Renting out a room in your house to a friend, family member or other person is a viable consideration. Many current and would-be Millennial and Gen Z homeowners are pondering and investigating this option and for good reason. It can be the needed ticket to homeownership affordability. The extra income can boost your tax return and help you to qualify when affording a home seems nearly impossible. But it’s not something for everyone and should not be taken lightly.
While preparing the room decor and furnishings in a cute and desirable way is important, there’s more to consider. Making sure that your home is safe, habitable and compliant with the law is first and foremost. We’ll cover the steps you need to take to rent out a room in your house, the right way. So, is it a good idea to rent a room to a friend? Weigh the benefits against the risks before you decide to landlord up!
Step 1: Definition of a “Room” for Rent in Your House
Renting out a “room” does not mean that any room in your home is appropriate, legal or safe for renting. Keep in mind that the room will be used for sleeping. Such rooms must comply with safety regulations and be permitted for such use.
For instance that den, basement, garage conversion or ADU building in your back yard must have legal egress windows. In addition, smoke detectors and carbon monoxide detectors for safety are required. Check with your local building department and licensed contractors for ensuring compliance and obtain the necessary permits.
Step 2: Check Your Local Laws: Before You Start The Process Of Renting Out A Room In Your House To A Friend, Check With Local Planning & Zoning
Check your local laws to make sure that you’re allowed to rent out a room in your home. Every state, county, and city has its own laws regarding renting out a room in a primary residence. You need to make sure you’re following applicable laws and regulations. For example, you may be required to obtain a special permit or license before you can rent out a room. Other areas may place restrictions on the number of people you can have living in your home. So it’s important to research these laws and get legal advice before you proceed.
Step 3: Liability Insurance: Get Insurance Before Renting Out A Room in Your House – Even To A Friend
Contact your homeowner’s insurance company and inform your agent that you are considering renting out a room in your house to a friend. The proposed policy must reflect sufficient liability coverage for a tenant renting a room in your home. Obtain a written cost quote. It’s always a good idea to shop and compare rates, coverage and deductibles.
Step 4: Make Any Necessary Repairs: Prior To Renting Out The Room
Once you’ve determined that you’re allowed to rent out a room in your house, it’s time to make sure the room is in good condition. This means checking for any plumbing or electrical problems, fixing any broken windows or doors, and making sure the paint isn’t peeling. If you’re not comfortable making these repairs yourself, you may want to hire a professional handyman or contractor to help you. This may cost a bit of money, but it will be worth it if it helps you find a good tenant.
Step 5: Furnishing & Decorating the Room In Your House
Although many rooms are rented out unfurnished, you may want to consider various styles of aesthetically appealing furnishings and room decor that will attract a tenant prospect while complementing the theme of the rest of your home. This will make the space more appealing and bring maximum rental coin (income) to the table. Imagine a bed and breakfast or a luxury vacation stay styled retreat that features all the bells and whistles guests love in the privacy of their own room. Typical room amenities include a coffee maker, mini microwave and fridge, a flat screen television and a work space with USB ports and internet access.
Preparing the space in such a way with these small appliances and amenities can offer maximum comfort, convenience and privacy that will benefit both you and your tenant’s co-living arrangement. Be sure to list all included items as the property of the landlord (you) in the rental agreement and note that they are to remain with the room upon future move out.
SBHG not so fun fact!: Did you know that cockroach infestation often occurs in homes and apartments through the process of relocation of infested furniture when moved from place to place? Yuck! It makes sense typically hotels and private vacation rentals with furnished rooms are less likely to encounter these types of hitch-hikers!
Step 6: Set Your Room Rental Price
Once your room is in good condition and spruced up for showing, it’s time to set a rent price. This should be based on the size of the room, the amenities included, and what similar rentals are going for in your area.
You may also want to consider offering discounts or incentives to attract tenants. Keep in mind that you’ll need to charge enough rent to cover your costs, so don’t be too generous with discounts or incentives.
So how do you know what fair market rent should be for your room rental? Check local listings of other room rentals in your area and see what other similar rooms with similar amenities are going for! Places to check include Zillow, Facebook Marketplace, Craigslist, local newspaper, etc.
Step 7: Advertise Your Room Rental
Once you have your room ready to rent, it’s time to start advertising. You can do this by placing ads in local newspapers, posting flyers in the area, and once again using online rental sites such as Facebook Marketplace, Zillow, Craigslist, or reputable online rental websites for maximum exposure.
Be sure to include detailed information about the room, your contact information, and any requirements you may have for tenants. For safety concerns, give a general location of your home, but not the specific address at this point in time.
Step 8: Interview Potential Tenants
Once you start getting inquiries from potential tenants, it’s time to start interviewing them and accepting applications. During the interview, ask questions about their job, lifestyle, pets, smoking and rental history.
Step 9: Take Room Rental Applications
You should provide and require a proper rental application to be completed by all potential tenants. Do not skip this step, even when renting out a room in your house to a friend or family member. Verify all information the tenant prospect has indicated on their rental application and retain a copy of their government issued ID or driver’s license. Ask for copies of recent paystubs to verify their income and call their employer to verify current employment.
You should also do a background check to make sure they don’t have a criminal record and a credit check to screen for payment history, delinquencies or collections that may be evidence of prior evictions.
If you’re satisfied with the results you receive, you can move on to the next step.
For safety reasons, initial screenings of potential unfamiliar applicants should be conducted at a public location or with someone accompanying you at your home during the showing of the room and your home’s facilities.
Step 10: Sign the Room Lease
Once you’ve selected a tenant, it’s time to draw up a lease agreement for the room rental. And YES, you still need a lease agreement and should never skip this step even when renting out a room in your house to a friend! The lease should include information about the rent amount, due date, forms of payment accepted and how delivered to you, the landlord, late fee, guest policy, laundry policy, kitchen use, pool use and times, the length of the lease, and any house rules or regulations such as smoking, pets, loud music, etc you have for the tenant.
Be sure to also include information about tenant rights, such as how much notice you need to give if you need to enter the property or if you plan to increase the rent.
If this is your first rodeo and you’re feeling apprehensive, consider a month to month agreement in the event you feel you may want to end the tenancy after a short time. It’s a good way to test the waters and keep yourself from being locked into a six month or longer lease agreement with no way out!
Step 11: Collect the First Month’s Rent and Security Deposit
Finally, before the tenant moves in, you’ll need to collect first months rent in advance and a security deposit in the form of cash, money order or cashier’s check. This assures that the funds are good before moving in. The security deposit is typically equal to one month’s rent, and it serves as a safeguard in case the tenant fails to pay the rent or damages the property.
Once the first month’s rent and security deposit is collected, the tenant can move in and you can start collecting monthly rent thereafter. Decide in advance what forms of payment you will accept and be sure the terms are included in the lease agreement.
Step 12: When something good goes bad
Sadly as with anything in life there’s always a risk of something going south. In the event you need to end the lease agreement and remove the tenant from your home, you need to do it in a proper, legal way. You can’t just kick them out or remove their belongings. Although eviction laws are typically different when renting a room in your primary residence, you must still follow certain procedures set forth by local laws and should consult a local eviction attorney for advice and assistance.
SBHG Tip: When renting out a room in your house to a friend or family member, be sure to set the ground rules early and make them aware that it is strictly a business agreement. Follow through with all the preceding steps outlined above. Know that your current relationship will be changing both personally and legally into a tenant/landlord arrangement. How will you handle it if they can’t pay when you’re counting on the rent money to make your mortgage payment? Ask yourself if it’s worth risking a good friendship or family relationship.
Conclusion
Renting out a room in your house to a friend can be a great way to bring in extra income that may also help you in your path to homeownership, but it’s important to do it the right way. Following the steps outlined in this article will help ensure that your rental experience is a positive one. Bestie of luck!
Rental Forms & Help:
Start your landlord journey today by using these easy access legal forms and assistance below.
Rental Application
To access the Rental Application form, click on the link below. Enter “rental application” in the search field at the top of the page.
Month to Month Lease Agreement
Access the Month to Month Lease Agreement form when renting out a room in your house. Click the link below. Enter “month to month lease agreement” in the search field at the top of the page.
Rental Advice
Need help? Submit your question to a Lawyer in the box at the right of the search box.
Frequently Asked Questions: Renting Out a Room in My House to a Friend
How much rent should I charge a friend?
Determining the appropriate amount of rent to charge a friend involves considering various factors. Here are some steps to help you arrive at a fair and mutually agreeable rent:
Research Local Rental Rates: Begin by researching the average rental rates for similar properties in your local area. This will give you a baseline for understanding the market value.
Be Flexible: Understand that circumstances can change. Be open to reevaluating the rent if either party’s financial situation changes or if there are significant changes in the housing market.
Factor in Friendships: While it’s a business arrangement, consider the impact on your friendship. Be transparent, communicate openly, and ensure that both parties feel comfortable with the agreed-upon terms.
Remember, the key is to find a balance that is fair for both parties, considering the local market, your costs, and your friend’s financial situation. Open communication and transparency are crucial to maintaining a healthy relationship during the rental arrangement.
What are the cons of renting to friends?
While renting to friends can have its advantages, it also comes with potential downsides. Here are some cons to consider:
Strain on Friendship: Mixing business with personal relationships can sometimes lead to tension or strain. If there are disagreements over the terms of the rental or issues with payment, it may affect your friendship.
Payment Issues: If your friend encounters financial difficulties, it could lead to challenges in receiving rent on time. Addressing late payments or enforcing the terms of the lease can be awkward when dealing with a friend.
Expectations and Boundaries: Friends may have different expectations about the landlord-tenant relationship. It’s crucial to establish clear boundaries and expectations from the beginning to avoid misunderstandings.
Privacy Concerns: Renting to a friend may blur the lines between personal and private spaces. It’s essential to establish boundaries and respect each other’s privacy to maintain a healthy living situation.
Difficulty in Enforcing Rules: Enforcing rules or addressing violations of the lease agreement may be more challenging with friends. This can lead to uncomfortable confrontations or reluctance to address issues directly.
The biggest cons of renting out a room in your house to a friend
Risk of Damaged Relationship: Property-related issues, such as damage to the rental unit, can strain the friendship if they are not handled carefully. It might be difficult to navigate repair responsibilities without causing tension.
Market Value vs. Friendship Discount: Offering a significant discount to a friend may mean you’re not charging the market rate for your property. This could impact your finances and the perceived value of your property.
Legal and Financial Risks: Ignoring or being lax about legal and financial aspects of the rental agreement could lead to complications. It’s important to have a formal agreement in place to protect both parties legally.
Unequal Contributions: Friends might have different standards of living or expectations regarding the property. If one party contributes more to the upkeep of the property than the other, it could lead to resentment.
Changes in Circumstances: Life circumstances change, and unforeseen events can impact the rental arrangement. If either party experiences significant life changes, it may affect the ability to continue the rental agreement. To mitigate these potential cons, clear communication, a well-drafted lease agreement, and a mutual understanding of expectations are essential. Both parties should approach the arrangement professionally and be willing to address issues promptly and respectfully to maintain the friendship.
How do I protect myself when renting to a friend?
Although it can be a sensitive and awkward situation, establishing clear rules with your friend from the get-go is crucial. Implementing house rules can help set important boundaries. Treating the arrangement like a real business will help protect you should a legal dispute arise. You will become the landlord and your friend will become the tenant under the eyes of the law. Be sure to go through all the same steps as you would if renting to anyone else. A rental application, written agreement, move-in walk through with accompanying photos as well as a security deposit is essential. There are different laws when renting out a room in your personal residence than a rental property. It’s a good idea to have a brief consultation with a real estate attorney concerning all of the “what if’s”?
What are disadvantages of renting a room in your house?
Renting out a room in your house to a friend can come with disadvantages. Lack of privacy, liability for injury or unlawful acts and tenant damages to the premises to name a few. In addition, tenant may not pay and refuse to vacate, forcing landlord to pay to evict the tenant. Oh, and don’t forget emotional stress!
Is renting a room taxable income?
Yes. Rents received is income received and must always be reported to the IRS and your state if applicable. Just as with any business income, you can write off expenses. A portion of the property taxes, insurance, maintenance, utilities, and repairs against gross income can offset the net income. A qualified tax professional will be able to best assist you. Consult with a tax expert for the ins and outs of your annual tax filings.
What does renting with friends mean?
Co-renting is defined as sharing a house or apartment together with friends or other persons. In co-renting arrangements, all parties sign the lease agreement and are held equally responsible for the actions of the others. This includes paying the entire rent if one or more of the co-tenants do not pay.
Author: Jennifer Ivanov
Jennifer Ivanov built spec homes in California before moving to Wyoming, and has built homes here. She has valued property as an appraiser, arranged financing as a mortgage broker, and represented buyers and sellers as a licensed broker. California DRE Lic #00993276.
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