And 7 ways to avoid problems when you do
4 Reasons to Take in a Renter
by Gary Foreman
Sharing a House
Your House Can Make You Money
Successfully Living with a Roommate
The problem? You're a little short of cash each month. Your mortgage payment is too high, but you can't sell or refinance your home. One potential solution is to rent out a spare bedroom.
Does it seem like a strange idea? It shouldn't. Many of us are stuck in our homes. We can't sell or refinance because we owe more than the house is worth. Each month the mortgage payment squeezes, but there's no easy way out.
And, our homes are much bigger than they used to be. The average new home built in 2010 was over 40% bigger than one built in 1973. (http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf) That means utilities and upkeep cost more.
With a bigger home, there's a good chance that you have some spare space. Perhaps you have a spare bedroom or one vacated by your kids when they went off to college.
You could be sitting in the solution to your problem! Renting out a spare bedroom could solve both your cash flow and your oversized home problem. Let's look at four reasons why you'd want to take in a renter and seven suggestions on how to do it without creating problems.
- It's free money. Unlike landlords who own rental properties, you'll have very few expenses. Your mortgage and property taxes will be the same whether you have a renter or not. Almost all of the rent check will be profit for you.
- You'll have extra income to help handle home repairs. When money's tight, it's easy to overlook non-essential home repairs, and it's hard to pay for those that can't be ignored. Rental income can provide the funds to keep your home in good shape.
- Rents are high now. When people can't afford to buy homes, they rent. More demand means you can get more for your spare room.
- Your renter will benefit, too. It will be cheaper for them to rent a bedroom (with or without whole house privileges) than it would be to rent a one-bedroom apartment.
Sure, there are advantages, but if you're like most people, the thought of bringing someone into your home is a bit scary. There are potential pitfalls. Here are some suggestions for making the transition a smooth one.
- Set limits in advance. Will your renter have full access to kitchen, laundry room, and garage? How about the dining room and living room? Not only should you talk about it before they move in, but it should also be in writing.
- Rent to someone you know (and like). Since they're under your roof, you'll see a lot of your tenant. It's easier to find someone you enjoy sharing space with if you start with a friend or someone with common interests.
- Make sure your renter is employed. There's nothing worse for a landlord than hearing that your tenant needs "just a few more days" to make rent. The quickest way to get there is to have a tenant who's unemployed.
- Draw up a rental agreement. Even if you're renting to a friend, a written lease will avoid misunderstandings and disagreements. The temptation will be to leave it open-ended, but an ending date gives both sides an opportunity to step out gracefully. Three to six months is a good term. You can always extend it.
- It's essential to check references (especially former landlords or employers). You'll be tempted to skip this step, but don't. This is important even with someone you know. They say that you never really know someone until you live with them.
- Take a security deposit. Your friend can be a perfect tenant, but they may have imperfect friends over. And accidents happen. Avoid troubles later by taking a simple step now.
- Get an emergency contact. If something should happen to your tenant/friend, you'll need to know who to contact. If you don't have an emergency contact, you could find yourself taking on that role.
Are you heading for debt trouble? This simple checklist can help you.
You may have never thought of yourself as a landlord and never pictured renting out a portion of your home, but if you want or need to stay in your home and need a little extra cash each month, becoming a landlord could be a great solution to your problems.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
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!
- Do you struggle to get ahead financially? Then you'll want to subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.
More Money-Saving Tips for Your Home
- Should I use a HELOC for home remodeling and repairs?
- Find the best mortgage rates in your area
- 3 ways to use a mortgage calculator
- Mortgage calculator: Calculate your payment and more
- Home equity calculator: HELOC vs. line of credit
- How much can additional payments save me on my mortgage?
- Who offers the most home insurance discounts?