Renting out rooms isn’t for everyone. If you want to rent a spare space in your home, know the pros … [+]
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Choosing to rent out a spare room in your home to make ends meet is not a decision to take lightly. For those who are inclined to open their doors to strangers, friends or relatives, a common reason to take the plunge is extra income.
Home listing resource homes.com conducted a survey of 950 homeowners to explore what spaces they are renting out, how much money they are making and their biggest regrets.
Having a tenant move in provided survey respondents $800 to $1,030 month. When asked why they rented out their properties, nearly 74% of homeowners surveyed said they wanted to earn extra money. Another 33.3% said the rental income was used to help pay for a mortgage, 22.4% used the extra funds to cover property taxes, and 18.6% used their rental incomes to help pay utility bills. Twenty-three percent of Baby Boomers are choosing to rent out their spare rooms to supplement income.
Short-term rentals might mean less guaranteed funds each month as tenants move in and out. Longer-term contracts, however, could provide a steady income stream, possibly resulting in higher average monthly earnings. Although Airbnb and other short-term rental apps are popular, the majority of respondents (49.2%) found their renters through a friend’s connection.
In most cases, a spare bedroom is a base requirement when renting out a room in a house. Forty-three percent of homeowners surveyed chose to rent out an extra bedroom or two. Twenty-seven percent rented with slightly more separation between the tenant and landlord, offering a finished basement as the rental unit. For more privacy, 16.6% rented out a detached guest house.
The survey also found that making home improvements before renting out a spare space was prevalent among 63 percent of homeowners. On average, survey respondents spent about $616 on paint, which was the most common update completed for renters. The flooring was also updated more than half of the time, but new floors ran an average tab of nearly twice the amount of the paint.
The most common way homeowners accepted rent from their tenants was in the form of cash (59.8%). Unless a rental unit is very inexpensive, rent can be a large and risky sum to carry in cash, so 50.1% of homeowners surveyed also accepted personal checks. Digital wallet apps were used by more than a third of homeowners to accept payments. Having this type of flexibility may be appealing to many renters, so homes.com suggests considering more than one payment option if you’re looking to increase the desirability of your rental.
The survey also found that many homeowners felt the pinch of not raising their rental prices higher. On average, the $9,400 in hidden costs of renting out a spare room, including maintenance, improvements, utilities, insurance or vacancies, can exceed the rental income, so the rent initially needed might not being enough.
Another 17.6% of survey respondents expressed regret in not screening troublesome tenants more thoroughly to avoid problems down the road, including the damage renters can leave behind. Nearly the same amount of respondents also wished they had installed better security features in their homes. Personal safety and tenant background concerns deterred 31% of homeowners, who expressed they had not rented out their spaces for those reasons.
Fortunately, 95.8% of survey respondents said they did screen prospective tenants. About 47% interviewed the candidates, while 39% went a step further and conducted a background check. A renter background check should include everything from rental history to criminal history.
Finally, only 5.2% of homeowners viewed opening their homes to renters as a big mistake. Collecting a security deposit and working with a knowledgeable attorney or real estate professional are advisable for navigating the ins and outs of renting out your space. Consider using an attorney-drafted room rental agreement form when leasing spare space to clearly outline and define party expectations, duties and rights.