It’s an asset that could earn more than $10,000 a year but should you really rent your spare room to a stranger? On the surface, it seems like easy money but there are several implications that might affect your decision.
Here are the issues to consider:
Tax Implications
Any extra cash will be taxable, so make sure you declare it in your tax returns. Be aware that renting even one room will also mean your home will be subject to Capital Gains Tax when you come to sell. It also means that some expenses in your home will become tax deductible. Seek professional financial advice on the implications and be sure this venture will be profitable.
The Right Tenant
Selecting the right person to be your tenant is the most important of all the decisions you need to make. There’s nothing worse than sharing a house with someone you don’t like or trust. You should ask for references from previous landlords and search the National Tenancy Database to see if they have been black-listed. Surveys show most landlords go on gut feel. If you have any doubts, move on to another applicant. This is a decision you must not rush.
Talk to your Lender
Your loan may have conditions attached to it that do not allow renting. Usually, banks will charge a higher interest rate for rental properties. To be safe, check with your bank to better understand any mortgage implications to renting out a room.
Insurance
Standard policies covering your home will not cover a shared house. Any damage caused as a result of sub-letting will not be covered. Ask your broker about landlord insurance. Companies such as Budget Direct, Virgin Money and Elders offer policies. Short term rental sites such as Airbnb also provide policy options.
Set the Rules
Before making the room available, write down your house rules so there is no confusion with a prospective tenant about how bills will be handled and the sort of behaviour that is expected. Policies around sharing power and gas bills, plus rules relating to visitors, sharing the kitchen and cleaning, will serve you well. Insisting on sharing the costs of a cleaner or gardener is probably a smart way to go.
Take an Inventory
Include in your set of rules an inventory of furniture in the room and around the rest of the house or apartment, and state whether this is included in the rental fee, or incurs an extra charge.
Pitch your Price Right
Research the prices for share houses advertised online and in newspapers to gauge a realistic price for your area and for the style of your home. Consider responding to some of the ads to check what features are included in their prices, and maybe ask for a set of house rules. This will give you insight into how you’d like to proceed.
Security Concerns
Consider putting locks on the room you intend to rent so your tenant has the comfort of knowing their belongings are secure. Practically, you can’t do this for all your belongings around the house. This is one risk you must factor into deciding whether to rent the spare room. However, you have to find a balance to avoid starting a relationship on the basis of distrust. You could put locks on a select number of cupboards for both yourself and your tenant.
Check your Responsibilities
You can’t set all the rules. Landlord responsibilities are spelled out in legislation that changes from state to state. Check with tenant authorities about your obligations. Be aware that you’ll have to maintain a good standard of maintenance. You might tolerate a window that rattles, but don’t expect your tenant to. This will mean additional up-keep costs.