If you have extra space in your house, you may have considered renting out a room to bring in some extra cash and share the utility bill costs. One reader is thinking about doing such a thing, but wants to know if there are any hidden costs that he should be aware of:
I am curious about the hidden costs associated with renting out a room (from the perspective of a landlord). While I have managed property in the past, I was never responsible for the income, I just made sure there were enough people renting, that they paid rent and utilities on time, and kept the unit(s) in good condition. As a result, I’m not sure what to expect on the financial side of renting.
The reason I ask is that I am about to close on a condo purchase, and the condo I’ve found is somewhat larger than I need, so I will have space to rent a room. (I’m confident that purchasing is the right decision for me at this time, despite the state of the market. My mortgage will be very comparable to my current rental expenses, and the associated costs are not high enough to have a drastic impact on my lifestyle. The location I’m buying in is also one of the few that actually shows signs of growth in the near future.)
While the condo is within my abilities, I will be draining my savings significantly in order to make the down payment, and it will take some time to recover. I’m hoping that a renter can help shorten that recovery period. However, I’m concerned that the amount I can expect to get for the room (~$450-550 / month, based on the rental rates of similar rooms in the area) will be reduced so much for various reasons that the end contribution will not be worth the inconvenience of sharing a condo.
What can I expect to actually take home each month from a rental situation like this? Is this income going to be taxed just as my standard income, or is that treated as some small business, and taxed differently? When is it worthwhile to create a personal corporation and use the rental income to pay expenses pre-tax? (I’m assuming it’s *not* worthwhile for this, but I’m still curious.) Will having a renter make a significant change in insurance? (Am I liable if they
slip in the shower and become injured, for example?)
Would you consider renting out a room to bring in extra money? If you have experience with this, are there hidden costs or other issues which a first time renter should be aware of before proceeding?