Renting out a Spare Room for Extra Income
Some houses that people buy have more space than they really need. Use this space to make money and decrease your cash worries.
Ever thought about turning that den into a spare bedroom? Is there already a bedroom that’s unused? This could be a great opportunity to bring in a little spare cash into the household. Renting a room out doesn’t have to be a chore, and with a few precautions getting a roommate (roomer) that doesn’t interfere with your lifestyle and is responsible is quite possible.
Upfront Preparation for Renting Out a Room
Look at your local legislation! Each state/province has different legislation in their landlord & tenant acts. These are important to know what your rights and responsibilities are. If you are unable to provide what is necessary, then don’t do it. Usually the most difficult thing is simply getting a lock for the room. There are several rental agreements available online, such as this one for Alberta. Read these carefully! While they meet the requirements of the law, it is always possible to alter them and add provisions that are legal as long as they are initialed by both parties (such as, “No smoking; smoking on premises subject to 24 hours eviction and loss of damage deposit.”).
Make sure the place is clean. If there is any damage, take a photograph of it and include it in any move-in report. Have that initialed by the person moving in! Quite often a very small piece of damage, such as a scratch on a wall will magically grow ( although there is no logical reason why it would) and the tenant will deny responsibility. Better to have it repaired before renting the room out. Then take photos of the clean room without damage and have it initialed.
Make Household Rules Clear Before Renting
Let any potential renters know ahead of time what any rules for the house are. If it’s a vegetarian household, then mixing foods can be an issue. Non-smoking, allergies, pets, and so-forth can also be issues. Make sure that these issues are all communicated ahead of time! It really sucks to let someone move in if you asthmatic, only to find afterwards that he is a smoker. Even if it’s kept outside, it can make someone sick just from being on the clothes and then brought into the house.
Make sure that chores and cleaning duties are clearly outlined. Leaving dishes in the sink, even for a day, can be a big inconvenience for anyone else. Be certain that all people living in the house are clear about this courtesy. Other issues can be taking out the garbage, floors, outdoors, and (especially) bathrooms and kitchens.
Terminating the Rental Agreement
It will eventually happen that one party or the other will want to terminate the rental agreement. In most places 30 days notice, given at the end of a month, is required for the renter leaving a premise. This means that if a renter gives notice on the 15th, it is effectively 45 days notice. And if that renter leaves on the 15th of the following month, and no replacement has been found, the full month’s rent is still payable. This holds true for any day that is not the last day of the month. It’s even harder for landlords, as most jurisdictions require 90 days notice to tenants. Of course most landlords who are renting out rooms just let the renter leave and never replace that person when they are finished with renting and want to use the room for something else.
Taxes and Renting Out a Room
Technically speaking renting a room is taxable income and should be reported on annual tax returns. There are people who don’t do it, but that’s a risk they take. In reporting this kind of income, make sure that the proper deductions are taken so that taxes are minimized. This includes any costs to advertise the room, a percentage of the utilities, cable, phone, property taxes and mortgage interest. Oh, cleaning supplies are also deductible, as long as it’s only the proper percentage of the whole house expense! And so are consumable maintenance expenses. What percentage is right? Consider the number of people in the house and divide by that. For example, if the roomer is one of four people in the house, then 20% is acceptable. Another method is to consider the square footage of all the bedrooms and then divide it that way. Personally, I find the first method easier.
[Note: Yes, this is something that I have done in order to make ends meet. It has helped a lot!]
