The problem? You're a little short on cash each month. Your mortgage payment is too high, but you can't sell or refinance your home. One potential solution? Renting out a spare bedroom.
Sounds like a strange idea? It shouldn't. Many of us are stuck in our homes. We can't sell or refinance because we owe more than the house is worth. Each month the mortgage payment squeezes, but there's no easy way out.
And our homes are much bigger than they used to be. The average new home built in 2010 was more than 40 percent larger than one built in 1973. That means utilities and upkeep cost more.
With a bigger home there's a good chance that you have some spare space—perhaps a spare bedroom or one vacated by your kids when they went off to college.
You could very well be sitting in the solution to your problem. Renting out a spare bedroom could solve both your cash flow and your oversized home problem. Let's look at four reasons why you'd want to take in a renter and seven suggestions on how to do it without creating problems:
1. It's free money. Unlike landlords who own rental properties, you'll have very few expenses. Your mortgage and property taxes will be the same whether you have a renter or not. Almost all of the rent check will be profit for you.
2. You'll have extra income to help handle home repairs. When money's tight, it's easy to overlook non-essential home repairs. And it’s hard to pay for those that can't be ignored. Rental income can provide the funds to keep your home in good shape.
3. Rents are high. When people can't afford to buy homes, they rent. More demand means you can get more for your spare room.
4. Your renter will benefit, too. It will be cheaper for them to rent a bedroom (with or without whole house privileges) than it would be to rent a one-bedroom apartment.
Sure, there are advantages, but if you're like most people, the thought of bringing someone into your home is a bit scary. There are potential pitfalls. Here are some suggestions for making the transition a smooth one:
1. Set limits in advance. Will your renter have full access to the kitchen, laundry room, and garage? What about the dining room and living room? Not only should you talk about it before they move in, but it should also be in writing.
2. Rent to someone you know (and like). Since they're under your roof, you'll see a lot of your tenant. It's easier to find someone you enjoy sharing space with if you start with a friend or someone with common interests.
3. Make sure your renter is employed. There's nothing worse for a landlord than hearing that your tenant needs “just a few more days” to pay rent. The quickest way to get there is to have a tenant who's unemployed.
4. Draw up a rental agreement. Even if you're renting to a friend, a written lease will avoid misunderstandings and disagreements. The temptation will be to leave it open-ended, but an ending date gives both sides an opportunity to step out gracefully. Three to six months is a good term—you can always extend it.
5. It's essential to check references (especially former landlords or employers). You'll be tempted to skip this step, but don't—even with someone you know. They say that you never really know someone until you live with them.
6. Take a security deposit. Your friend can be a perfect tenant, but they may have imperfect friends over. And accidents happen. Avoid trouble later by taking a simple step now.
7. Get an emergency contact. If something should happen to your tenant, you'll need to know who to contact.
You may have never thought of yourself as a landlord and never pictured renting out a portion of your home. But if you want or need to stay in your home, earning a little extra cash each month by becoming a landlord could be a great solution to your problems.
Gary Foreman is a former financial planner who founded TheDollarStretcher.com. The site features many personal finance topics, including more information on renting out a room.