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Property Management, Tenant Management

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 extra income and help cover the mortgage. But as with managing any kind of rental property or space, if you want to be successful and avoid issues which may make the debacle more effort than it’s worth, it’s important to approach renting out a room in your house with the right mindset. 

By renting out a room you are positioning yourself as a landlord and as such there are certain regulatory and legal implications that you need to be aware of. If you aren’t you may end up with bad tenants you can’t get rid of, or worse open yourself up to potential lawsuits.

In this article, we are going to talk about 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, and we’ll outline a few of the best tips when it comes to managing your tenant.

Renting out a room

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 is in compliance with whatever regulations govern your area.

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 homeowners privacy.

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 a 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, to do further state-specific research to ensure that you remain on the right side of the law.

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 renters 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.

Security Deposit

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 seperate bank account? Demanding a deposit over the state maximum will see you on the wrong side of the law.

1 months 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.

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 this inventory. Before they move in, do a quick walk-through inspection with them too.

Terminating the Tenancy

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. Eviction laws are strict and landlords must follow them exactly for an eviction case to stand up in court.

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Renting out a room moving in

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.

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.

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 homeowners 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, digitise receipts and more, from any device wherever you are.

Report your rental income and expenses on Form 1040, Schedule E.

Make Sure you Get a Great Tenant

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.

Setting your Rent Price

You can only charge what the market will bear and anything extra you charge will also be taxable.

Numerous factors will effect how much you are able to charge inclusing but not limited to: Size of the room, furnishings, amenities (eg. transport, parking, AC), age of 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 or in similar neighborhoods for comparable rental space. To do this take a look at listing sites like Craigslist.

Stay up to date with economic news, and make sure you understand the value of your homes location. For example, a room in a flat in the centre of Boston would be in high demand and you could likely charge 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 are especially good at identifying the drivers of housing supply and demand unique to your market.

Related: How Much Rent Should you Be Charging?

moving into a room rental

The Roomer / Landlord Rental Agreement

Open and honest communication, right from the start, is the key to a successful relationship with a tenant 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. 

Your 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.

Tips for Creating your Roomer Rental Agreement

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 and 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 emergency, 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 the household waste is disposed of. What is the recycling policy, how should they sort their waste? When is rubbish collected? 

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 that come with being a landlord.

Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article is 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.

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Ben Luxon
Ben Luxon

"Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

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