How to Rent Out a Room in Your Home

There's a right way and wrong way to rent out a room. Here's how to do it right.

If you're thinking about renting out a room in your home, you're not alone. A 2019 Zillow Group study found that 24% of home buyers consider it important to have the option to rent out a portion of their home.

Whether you're doing so because you need the extra cash to cover bills, or you just like the idea of having another person in the house, make sure to do it right. Here are some steps you can take to help ensure that your roommate experience is a positive one.

Check state laws

The moment you rent a room in your home, you're considered a landlord. As a landlord, you must follow the laws of your city and state. Make sure you understand your obligation as a landlord as laid out by local regulations.

For example, your city may limit how many unrelated people can live in a home. You may also be responsible for things like working appliances, shoveled sidewalks, and maintaining power to the house. If you fail to keep the property up to code, your tenant may have a legal right to withhold rent.

If you're not sure where to start, give your local housing authority a call. It can direct you to the best resources.

Regarding HOAs: If you live in a neighborhood with a homeowners association (HOA), check the bylaws to make sure you're allowed to rent a room.

Call your insurance agent

Ask your homeowners insurance agent if you need landlord insurance to cover any issues that may arise. Some insurers may raise your homeowners insurance premium if you have a tenant. If so, make sure to build that increased premium into the rent your tenant will pay.

Determine how much rent to charge

Determining how much to charge for rent is an inexact science, but here are some factors to consider:

• How much of the house will the tenant have access to?
• What's the "going rate" per square foot in your area?
• Are you going to split the utility bills, or would you rather factor a set amount into the monthly rent payment? (Remember, unless the new tenant is taking someone else's place, your utility bills are likely to increase.)

Get the house ready

Once you decide to accept money for something, it becomes a business. Treat this as a business by making the house look and feel as nice as possible. That may include painting walls, cleaning carpets, and adding insulation to the house (if it's drafty). Remember to keep the receipts for anything you buy for the home or any services you have performed. As a landlord, you'll get to deduct expenses arising from the rental from your taxes.

Let people know you're looking for a tenant

There are dozens of ways to get the word out that you have a room for rent. Start with your friends. Do you know anyone who is looking for a room? From there, spread out to friends of friends. You can also advertise that you're looking for a roommate on one of your social media pages or a neighborhood website.

Have potential renters fill out an application

No matter how well you think you know someone, a rental application is essential. In addition to providing you with personal information, they should give you written permission to run their credit report and conduct a background check.

A tenant background search can be accomplished through an online company and will cost between $20 and $40. If you have the option, spring for a more extensive investigation. A comprehensive report will supply you with the applicant's credit history, any evictions, a criminal report, and a bank assets report.

You can purchase a tenant agreement and permission forms from an office supply store or download them from the web.

Draw up a rental agreement

Once you've determined who your new tenant will be, draw up a rental agreement that leaves no room for confusion. Here's what the agreement should include:

• Length of the lease
• Security deposit amount and under what conditions you can keep it
• The monthly rental amount
• The day rent is due and what day it is considered late
• How much the late fee will be
• Whether utilities will be split or are part of the renter's monthly payment
• Who's responsible for maintenance and cleaning
• Which rooms are considered "shared" and any particular expectations (like not entertaining in the living room after midnight)
• Pet policy
• Parking policy
• Smoking policy
• Quiet hours
• Policy regarding overnight guests (how many nights is someone other than the tenant allowed to spend the entire night?)
• Under what circumstances does the rental agreement become null and void? For example, if the tenant is violent, commits a crime, or brings an illegal substance into your home, will the tenant be required to move out?
• How much notice the tenant must give before moving out, and how much notice you must give in requesting they move out.
• Anything else that may be of particular concern to you (like cooking a smelly meal every night).

Keep careful records

Let's say your new tenant rents 30% of the total square footage of your home. That means you can deduct 30% of specific expenses on your tax return. Keep records for everything, including:

• Repairs to the tenant's portion of the home (including shared areas)
• Utilities
• Security system
• Home depreciation
• Homeowners insurance

Ideally, you'll land just the right tenant, have help paying the mortgage, and enjoy homeownership more than ever.