Renting out part of your house is not for everyone, but it can be a great opportunity for young adults to bring in additional income for paying down debt, saving some money, or to have additional spending money.
We personally decided to pursue rental income to help pay down our debt as well as to diversify our income. Additionally, we were well aware that houses have lots of unexpected expenses and that rental income could help pay for them when they do come up. Finally, we were certain that just like every other homeowner we would eventually want to make various upgrades such as renovating the bathroom or putting in hardwood floors. Rental income can help fund some of these things.
Below I’ve made a sort of step-by-step guide to pursing rental income. Of course it can be more or less complicated depending on each specific situation, but I think it’s a good general guide and highlights our own personal journey in pursuit of rental income.
1) Own a House
Obvious first step. If you don’t already own a house, you have to purchase one if you plan on getting some rental income. We were renters until October of last year when we became first-time home owners.
2) Decide what space is shared and what space is not shared
This will largely depend on your house. We purchased a house that has a separate entrance to the basement studio that included a kitchenette. Connected was a bathroom that included a shower. Past that is a laundry room. As you might have guessed, the only part that we decided to share was the laundry room.
As a married couple, this was the only setup that we wanted and were fortunate enough to find a house that accommodates such a rental setup. We don’t have to share any common spaces (besides the laundry room) but still get to enjoy the benefits of having rental income. If you can buy a house that is slightly larger than you need it makes it a lot easy to rent; we simply don’t need the huge fourth bedroom/studio apartment in the basement and it would probably only serve as additional storage space if we did not have a renter living in it.
3) Make sure the area is ready to rent
This is definitely my favorite part about renting out a part of your house. We had a lot of work to do to get our rental unit ready. It was in a somewhat debilitated state; everything was completely outdated and needed work or replacement.
While you can spend thousands on renovations, we spent approximately $2,000 when it was all said and done doing the following things:
- Replacing the Fridge
- Replacing the Range/Stove
- Adding a Range Hood
- Replacing the kitchen light
- Replacing all the doorknobs
- Replacing all the outlets
- Replacing the toilet
- Replacing the sink
- Installing a new bathroom light fixture
- Installing a new bathroom mirror
- Installing a new bathroom cabinet
- Installing new blinds
- Adding outdoor lights along the path
- Sheet rocking a wall in the bathroom
- Painting the bedroom/bathroom/kitchenette
While this is a seemingly long list, thankfully many of these can be DIY (Do It Yourself) projects. Prior to setting up this rental unit I had zero experience doing any sort of home project. Next thing you know, I’m installing a sink and swapping out light fixtures. Of course, you can always pay someone to do the upgrades and renovations for you, but I personally enjoyed learning how to do all these things (even if it was extremely frustrating at times).
Below are some before/after pics:
4) Write up a lease
I can’t stress enough the importance of “getting it right” when it comes to a lease; it’s the legal document that protects you in case something goes wrong or you get in a dispute with your tenant.
The easiest way to get started is to find a sample lease online, or to talk to someone you know who is already a landlord. I talked to another personal finance blogger who sent me a sample of one of their leases. It saved me a ton of time and made it easy to tweak for our rental situation. Since then I have emailed our lease to a couple of other people looking to rent either their entire house or part of their house.
You also need to decide what is included in rent and what is not. Since we were only renting a room and bathroom in our house and not the entire house, we found it easier to include all expenses in the lease. We went ahead and included the following:
- All utilities
I think this made our rental attractive because potential renters knew they would only have to pay one flat rate per month; they would never have to worry about fluctuations in expenses. As someone who tracks their expenses very closely, I know I would have appreciated the consistency that comes with an “all-inclusive” rental unit.
5) Find a renter
Especially if your renter is going to live in your house, you want it to be someone that you are likely to get along with. We know a lot of young adults who are renting and looking for places to rent, so we weren’t concerned at all about finding someone. Below are the steps we planned on taking to find a renter:
- Asking friends who we knew were looking to rent
- Posting something on Facebook asking friends for referrals
One of the friends we initially reached out to ended up signing the lease and things have been working out great. If you can find a friend or someone you trust, you are at a huge advantage because it’s easier to have shared space or trust them to house sit or take care of pets while you are gone. Our renter watched the house and took care of our cat while we went on a cruise. recently.
6) Enjoy the income!
Okay, it’s not quite that simple. Obviously, renting is not as simple as having someone move in and cashing checks. Once you have a renter, you are officially a landlord. With being a landlord, you need to be “on-call” at all times in case something goes wrong. You also need to make sure you have the money available to pay for needed repairs. There are trade-offs with everything and rental income is no different.
If you own a house have you considered renting out part of it? If you do not own a house, would you consider buying one that has rental possibilities?
Photos by Victoria Carlson