.

• Utilities: As you will be sharing communal areas and amenities with your tenant, you need to determine how to split the costs of utilities. Make sure your lease indicates how and when utilities are paid.
• Access to common living spaces: What is the tenant’s access to common areas in the property This may include the kitchen, laundry room, living room, and other areas of the property. You must decide if you plan to create a separate entrance and consider how your tenant will affect your usage of the space.

• Criminal history: It’s important to ensure that you and your neighbors are safe, which is why it’s crucial to run a criminal history check on every new tenant. Up to 24% of applicants screened by SmartMove had a criminal hit on their record. Ultimately, a criminal report could help predict future issues with your tenant.

• Eviction history:According to a 2014 SmartMove user survey, the top two concerns of landlords are payment problems and eviction history.Past evictions may be an indicator of a troublesome tenant and landlords are highly incentivized to avoid eviction at all costs. SmartMove data shows that 8% of people screened by SmartMove have an eviction record. Considering that eviction-related expenses can cost a landlord upwards of $3,500, it’s worth it to vet an applicant’s eviction history upfront.
• Credit check: If you’re renting out a room in your house, then you may be relying on that rental income to handle your mortgage payments every month. A full credit check gives insight into your applicant’s financial history. Importantly, it provides information that can help you to understand if they will make monthly rent payments on time. With SmartMove, landlords also receive a ResidentScore® for your applicant. This is our proprietary credit scoring model that is proven to identify eviction risk 15% better than generic credit scores.

Pro-tip: Prior to reviewing a credit report, you should consider calculating a rent-to-income ratio, which measures the monthly or annual gross income a tenant must earn to be able to cover housing costs. While the industry standard is 3x the monthly rent, it’s important to evaluate market conditions and fair market rent. For instance, 3 times monthly income to rent in a very expensive market (New York City, San Francisco) might not be a correct benchmark, so consider the current conditions in your area. Once you know how much your ideal tenant should make each month, you can better examine their credit and Income Insights report.

If you haven’t noticed any tenant screening warning signs after running a thorough background check, then you can feel more confident that you’re choosing a great tenant for your spare room.

10. Remember that Rental Income is Taxable

Our final tip: Becoming a landlord means taking on an array of new responsibilities, including paying your dues Uncle Sam.

Taxes will take a significant chunk out of your rental income. Rental income has been defined by the IRS as “any payment you receive for the use or occupation of property.” But remember to consult your tax and legal advisors. Such payments may include:

• Normal rent payments
• Advance rent payments
• Security deposits
• Tenant payment for canceling a lease
• Tenant-paid expenses
• Property or services received as rent

You generally must report rental income on Form 1040, but it’s important to keep detailed records throughout the year, including payment receipts, expenses used to keep the property in good condition, and other important pieces of documentation.

Learn more about ways you can save when tax season comes around with this round-up landlord tax post.

Final Notes

Renting a room in your house can be a lucrative move and help you handle your monthly mortgage payments. However, you should consider all the pros and cons of becoming a live-in landlord before renting out a room in your home.

Remember, a new individual will be living with you on your property, so ensure you’re protecting your investment and yourself by thoroughly screening tenants before signing a rental agreement.

With convenient online tenant screening from SmartMove, you gain access to all the information you need to make a more confident leasing decision. SmartMove background reports include credit checks, eviction history, criminal records, an Income Insights report, and ResidentScore within just a few minutes. And, like the majority of the millions of landlords who use SmartMove, you can choose to have your prospective renter pay the fee.

2016 SmartMove survey*