Turning your home into cash
by Mary Thurman Yuhas
Living with a Roommate
13 Secrets to Successfully Taking in a Roommate
Renting a Spare Bedroom
According to the U.S. Census Bureau, homeowners are renting out spare rooms to boarders in numbers not seen since the first half of the 20th century.
David Johnson, chief of the Housing and Household Economic Statistics Division at the U.S. Census Bureau, wrote in the bureau's official blog that the number of unrelated adults living in someone else's home rose from nearly 62 million in 2007 to over 69 million, or 30 percent of all households, in 2011.
Molly Gill, a Realtor with Re/Max Results in Edina, MN, estimates that about 10 percent of her sellers are renting out rooms to help cover their mortgages. "It is difficult to know with certainly because primarily it is done under-the-counter," she says.
A Substantial Second Income
Mike Choi, a 31-year-old engineer from Waterford, CT, has been renting out two of his three bedrooms since 2006, a decision he came to after he decided to go back to graduate school but had no way to pay for it.
The Accidental Rental: A 12-Step Plan for Landlords
"Nowadays it is not uncommon for young professionals to rent out spare bedrooms to help quickly pay down the principal on their mortgages," he says. "I plan to do this into the foreseeable future."
Choi has been so successful that his rental income has paid for graduate school, helped him pay off his 30-year second mortgage in only six years, and helped him build a sizeable emergency fund.
Choi even decided to start his own blog for other live-in landlords. "I figured blogging about my real life personal experiences in renting rooms to roommates would be an excellent way for me to share my thoughts and tips, such as how to avoid a common Craigslist scam or knowing the difference between rental income and rent price," Choi explains on his blog.
Is Renting Out Your Home Worth It?
While he has always used Craigslist.com to find renters, Choi says he may soon begin to rely on Facebook. "I've had 10 different roommates and they've all been a good experience, and I've only had one that missed a month's rent," he says.
4 Tips for Live-In Landlords
Brittney Benson, general manager of the National Association of Independent Landlords in Los Angeles, offers the following tips for anyone considering becoming a live-in landlord:
It's all about security: Benson says personal security is paramount since you will be living with a stranger. First, make a copy of your tenant's official photo ID to verify their legal name. For around $25, Benson suggests that landlords use a tenant screening service to search for criminal and eviction reports. Landlords must secure permission from an individual before running the search, and the prospective tenant usually pays the fee, she explains.
Benson says calling employers to verify employment and income before signing any rental agreements is also vital. "I have heard horror stories," she says.
In addition to personal security, live-in landlords must also consider their financial security. Benson recommends having potential applicants pull their credit report so you can verify that they have a history of paying their bills on time.
Follow the rules: All fair housing laws apply to live-in landlords, so Benson recommends reading all of the laws affecting both landlords and tenants on HUD.gov.
Leases are your friend: Benson is adamant about having a lease or written agreement so everything, such as parking and utilities, is spelled out and in writing. State-specific leases can be bought from LegalZoom.com or Office Depot for about $40.
Benson advises live-in landlords to use a month-to-month or even week-to-week lease. "If you're not liking the person after a week and they've signed a lease, in 30 days, you can have them out without a reason."
She also recommends asking for as much of a rental deposit as your state will allow in case of property damage.
Zoning: Laws regarding landlords and rental property vary from state to state and town to town. Additional regulations may apply if the homeowner belongs to a homeowners association. Benson says be sure to check out the requirements for your area.
Don't Forget about Taxes
Steve Whitehill, a CPA and president of Anchor Business & Financial Services Inc. in Boca Raton, FL, says there are taxes on the rental income. "Income is income and you have to declare that on your taxes, and then you can take the appropriate deductions," he explains.
Take the Next Step
- If you haven't looked for a lower mortgage rate in the past year you could be wasting money each month. Use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
Share your thoughts about this article with the editor: Click Here
Prices keep rising while my income remains stagnant and I worry I am heading for debt trouble. Tell us: Yes, I think I am heading for debt trouble and could use some help! or No, I am not in debt trouble but I am always looking for new ways to help keep my budget on track!
More Money-Saving Lifestyle Tips
- Don't buy these 7 things in August
- 4 steps to a simpler (and more frugal) life
- 6 tips for a fabulously free vacation
- Secrets to living luxuriously for less
- Money-saving secrets of the rich and frugal
- 4 secrets to being a frugal foodie
- How to be both generous and frugal
- Should you sell to American Pickers?
- Get well gift basket ideas
- This week's Readers' Tips