It’s fun to fantasize about your future bungalow or ranch-style house, but if you don’t have the money to make a down payment on your first home or dream house, fantasizing is all you’ll be able to do. Looking for ways to move up to your next home? Rent out a room in your current home to build up funds for a down payment on your new digs.
An unused spare bedroom, finished basement, a detached guesthouse, or garage apartment could be your ticket to more spare cash:
Seems like a good idea, right? It can be, but here are some things to consider before renting out that extra space in your home.
4 Things To Consider Before Renting Out a Room in Your Home
1) Save money for maintenance.
Becoming a landlord means you’re responsible for tenants and their living quarters. Since you must provide adequate accommodations, some of the income you earn from renting out living space in your home will likely go to maintenance and repairs like fixing appliances or replacing worn-out carpeting or bathroom fixtures.
2) Consult with professionals.
If you’re thinking of renting a portion of your home, one of the first calls you should make is to a real estate attorney who can answer questions about local laws and help ensure your lease agreement meets fair housing guidelines. A lawyer can also help you construct a proper rental agreement to include rules for the tenant’s upkeep of and behavior on your property. You’ll also want to establish a monthly check-in, so you can view the space to ensure everything is in good repair.
It also wouldn’t hurt to review the Virginia or North Carolina Landlord-Tenant Act to familiarize yourself with your responsibilities as well as potential issues that could arise. While you’re at it, touch base with your insurance agent, and make sure your homeowner’s policy covers your tenants.
3) Determine your rental fee.
Typically, homeowners use the one percent rule when determining rent. For example, if your house is worth $200,000, you charge $2,000 per month. This is, of course, a bit different if you aren’t renting the entire home, in which case you may want to consider tallying your home’s expenses, such as mortgage, maintenance, property taxes, and utilities, and base your final price on the expense per square foot.
You should also research comparable rentals in the area as well as your state’s rent control laws, which can limit the amount of rent you charge as well as put a cap on annual rent increases. Your attorney also can help you with this.
4) Determine what type of tenant you want.
Your screening process should start at the very first interaction with your potential tenant — even if it’s a simple phone call. Be sure to meet the applicant in person to gain a better understanding of his or her character, and assess whether you can establish a quality tenant-landlord or roommate relationship.
You should also check criminal and sex offender history as well as run a credit report on any potential renters.
Ask tenants for multiple references, and do research to confirm those identities. For instance, if a potential renter lists “John Smith” as her supervisor, but you find no one by that name at the tenant’s workplace, chances are something’s up.
Questions to Ask a Potential Roommate/Tenant
- Why are you searching for a new home?
- Can I contact your former landlord and employer as a reference?
- What is your monthly income?
- Would you agree to a background and credit check?
- Have you ever been evicted? If so, why?
- Are you aware of the application fee and security deposit?
Keep in mind, too, that not all renters are reliable. If a tenant falls behind on rent, you may go from saving for your new chalet to figuring out how to pay for your current ho-hum house. Moreover, if property damage occurs, you’ll have to dip into your savings even more.
Once you’ve saved up for that down payment and are ready to buy, jumpstart the mortgage application process via OVM Financials’ QuickStart process.
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