Friday, March 16, 2012

How To Rent Out A Room In Your House

Renting a room could save your home from foreclosure
The old-fashioned term "boarder" isn't used much anymore, but some homeowners rent a room, basement or in-law suite within the home to generate extra income. And in this economy of foreclosures and short sales abounding, it could make all the difference as to whether you keep your home or not.

A homeowner-boarder relationship is not personal; it's business.

The important thing to remember when you are thinking about bringing in a tenant is that it’s a business deal, not a friendship. You need to do everything and anything a landlord would do, including charging a security deposit and establishing all the rules and regulations upfront.

Do benefits outweigh costs?
A potential landlord's first order of business is to decide whether the income is worth the loss of privacy and living space. Homeowners can estimate their potential rental revenue by comparing rental rates for their area on websites such as and Craigslist.

Homeowners need to think carefully about whether they want to live with someone else.

If the home is already separated into an apartment in the basement, that's a lot easier, but if you are renting rooms within your living space, you need to decide if you are willing to share a (bathroom) and a kitchen. It's important to know what you want and how you want to live, even in terms of the hours you keep.

Unless you've lived with people recently, you should start out with a short-term tenant to try it out. You need to get used to sharing your refrigerator and your space. On the other hand, it's nice to have someone take care of your home while you are away.

Take care of legal issues
Once homeowners are committed to the idea of living with tenants, they need to take appropriate steps to meet legal and insurance requirements and screen potential tenants.

Check the legal requirements before committing to renting space. Some communities require a permit for renting your basement, but if you are sharing your space, this is generally not required.

Every homeowner should have a written lease signed by the tenant, which protects the homeowner's rights.

You should use state-approved leasing forms that you can find online and also know your city's laws about renting property.

Make sure all are insured
Call your homeowners insurance company before you bring in a tenant to find out if this action will impact your insurance coverage. You may or may not need landlords insurance, but, in particular, you need to know things such as what happens if your tenant is bringing a dog that is on the dangerous-dog list and won't be covered.

Tenants should have renters insurance for personal property and liability coverage.

Screen your tenant
The key element to whether opening your home to a boarder will be a positive experience is choosing the right tenant. Prince suggests telling friends and acquaintances you are looking for a tenant.
What's your home worth?

You'll need the prospective tenant's permission to do a credit check, and you should also ask for three references and check them.

Lay down clear rules
Establishing clear rules and having a written contract can be the best way to generate extra cash with a boarder.

The most important thing is to be very clear about your expectations such as wanting the home to be quiet after 11 p.m. But realize that you'll hear them sometimes, and they will hear you.

You may want to include mold and lead disclosure forms, a nonsmoking addendum, a renters insurance addendum and a no-pet addendum.

Have a list of rules and regulations that the tenants sign, including a ban on the use of illegal substances, since the landlord could be legally responsible if something is used in the home.

Create your own personal set of rules along with an arrival sheet and a departure sheet that specifies how to have the security deposit returned. Homeowners need to decide how to handle parking issues and utility payments.

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