Renting Out A Room In Your House: A Landlord’s Guide

Renting out a room in your house can be a good way to generate income and help cover the mortgage. Learn about regulations, taxes and more.

Renting out a room in your house can provide an excellent opportunity to generate additional income and help offset the mortgage expenses. However, just like managing any rental property, it is crucial to approach this endeavor with the correct mindset in order to achieve success and avoid potential issues that could outweigh its benefits.

When you rent out a room, you take on the role of a landlord, which comes with specific regulatory and legal considerations. It is essential to understand these rules and regulations to ensure you treat your tenants fairly in the eyes of the law, don't get stuck with a bad tenant you can't remove, and don't expose yourself to any potential lawsuits.

In this article, we take a look at the laws that regulate tenants rights when it comes to renting out a room in your house, how to track income and expenses to ensure you aren’t overpaying taxes on this income stream (there are modern software that are ideal to help with this), and we outline a few of the best tips when it comes to managing your tenant.


Contents


What Does Renting Out a Room Actually Mean?

Renting out a room in your house can be an excellent way to reduce your living costs and makes a great introduction to the world of landlording. It allows you to rent out unused space in the property you live in and receive income which can go towards your bills and mortgage. 

However, renting out a room in your house isn’t like getting a roommate. You aren’t just sharing a space. Instead, you, as the landlord, become responsible for finding and vetting the tenant, collecting rent, and a whole lot more.

A few things to keep in mind include having a written lease agreement, familiarizing yourself with landlord-tenant law, working out the best way to collect rent, knowing how you’re going to split utilities, and establishing rules around property damage, pet fees, and guests. 

Plus, since you’ll be receiving an income from your renter you also need to make sure you’re familiar with rental income tax and have a system in place (like Landlord Studio) to accurately track all of your taxable income and tax-deductible expenses.

Keep reading for more details on this and a step-by-step guide on how to get started renting a room in your house.

Renting Out a Room: Pros and Cons

There are some obvious pros to renting out a room in your house. It allows you to generate extra income, it’s good practice for future real estate investing, allowing you to become familiar with many aspects of being a landlord without huge risk. And you may even qualify for significant tax deductions.

However, it’s not all good news. And you should carefully consider the potential cons as well before making the leap. Renting out a room can be a lot of work. You’re responsible for advertising the room, screening tenants, and drawing up legal documents. You also will need to maintain the room and the property as a whole, collect rent, and manage your finances in greater detail.

And of course, as you’re living in the same property, you have the added element of building a positive relationship with the tenant. A falling out could make the living arrangement untenable for both of you.

How to Rent Out A Room in Your House in 8 Steps

Ready to get started? Here’s how.

1. Prepare The Room

The first thing to do is to make sure that the room is ready for rent. Are you going to offer it furnished or unfurnished? You also want to ensure that you’re okay with someone having this space so that your tenant and you can give each other privacy. For example, will you be sharing a bathroom and can you offer separate access? 

2. Get To Grips with Landlord Tenant Law

You’ll need to know which landlord-tenant laws affect you. Make sure to check local and state laws as different areas have different regulations that you may need to be aware of.

3. Make Sure Renting A Room Doesn’t Affect Your Insurance Coverage

Not all insurance policies are created equal. Contact your insurance provider to make sure you have adequate coverage. You may be required to get a landlord insurance policy to legally rent space to a tenant. 

4. Set a Competetive Rent Price

The rent amount depends on a variety of factors including the location of your property, the room size, and the amenities you offer. Charge too much and you’ll have trouble finding a tenant, too little and you’re leaving money on the table. Research similar rental offerings in the area on rental listing sites and use those as a guideline for setting a competitive rent price.

When it comes to collecting rent you can use a free online payment software like Landlord Studio to streamline the process and automatically track your income and expenses.

5. Advertise your Property

Create a rental listing and publish it on rental listing sites, Be clear that the rental is a room in a shared house, not an entire apartment or independent unit. Include all the relevant details such as what the area offers and the amenities available.

You can use Landlord Studio to create a listing and collect applicants

6. Screen Potential Applicants

You want to ensure that the tenant you select can and will pay the rent on time and in full every single month. As such, it’s a good idea to run a full tenant screening and credit check. You can run a comprehensive TransUnion credit check through the Landlord Studio app.

Finally, before you make any decisions, because you’re going to be sharing a space with the renter, you should meet them in person to make sure you get along.

7. Create a Room Rental Lease Agreement

Your room rental agreement is a legally binding contract and is essential to protect both you and your tenant. It should clearly define the rules and expectations and you should make sure your renter fully understands the document before moving in.

8. Track Your Income and Expenses

Finally, you need to make sure you’re tracking all of your income and expenses related to renting out a room in your house as well as storing important documents for future reference.

If you want an easy (and free) way to track your finances and tenancies, create a free account with Landlord Studio.

Alongside award-winning rental accounting tools, you get access to rental listings, tenant screening, rent collection, property maintenance management, document storage, a receipt scanner, task management tools, automated receipts and invoices, and a whole lot more. So you can rent your room like a professional.

At tax time, you can export your data using our powerful reporting function to make sure you’re maximizing your rental income.

8 Tips For Creating Your Room Rental Agreement

The first thing you need to do is ensure you have a comprehensive and legal room rental agreement. This is your equivalent to a lease and should outline exactly what you expect from your new roomer as well as detail the basics like rent amount and due date.

Establish your House Rules

Clearly identify what the house rules and agreements are and include these as part of the rental agreement. Be sure to have this document signed by both parties. Once established, these house rules should not change unless agreed upon, in writing, by both parties.

Overnight Guest Policy

Include the overnight guest policy in the house rules & agreements – are guests permitted, if so how many? How often? Are there penalties if they have guests over too often? For example, an increased share of the utility bills.

Laundry Privileges

Specify the laundry privileges – if necessary, specify a day and time each week when the roomer can do laundry. How many loads allowed per week? Is there an additional charge?

Parking

Is parking is provided, eg. does the property have a driveway or garage? If so it may be helpful to designate a spot in the driveway for each vehicle. If vehicle shuffling is necessary, will the roomer and landlord have access to each other’s car keys?

Smoking and Pets

Specify whether or not smoking is allowed. In which rooms? Outside only? Also, are pets allowed? Again, if so, in which rooms of the house?

Entry to Their Room

Unsupervised entry into the renter’s room could be seen by the tenant as an invasion of privacy. Specify clearly the circumstances in which the landlord will enter the roomer’s room.

For example: In case of fire or other emergencies, or if they go away for the weekend and leave the windows wide open. Both parties must be respectful of each other’s right to privacy.

Phone, Cable, or Internet Connection

Specify what services are provided, if they are shared, any rules for sharing, how costs are shared, and how and when the renter is expected to pay.

Recycling and Waste Collection

Roomers need to be informed about how household waste is disposed of. What is the recycling policy, how should they sort their waste? When is rubbish collected?

Download A Free Room Rental Agreement Template

Open and honest communication, right from the start, is the key to a successful relationship with a tenant when renting a room in your house.

Whilst it’s not always necessary for you to provide a written rental agreement (depending on your location and the length of their stay) it is a very good idea to do so. Oral agreements can be incredibly hard to enforce.

As mentioned above, your room rental agreement should clearly outline exactly what your expectations are from your roomer as well as state clearly the important details of the agreement like:

  • Rent amount;
  • Rent due date;
  • How the tenant is to pay rent;
  • Guest policy;
  • Kitchen use;
  • Laundry policy etc.

Below we go into more detail around issues that should be established clearly in your rental agreement to make sure for a frictionless tenancy.

It’s a great time to ask your tenants to pay rent online, which can be automated to eliminate late payment headaches.

You can download our free room rental agreement template using the button below.

Laws And Regulations When Renting Out A Room In Your House

Laws and regulations regarding landlord/tenant relationships vary widely from state to state and even depending on the city that you are in within a certain state. To ensure you stay compliant with the law it’s well worth investigating any location-specific restrictions that may be in place regarding renting out a room in your house.

For example, it might be that you own a condo, however, your local homeowner’s association might prohibit additional occupants that aren’t family members – effectively meaning you can’t rent out a spare room in your property. There could also be restrictions on things like the number of people to whom a homeowner can rent to. Check your city zoning laws to ensure you are proceeding legally.

In other cases, there might be conditions rather than restrictions. For example, it might be a requirement that a renter has independent access to the rental space. Or, as is the case in some municipalities you might need to get an inspection completed on the room before you can rent it out.

Make sure your unused space complies with whatever regulations govern your area.

Renting Out A Room: Marketing And Discrimination

When selecting someone who will be living in the same house as you there are some exceptions to the Federal Fair Housing Laws’ traditional protection classes.

The Federal Fair Housing Act doesn’t allow any discriminatory language to be used when advertising a rental listing, or for you to base your final choice based on discriminatory factors.

The protected classes are:

  • Race;
  • Color;
  • Religion;
  • Nationality /Ethnic Background;
  • Gender;
  • Familial Status;
  • Mental/Physical Disability.

There are some additional state-specific laws dependent on your location.

However, when selecting a tenant who will be living in a space in your house, and you are also occupying that space, the Federal Fair Housing Laws do, as we mention above, make some exceptions.

In 2012, the 9th Circuit Court held that applying the same non-discriminatory requirements to a homeowner or tenant’s roommate selection would be a serious invasion of a homeowner’s privacy. Source.

What this means is that due to the shared space factor you can be more selective of the tenants that you choose. For example, if you are female you might advertise for a female roommate. If you are strictly religious you might advertise for someone of similar beliefs and dietary restrictions. In a traditional rental situation, this would be illegal.

“Because we find that the FHA doesn’t apply to the sharing of living units, it follows that it’s not unlawful to discriminate in selecting a roommate.” Source.

We still recommend being as unbiased as possible, and if you do want to consider one of the above-mentioned categories when selecting a tenant, do further state-specific research to ensure that you remain on the right side of the law.

Setting The Rent Price For A Room In Your House

How much can you charge when renting out a room in your house? You can only charge what the market will bear and anything extra you charge will also be taxable.

Numerous factors will affect how much you can charge including but not limited to: Size of the room, furnishings, amenities (eg. transport, parking, AC), age of the building, type of rental (short term vs. long term).

You will want to start by getting a comprehensive rent comparison done. Analyze what others are charging in your neighborhood for similar rooms of comparable size. Or, if there aren’t many in your area, look at similar neighborhoods. You can do this kind of comparison on rental listing sites such as Zillow or take a look at rooms for offer on sites such as Oodle.com, Craigslist, and Facebook Marketplace.

Stay up to date with economic news, and make sure you understand the value of your home’s location. For example, a room in a flat in the center of Boston would be in high demand and you could likely charge a higher rent than for a place out in the suburbs.

A final point is that it may be worth chatting with a local real estate professional. No one is more aware of rental prices than the professionals and they are especially good at identifying the drivers of housing supply and demand unique to your market.

Related: How Much Rent Should you Be Charging?

A Roomer’s Right To Privacy

The specifics (again) vary from state to state. Owner-occupiers have the right to enter the rented room when necessary. However, they cannot harass the renter or take any of their possessions.

As a general rule, it is advisable to not enter their room without permission as this can be taken as an invasion of the renter’s privacy, and can increase tension between the owner-occupier and the renter.

A non-resident landlord must give at least 24 hours’ notice before entering the property except in an emergency.

Getting A Security Deposit When Renting Out A Room

It is a good idea to take a security deposit from the person to whom you are renting a room. This will protect you against damages or potential lost revenue in rent.

Make sure you check your specific state laws to determine what the maximum deposit you can collect is, and how you should deal with the deposit eg. does it need to be lodged with a deposit scheme? Or kept in a separate bank account? Demanding a deposit over the state maximum will see you on the wrong side of the law.

1 month’s rent is a common amount to collect for a deposit and in general, a deposit must be returned within 21 days of them moving out. If for any reason you are going to make any deductions from the deposit once they move out make sure you have an itemized report detailing the amount and reason for any deductions.

You can easily manage the security deposit using landlord software like Landlord studio.

For more information on this read our article: What Landlords Need to Know about Dealing with Security Deposits.

Preparing The Room

The room you are renting out must be “habitable”, in other words, it needs to be fit to live in and comply with health and building codes. Making the space habitable is the landlord’s responsibility.

A few of the things that need to be considered:

  • Heating (Does it work adequately?);
  • Windows (Are the broken? Do they close?);
  • Sanitation (Do they have access to a bathroom?);
  • Mold.

Many people looking to rent a room are seeking one that is furnished. If you do decide to provide furnishings with the room, make sure you take a careful inventory with images. And make sure the tenant signs an inventory. Before they move in, do a quick walk-through inspection with them too.

Ending The Tenancy Of A Lodger

Most renters are decent people who will move out when they can’t pay or when their lease expires, but sometimes sadly, a renter won’t move out when they should. The first thing to do is open a dialogue expressing your concern and what they can do to rectify the situation. Or if the situation isn’t rectifiable ask them to move out, again expressing your concern.

If they still don’t leave after this, you will need to begin eviction proceedings. Be aware that eviction laws are strict and landlords must follow them exactly for an eviction case to stand up in court.

How To Evict Someone Renting A Room In Your House

A roomer, or lodger as they are called, has similar rights as normal tenants. However, in most states, they do not have the quite same legal and privacy rights as someone renting out a non-owner-occupied property which makes it easier for owner-occupiers to remove unwanted guests from their property. Additionally, owner-occupied situations allow the owner access to all parts of the property, even the lodger’s private room.

To evict someone who is renting a room in your house you won't need to go through the same eviction process as a traditional landlord. Instead, you need to give the lodger adequate notice – generally this must be in writing – and if they do not vacate by the time the notice requires you can have the tenant removed for trespassing.

Each state has its own laws and regulations regarding how you must manage this exact process. However, as a best practice make sure you put the notice to vacate in writing and keep a copy for your records with proof that the tenant received it.

The notice to vacate must state the date that the tenant needs to leave by, and in general the notice period cannot be shorter than the payment period that the tenant pays rent. For example, if they pay rent monthly then the notice would need to stipulate a one-month notice period to vacate. Make sure you also sign and date the notice.

Dealing With Taxes When Renting Out A Room In Your House

When it comes to tax time there is both good and bad news if you are renting out a room in your house. The bad news is that income made from renting out the room needs to be reported to the IRS as taxable income. Report your rental income and expenses on Form 1040, Schedule E.

The good news is that as a landlord you qualify for particular tax benefits that allow you to offset partially or even completely your taxable income against expenses.

Related: Tax On Rental Income: How Much Tax Do You Owe?

Items you can deduct that will reduce your tax liability include:

  • Cleaning and maintenance fees, This includes any laundry or cleaning materials that you supply;
  • Property insurance. You may need to get a different insurance policy than a homeowner’s policy. Speak with your insurance provider;
  • Service fees charged by sites like Airbnb;
  • Utilities (water, gas, electricity, TV, internet, etc.);
  • Repairs and maintenance costs. this includes repairs that might need to be made to furniture and appliances;
  • Mortgage loan interest;
  • Advertising and listing fees for finding tenants.

It’s important to carefully track your income and expenses throughout the year so that you can accurately file your taxes at the end of the year without having a huge admin task pile up right at the end of the year.

Tools like Landlord Studio can make this process much easier saving you hours every month and even more come tax time. Track income and expenses, generate professional reports, digitize receipts, and more, from any device wherever you are.

Make Renting A Room In Your House Easy With Landlord Studio

If you’re renting out a room it’s extremely important you get a good renter in your home. Normal tenant issues are amplified when you’re sharing a home with the renter. Which is why it was deemed an invasion of privacy for regular FHA laws to apply in this scenario.

To ensure you get a good tenant who will respect your home, your privacy, and pay rent on time and in full you will want to put them through a rigorous screening process.

We have put together a detailed tenant screening guide that will walk you through how to find a great renter and screen out the bad, including red flags to watch for.

Learn more about tenant screening with Landlord Studio →

Final Words

Renting out a room in your house can allow you to cover a portion of your mortgage and dramatically reduce your financial stress. However, it definitely pays dividends to carefully select the right renter – run them through a rigorous screening process and ensure you carefully track your income and expenses using software like Landlord Studio to capitalize on the tax benefits of being a landlord.

testimonial

Related Articles:

Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article are for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a competent professional.