In real estate, it is most common to rent out a property in its entirety. These types of investments typically require a significant amount of resources, management, and expenses, especially since renting out a full property is generally seen as a full time deal. If you aren’t looking for such a time-consuming investment and have an empty room or basement in a property, consider renting part of your house.
As you would assume, renting part of your house will have its benefits and disadvantages. With proper planning, management, and circumstance, renting a part of your house can be a profitable investment. In this blog, we will go over pros, cons, and tips to help you achieve such an investment.
Related: 5 Ways to Create a Positive Cash Flow Income Property
- A secondary source of income
The most obvious benefit in renting a part of your house is financial gain. Although it will usually not be enough to act as a primary source, it will facilitate paying off debt, property taxes, mortgage, and other payments. Having some financial gain is better than none, especially if the part of your rented property is one that you do not use often or at all.
- You’re always close to the rented area
When you rent out a full property, it is often away from you and it may take a considerable amount of time to go supervise and see if all is well. On the flip-side, when you rent out part of your house, you are already living in the property.
This can be a win-win situation for you and the tenants. If the tenants encounter any problem and need to contact you, you will be available to them from just footsteps away. You can also collect your rent up front. If the tenant damages the property and acts in misbehaving ways, you won’t have to rely on neighbor complaints to find out.
- Tax Benefits
You can claim tax deductions on expenses used on the rented part of the house only if that part is solely used for renting purposes. Such rental expenses include money used on repairs, maintenance, and mortgage, among others. For a month-on-month breakdown of these expenses, check out Mashvisor.
Be aware that these deductible expenses must be used exclusively for the rented area and not your living residence. For example, if you set up a phone line solely for the rented area, expenses associated with it can be deductible. If you and the tenant share the same phone line, the expenses associated with it will not be deductible.
- Reduction of Privacy
Renting part of your house is similar to having a roommate in a sense, you will not have as much privacy as you would typically like. Obviously, this will depend on the type of tenant. If the tenant likes to bring exotic pets and noisy friends over, or has a habit of throwing parties, you may be in for a bad time.
Be sure to include certain rules and conditions in the lease that pertain to privacy, such as bathroom and kitchen usage and main entrance location.
- Shared Damages
Since you and the tenant are living under the same roof, damages will affect you both. Power shortages, water issues, a messed up heating system will make you and your tenant disgruntled. The degree of shared damages will not always be equal, however. The damages from a tenant can have a greater effect on you. Even if the damages are covered by insurance, the stress to fix the property will weigh more on your shoulders.
- Staying Legal
There can be legal ramifications by renting part of your home. It can even be flat-out illegal too in some states or cities. You can be penalized by the law for not ensuring certain aspects to the rented area. Some of these include, not obtaining the proper permission from the tenant to enter the rented area, failing to provide the area in a safe and well-functioned state, failing to provide certain amenities, suitable air conditioning and heating, exceeding the number of tenants to rent to in that part of your house, and renting while your house contains mold.
There are also legal issues that revolve around eviction that can be tricky to understand. To clear up on legal issues, consult a legal adviser. You need to make sure you’re in check with the law.
- Screen, screen, screen your tenant
For any kind of property, you would like to rent out to the best tenants as possible. This should be prioritized even more if you are renting a part of your house, since you and the tenant will share the same property.
Figure out the tenant’s credit score, criminal background history (hopefully the lack of is what you find), the tenant’s occupation, and, if possible, an eviction history.
Aside from the financial status of your tenant, learn more about your tenant personality wise. After all, the tenant will be similar to a roommate, you’ll need to make sure you both can be able to live with one another.
Related: 8 Things That Make a Good Tenant
- Setting up a reasonable price
You will need to set up a price that fits in the market when renting a part of your home. This can be trickier than finding out the rental price of an entire property but it is still possible. Compare the area of your house you would like to rent to those advertised on Craigslist. Also check out Roommates.com, where you can get an idea of how much to rent based on the type of room and area.
Related: How to Set the Right Rent Price for Your Investment Property
- Iron out the details in the lease
Specify the part of the property you are renting. Include conditions of usage of other rooms to the house. Make sure it is clear what bills you will be covering. Be very detailed in the lease agreement to reduce future complications and make life for both you and the tenant much easier.
Renting out part of your house should not be seen as surefire way to be very rich, but it is definitely a great method to help pay off your bills, debts, or just earn a more passive form of income. It can come at a privacy cost, but this will depend on the type of tenant you rent out to. Be sure to be within legal boundaries when renting out a part of your house.
Don’t forget to check out Mashvisor for comprehensive information on traditional and Airbnb properties.