Renting a Room
By: Real Estate Hotline
Summer 2023 (Vol. 41, No. 2)
Need extra income? Think about renting space in your home. The idea of sharing space with a stranger can be scary but it doesn’t have to be. Unless your HOA says differently, taking on a boarder is legal in most municipalities.
The two most important rules for success are a thorough tenant application and a well written lease. No matter how well you know someone, it is just good business to take an application, check references and run a background check. There are multiple online services such as RentPrep that offer screening starting around $20.
Even if your new tenant is a longtime friend or relative, you must have a written lease agreement that leaves no room for confusion. You can find sample room leases specific to your state through many online sites. Besides the basics, be sure to specify pet policies, whether utilities will be included and who is responsible for maintenance and cleaning of any shared areas. Don’t forget to list how much notice you each have for terminating the lease. Make your house rules part of the lease. You can restrict parking, specify quiet hours, smoking policies, and overnight guests. It is your home so you can ban cooking smelly foods or alcoholic beverages. Something as simple as assigning alternating days for laundry room use can avoid potential conflict.
Here are some other key points to consider:
- Check out rental restrictions at the local and state level at online sites like Avail.co, NOLO.com, and Municode.com
- Review the basics of the landlord/tenant laws in your state.
- Review your home layout and consider how an extra person will affect your life.
- Determine the size of the space you will rent and how much of the common area you will share. You may want to share the entire house or you could add a mini fridge and microwave to your rental room and restrict a boarder to only their space.
- Specify which bathroom(s) your tenant can use. You can’t deny your tenant a bathroom, but you can limit them to a specific one.
- Record a thorough inventory of what is included and complete a walkthrough inspection with your tenant at lease signing. A written along with video or photo record is helpful.
- Determine your ideal tenant. Are you comfortable with male or female? Do you prefer a college student or a retiree? Knowing the type of tenant, you want will help you decide where to market. For instance, if you relate to medical professionals, advertising at your local hospital may be a good place to start.
- Understand your tenant’s legal right to privacy. Install proper locks on their room(s) and review your state’s laws regarding restrictions on the landlord’s right to access.
- Require a refundable security deposit.
- Determine how much you will charge for rent and what it will include. Check local listings for rooms to rent and see how yours compares. If you need a specific amount of extra cash each month, start with that number and try to create a product that will bring that price. For instance, if you need to charge top dollar, it may be hard to include multiple restrictions. If you can offer extras like storage space or perks like a workout room or pool use, you can increase the price accordingly. Don’t forget to figure in any extra expense you may occur such as an increase in utilities, homeowner’s insurance, and taxes.
Q: Where can I advertise a room for rent?
A: Getting a referral through friends and family is a good start. Social media and neighborhood websites are a good resource. You can also choose from many online sites like reputablerooms.com, roommates.com or spareroom.com.
Q: Are room rentals covered under the Fair Housing Act?
A: The FHA prohibits discrimination in housing in the sale or rental of a dwelling. The traditional definition would imply that applies to renting an entire house, not space within your personal home. The FHA does not allow anyone to use discriminatory language when advertising for a roommate or boarder, except that you can specify the preferred sex. However, when it comes to choosing which interested person will live in your personal residence, new court rulings allow homeowners to choose based on their own personal criteria, even if it is discriminatory. Keep in mind though, if you were selling or renting an entire unit separate from your own living space, nondiscrimination laws would still apply.
Q: Is the income from renting out a room taxable?
A: Yes, even though it’s in your own home, you are still considered a landlord and you must pay federal income tax on your rental income. The amount you owe depends on your filing status and taxable income. In 2023 rental income will be taxed at the same rate as other earned income. Generally, rental income is reported on Form 1040 of your tax return. You can then use the appropriate schedules to deduct expenses related to your rental activities. These deductions can reduce your taxable income and lower your overall tax liability.