Okay, so maybe you're not quite ready to create your property empire, but the good news is, you don’t have to wait until you can afford to buy an investment property to find out if the landlord life is in your cards.
These days, more and more people are renting out a room in their primary residence to get a taste of what having tenants will be like and to offset the rising costs of home ownership.
If you’re on the fence about whether or not this living situation might be something you’re interested in, then this post is for you.
We’ve laid out some of the biggest benefits of renting out a room in your home. Take some time to read them over and decide whether this move makes sense for you:
Obviously, the biggest benefit of bringing in a roommate is the financial one.
Traditionally, rent prices tend to run higher than mortgage payments, so live-in landlords often find that they are able to significantly augment the cost of owning a home. This rings even truer when you consider the additional costs of homeownership that can be split with your tenant such as utilities. This includes electricity, water/sewer, garbage, even splitting the cost of a music streaming membership helps cut cost.
In order to see how much you could benefit, you’ll need to do some research.
Start by looking in to rental prices for room shares in your area to get a sense of how much you’d feasibly be able to charge. Then, compare that figure to your current monthly expenses to see if bringing in another person would have a significant impact for you financially.
Open Listings' own buying agent, Joe Arsenio, was able to cover his mortgage (and then some) by opting to rent out the extra rooms in his first home. For Joe, the pros outweight any cons.
"Doing this gives me the peace of mind that I will make my mortgage payment every month," he says. "I have a good relationship with my tenants and trust them to make their payments. That is so important."
Keep in mind, however, that not every cost will be shared. While every lease varies, as the landlord, you’ll probably still be responsible for most of the property’s upkeep and maintenance costs. You’ll also need to account for property taxes. As you work up your potential figures, make sure you account for these expenses in order to get a true picture of whether this arrangement makes sense.
For people who choose to itemize their deductions, renting out a room in your home can also come with some added tax benefits. We strongly suggest that you contact a tax professional for specifics on what deductions would be applicable to your situation, especially since the tax code will be changing.
However, here are a few commonly used deduction options to get you thinking:
- Depreciation of assets
- Insurance premiums
- Utility costs
- Administrative fees
- Advertising costs
Since you’ll also be living in the home, it makes sense to deduct a portion of these costs rather than the full thing. As always, if you decide to go this route, you’ll want to be sure to keep receipts and applicable paperwork on hand for later reference.
An extra pair of hands
For some of us, another added benefits of having a roommate is having an extra pair of hands around the house.
Whether you’re looking for someone with whom you can split the work of household chores or even someone that’s willing to help with larger maintenance projects, having another person to work with will certainly lighten the load.
That said, as with any roommate situation, you shouldn’t go in assuming that assistance is guaranteed. If you’ll decide to go this route, you’ll want to sit down with any potential tenants and have a frank discussion about your expectations regarding how much help you’d want around the house.
Finally, bringing a tenant in to your home may also bring value in the form of added companionship. If you’re currently living on your own and think that you’d feel more comfortable having another person there at the end of the day, bringing in a tenant may give you an added sense of security.
Again, you’ll want to interview potential tenants before signing a lease with anyone. Do your best to be honest about your living habits and what you’re hoping to find in a future roommate. While it may take a few tries for you to find a workable match, it’s worth waiting for someone with whom you feel your personality will mesh well.