What Should I Know About Taking In A Renter? (Your Advice)

Your Advice - help answer readers' questionsIf 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?

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4 Responses to What Should I Know About Taking In A Renter? (Your Advice)

  1. Jim says:

    My wife and I have rented out rooms in the past. In addition to what “Sick of Debt” listed, we also had them sign a contract. This contract included the basic items (monthly or yearly length of stay, rent fee, etc.), but also included things like what are they allowed to use or not use (in the kitchen, refreigerator, stereo, TV, etc.), can they throw parties-notification, what about boyfriends/girlfriends, etc.). Some of the stuff seemed intrusive, but when you are sharing the place, each of you needs to know what is acceptable, expected, etc. In the end, the costs of having a poor experience could be higher than the costs of not renting the room.

  2. pfadvice says:

    Here are some more comments from the forums

  3. Rogan Creswick says:

    Great points Sick of Debt & Jim!

    In the past I’ve had pretty good luck with renters, and didn’t have to turn anyone down directly, so I haven’t had to deal with any legal implications (yet).

    For taxes, do you need to pay increased social security on the rental income? (If I recall correctly, a standard employee income splits social security with the employer.)


  4. SunNdeLight says:

    I have been renting 3 rooms in my house for almost a year now. Of the three, one is an original renter from the beginning, another has been with us for about 4 months and the third is newer. I have heard nightmares from others concerning renting property, but I have not had any problems insofar. I think it’s because the troublemaking type is not keen on living under the same roof as the landlords, therefore, I have more people that end up not wanting the rooms, but those who do are generally adults (such as divorcees paying child support)that have steady jobs and just need affordable housing. We all share the kitchen and there are three baths divided amongst all of us. My cost to furnish the rooms were minimal as I shopped around for good used furniture and my utilities have only gone up 100-200 per month (depending on the season a/c use etc.). I include all utilities (electric, gas, water), central heating and a/c, basic cable, washer/dryer access, and a Vonage phone line for all to share (apart from my own phone line). I placed cubby baskets in all baths with tenants room #’s on them to keep their hygiene products contained and I buy the toilet paper, dishwashing soap and cleaning supplies to keep the use and purchase fair. Everything else they buy for themselves including detergent. The additional income is great, my tenants are happy because they pay once for their bills and everything is covered and they still save some money. I ask that everyone take a minute each week to clean the bathroom or kitchen some, so it stays pretty clean since we all do something at least once a week. I had one tenant that couldn’t keep up with the rent, I confront her right away and she ended up leaving on her own. Like I said, living there too does a lot on it’s own to keep trouble at bay. It’s different when the landlord lives there too. One other benny of renting rooms is that when they leave, they often leave stuff behind they can’t take and though some of it is useless stuff to you, other things are valuable. Check your local area for renting legal rules (I also provide a keyed door for each tenant).

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