Money-making 101: Tips When Renting Out an Extra Room

Planning to boost your income by renting out that extra room? It may sound like a great idea, but before you post an add on sites like AirBnB, make sure you’re ready to handle all the things a landlord has to deal with. Plus, there's plenty of paperwork involved when turning that extra room into a moneymaker. Fortunately, with enough preparation, transitioning from a homeowner to a landlord should be fairly easy. Here are some tips to help you come up with an ideal room-for-rent set-up:

Screening possible renters

Renting out a room means you’re letting a stranger into your house to live with you. So you need to find someone who’s not a total nutcase and won’t turn your life upside down. There are plenty of horror stories about the boarder from hell. With enough preparation and a strict screening process, however, you’ll be able to find someone who won’t keep you up at night or make you sleep with a baseball bat propped against the nightstand. Come up with a list of qualities of your preferred renter: night owl or morning person, smoker or non-smoker, owns a pet and so on. Prepare a set of interview questions. Remember, your personalities, habits, and lifestyles shouldn’t clash if you want things to work out between you and your boarder.

Prepping up the room

Fixing that leaking pipe inside the guest bathroom is always a good idea when planning to rent it out. Jazz up the room a bit by making sure it has enough storage space, a comfy bed, and a table and a chair. You don’t have to go all out when updating the room and bathroom. Just make sure your renter will be able to live comfortably, that he or she has access to basic amenities, and the room is presentable enough to entice anyone who’ll see your online ad. Don’t forget to clean the room and common areas (living room, kitchen, yard, garage, etc.) days before your boarder arrives.

Deciding on a rental fee

If you know neighbours who are also renting out extra rooms or apartments nearby, ask around for their rental fee. Or go online and look up how much places around you are being rented out for. Once you have an idea on how much rooms are in your area, then you can use that figure as a basis. You then have to decide if you’ll charge a flat fee and split the utility bills or charge a monthly rate that depends on utility consumption. Some actually charge a rate that’s lower than the usual so they could have their pick from a list of possible renters. Put the rental fee and other included bills in writing so that your renter gets a clear understanding on how much he or she has to pay you every month. The more thorough the list is, the better.

Posting an ad

When putting up the ad, get good photos of the room and the amenities included. You want to entice as many possible renters as possible. When looking for places to post your ad, check out websites such as Airbnb. You can also place an ad on Craigslist, student boards at local universities, and hand out flyers to your friends and relatives. You can include a few qualifiers in the ad, like students or young professionals only, so you won’t waste time talking with renters who won’t fit in with your set-up.

Preparing and filing all the necessary paper work

When you decide to rent out an extra room, a part of your house becomes a source of income. This means you have to declare the income you’re making on your yearly tax return and pay the necessary taxes. The amount of tax you’ll have to pay depends on a lot of factors that include your rental agreement. If you forget or don’t declare this when filing your annual tax papers, don’t be surprised if you get slapped with tax penalties. Dealing with rental tax can get tricky, so consult the local tax office or hire a professional to do all the paperwork and handle the legal side.

That extra room in your house can be a potential source of income that can help you with your daily expenses. To make things easier, carefully screen possible renters by doing quick interviews. Put all the things you’ve agreed on in writing, and make sure you’re ready to handle the responsibilities of being a landlord. To avoid stiff tax penalties, indicate in your tax return the income you’re making from renting out an extra room. By doing enough research and prepping up your house, getting a renter should be a fairly easy way of making extra money.