As housing costs continue to climb, renting a room in your home offers a compelling way to generate extra income. Whether you’re looking to offset your mortgage payments, boost your emergency fund or save for a major purchase, becoming a live-in landlord can be a smart financial move – if you do it right.
Renting a room in your house comes with legal responsibilities, however, as well as practical challenges and financial considerations that require careful planning and thought. Here’s everything you need to know about how to rent a room in your house and potentially turn a spare bedroom into a safe, profitable source of income.
Key Takeaways:
- Renting a room in your home while living in the house generates income that you can use to pay your mortgage, boost savings or put toward home renovations or other financial goals.
- You’ll need to research and adhere to landlord-tenant laws in your city and state, particularly those related to keeping your property in a safe, habitable condition.
- Put any rental agreement in writing – spelling out the rent amount, due date, house rules, rental term and other essentials – before letting a tenant move in.
- Enforcing on-time payments with consistency is critical to protecting yourself in case you have to evict a tenant for failing to pay rent.
Is Renting Out A Room In Your House A Good Idea?
Renting a room in your house can be a savvy way to supplement your income. Ultimately, the decision really depends on your financial picture, goals and lifestyle. There’s a tradeoff, though, between having a new income stream and giving up a fair amount of privacy in the process. Still, it could be a worthwhile move to reduce your living expenses and establish a financial cushion.
Unlike traditional rental properties, you don’t need to purchase another home or take on significant debt to become a landlord. You’re essentially monetizing space that you already own and inhabit. Living in your home while renting a portion of it is also known as house hacking.
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Pros And Cons Of Renting Out A Room In Your Home
Before you start the process of renting out a room in your house, it’s important to weigh the benefits and drawbacks.
| Pros: | Cons: |
|---|---|
| Extra income: You’ll generate an income stream that can help pay your mortgage and housing costs, build savings or meet other financial goals without buying a separate rental property. | Privacy loss: When you share your home, you give up privacy in common areas and potentially have to deal with your tenant’s guests. |
| Maintenance help: Having an additional person in your home can help you share some maintenance and cleaning responsibilities. | Legal and financial liability: You’re responsible for maintaining the property, handling any property damage and navigating the complex eviction process if problems arise. This can become burdensome and awkward if you’re living in the same space. |
| Sharing costs: You’ll reduce your monthly living costs by splitting utilities, internet and other household expenses while qualifying for tax perks on rental-related expenses. | Lifestyle restrictions: Your daily routines, entertaining habits and spontaneous use of your home may change, in consideration of your tenant’s schedule and comfort level. |
| Co-living flexibility: If you enjoy the company of others or don’t want to live alone, renting a room doesn’t lock you in forever. You can always rent out a room (or stop) when you want. | Landlord responsibilities: Finding a reliable tenant means a lot of legwork on your part – not to mention managing ongoing rent collection and resolving any conflicts or administrative tasks. |
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Legal Considerations Before You Rent Out A Room
Know Your Local Laws
Before accepting a tenant, research your local and state regulations. Some cities have specific rules about renting a room in an owner-occupied property, including:
- Zoning restrictions
- Occupancy limits
- Safety requirements
- Registration or licensing requirements
A lot of cities and states that have rent protections don’t typically cover live-in landlord situations, says Luis Inocente of the Inocente Law Firm in Los Angeles, who specializes in landlord and tenants’ rights. In other words, owner-occupied properties typically have fewer protections than those in traditional rental units.
That’s why it’s critical to know your local laws and what, if any, restrictions exist for renting out a space in your home. You should also check with your homeowners association (if applicable) to see if there are additional occupancy restrictions.
Ensure Your Home Is Safe And Habitable
As a landlord, you must ensure the space you rent out meets basic habitability standards before renting it out. Here are some other safety and habitability requirements:
- Properly functioning heating and cooling systems
- Working plumbing and hot water
- Secure windows, locking doors and weatherproofing
- Safe electrical systems
- Structural integrity (no broken stairs, railings, foundation issues, etc.)
- Adequate lighting and ventilation
- Accessible fire exits and points of egress (escape)
Failing to keep your home up to these standards could result in liability issues or health department violations – not to mention legal action from tenants if you don’t address the problems.
Create A Solid Rental Agreement
When you rent out a room in your house, it’s critical to have a written rental agreement in place to protect everyone. An online rental agreement template won’t cut it, though. Hire a lawyer to help you draft an agreement and review it, says Inocente, to ensure that it follows the specific laws of your state.(Once you have one, you can always have it quickly reviewed for updates before sharing with your next tenant, so the cost may go down after the first agreement.)
This is especially important to avoid running afoul of the Fair Housing Act and discrimination laws, Inocente adds; you also wouldn’t want to include unenforceable clauses that could invalidate the whole contract.
Make sure your rental agreement includes the following elements:
- Monthly rent amount
- Due date (typically the first of the month)
- Security deposit amount
- Rental duration
- Payment methods accepted
- What’s included in rent (utilities, internet, etc.)
- How shared costs will be divided (trash, utilities, etc.)
- Pet policy
- Subletting restrictions
It’s also crucial to lay out clear house rules for how you’ll co-habitate with the tenant. Spell out quiet hours, use of common areas and appliances, cleaning responsibilities, parking arrangements, and guest policies and restrictions for overnight visitors.
Enforce Payment Terms
Many rookie landlords overlook a key issue: enforcement of payment terms. This is one area where you need to be consistent and firm, Inocente explains.
“When the rent is due on the third, make sure that they pay on the third, and if they don’t pay by the fourth, you serve them with a three-day notice in writing, even if they give you an excuse,” he says.
This formal, written legal document — served by a landlord to a tenant — demands that they pay overdue rent or vacate the premises within three days. It may sound harsh to send a notice like this one to someone living in your home, but lax enforcement can create legal issues for you later on, he says. “If this happens often, then in court the tenant is going to say the landlord waived their right to collect the rent on the third, because they have proof they’ve collected the rent on or after the fourth, or the sixth, or the ninth.”
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How To Find The Right Tenant
Finding a good tenant is essential since you’ll be sharing living quarters with this person. You’ll need to do some due diligence by screening applicants. This includes:
- Credit check
- Background check
- Employment verification
- Reference checks from previous landlords
- Personal references
- In-person interview and property tour
“Don’t just rent out to any random person,” Inocente advises. “During a thorough investigation, talking to the person’s references is very important – making sure they’re a decent person who can afford the rent and pay on time.”
For your protection, always meet potential tenants in person and verify their identity before accepting any money. Be careful of online scams on sites like Nextdoor, Facebook and Craigslist.
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Managing Common Living Challenges
Privacy And Boundaries
Living with a tenant demands clear boundaries so that everyone cohabitates in peace. Your rental agreement should address:
- Guest policies: How long can visitors stay, and what are the quiet hours?
- Common area usage: Which appliances and spaces are shared, and what’s off-limits?
- Personal space: Ensure both parties understand expectations about knocking before entering shared spaces (especially bathrooms).
- Communication: Establish preferred methods for addressing concerns or maintenance issues. In general, it’s best to put everything in writing for documentation purposes. “Have everything in writing – either text, email or letter,” Inocente says. When making any changes to your original agreement, follow up with written confirmation, he adds.
Splitting Utilities And Other Costs
Decide up front how to handle shared utilities such as water, gas and electricity, as well as internet, trash/recycling and other services. Consider factors such as:
- Number of people in the home
- Seasonal usage patterns (air conditioning and heating)
- Special equipment (space heaters, personal appliances)
When Things Go Wrong
Despite your best efforts, thorny problems can arise. In some cases, you might even have to evict a tenant if things go sideways. Here are common grounds for eviction when renting a room to someone:
- Nonpayment of rent: Follow your state’s notice requirements (typically by issuing a three-day pay-or-quit notice).
- Nuisance behavior: Excessive noise, disruptive guests or activities that make other residents feel unsafe.
- Rental violations: Breaking house rules, unauthorized pets, subletting without permission or illegal activity on the property.
Remember that evictions are rarely a quick process and they vary by state. That’s why it’s critical that you screen potential tenants thoroughly at the outset.
Having an exit strategy is also important if you decide to stop being a landlord. In an owner-occupied arrangement, the amount of notice required to terminate a tenancy varies by state law, your rental agreement and the length of the tenancy. Typically, the longer the tenancy, the more notice you need to provide, but again, check your state and local laws for minimum notice requirements.
Tax Implications Of Renting A Room
As you explore how to rent out a room in your house, here are some key tax consequences to consider:
- Rental income: The income you earn from renting out a room is considered taxable and must be accounted for on your tax return, which could impact deductions.
- Deductible expenses: You may be able to offset the higher income on your taxes by deducting a portion of utilities, maintenance and home improvements from your tax bill. But you must first divide the expenses between the portion of your home that’s rented and what you occupy.
- Depreciation: Consult a tax professional about depreciation rules for the rental portion of your home. “For example, if you rent out one-fourth of your home, you can depreciate that portion,” according to Marty Rodriguez, a real estate agent with Century 21 in Glendora, California.
- Impact on home sale proceeds: If you sell your home while renting out a room, you’ll face capital gains taxes, Rodriguez notes. “Depreciation lowers the value of that part of your home for tax purposes, but it also increases your capital gains tax when you sell.”
Check with a tax professional to ensure you’re reporting this income stream properly and maximizing any available deductions.
The Bottom Line: Put Everything In Writing When Renting Out A Room
Whether you’re looking to offset housing costs, pay down your mortgage faster or beef up your savings, renting out a room in your house is worth considering. Before jumping in, weigh the trade-offs of lost privacy and landlord responsibilities against what you’ll gain in extra income and putting your property to work for you.
Deborah Kearns
Deborah Kearns is an award-winning independent journalist with more than 15 years of experience covering real estate, mortgages and personal finance. Her work has appeared in the Wall Street Journal, Kiplinger, U.S. News & World Report, Quartz, CNN, Forbes, Fortune, Newsweek, The Associated Press and dozens of other outlets. She previously led content and communications at a Top 15 national mortgage company and held writing and editing roles at Bankrate, NerdWallet, LendingTree and RE/MAX. She holds a bachelor's degree in journalism from the University of Florida and a master's degree in public relations from Ball State University.
