Is renting a room in your house the best option for you?
Have you ever thought about renting out a room in your house? It can’t be too hard, right? You’ve got a spare room (or two) and there are plenty of people looking for a great place like yours to share. It sounds like a win, win situation. You get to offset the cost of your mortgage and look after your financial wellbeing, while your new flatmate gets somewhere great to live at a reasonable price.
While it might sound like a dream come true, it’s worthwhile considering the pros and cons before you put your spare room up for rent.
Finding a tenant
It always makes sense to consider friends when hunting for a housemate. It’s the safest and easiest way to find someone, as you’ll have a good idea what they are like and whether you’ll get along together.
If friends aren’t an option, always be careful posting an ad online or searching for a housemate through a network. When you think about it, you’re giving someone access to your home, your goods and your family, so always deal with reputable networks. Several websites act as portals for people renting out rooms, including the big real estate sites like realestate.com.au and domain.com.au.
Tips to help you find a great housemate
Be clear about the space
Tell your new housemate exactly what to expect. Is the room a tad small? What’s the wardrobe space like? Do they have to share a bathroom?
If you’re funny about having pets inside, smoking or constant visitors, make sure you let them know.
Do you work from home, get up early for the gym or have a partner who stays regularly? Make sure your housemate knows so there are no surprises.
The online ad
Take care never to include your full name or address in your online ad. It’s generally okay to include your first name and suburb, along with a mobile phone number or a generic (not work) email address.
Get the full story
Make sure you have enough application forms, so that anyone who is interested can give you their details. No need to get their life story; a few questions about their job, ability to pay rent, rental history and rental referees should suffice.
Take the trouble to ring the referees and do a background check. Dodgy tenants will often count on people not to bother, so do your due diligence. Also, listen to your gut. If your instinct gives you a bad feeling about somebody, listen to it.
And if it makes you feel better, insist on a National Police Check. It costs about $30 and will give you peace of mind with your decision.
Double check your insurance
Check out your current policy to see if it covers a tenant. If not, give your insurance company a call to find out what changes need to be made to the policy.
Chances are, you’ll need to look at adding landlord’s insurance to your portfolio.
Get it in writing
Once you’ve found a housemate, always make sure you get the agreement in writing. Check with your local real estate body to find out whether you’ll need a Tenancy Agreement.
Whatever the agreement, make sure you cover things like the amount of rent, how often it’s due, how utilities are to be shared, and whether there’s a household kitty for food and other expenses.
Last but by no means least, make sure they sign the dotted line. Don’t forget to collect a security bond so you’re covered for any damage they might cause – accidental or otherwise.
Make them feel comfortable
Your new house mate is renting more than just a room. It’s important to give them space for their belongings and ensure they have their own set of keys to access the house.
Allocate them space in the common areas of the house such as the kitchen – with room on benches, in the fridge and pantry, bathroom, lounge or laundry.
Don’t forget that rent is taxable
Any rental money that you get from a housemate will help set up your financial freedom. But don’t forget that rent is considered income and therefore taxable.
Do your research beforehand to find out what kind of tax you’re in for so you can budget accordingly. The last thing you want is to get hit with an unexpected tax bill at tax time because you didn’t include the details of your rent income stream.
That said, there are also many tax deductions to consider, so be sure to check the Australian Tax Office guidelines and consult your accountant or lawyer before finalising the agreement.
Once the basic practicalities have been ticked off, weigh up the pros and cons
- Extra money to help pay the bills
- Company and the potential to make new friends
- Someone to share the chores with
- A chance to broaden your horizons, especially if you take in people from other cultures and countries
- Tax deductions
- Extra safety and someone to look after the property when you’re away
- If the wrong person moves in, it can be hard to get them out
- You never really have a moment alone in your own home
- If a single housemate finds a partner, you could find yourself as a third wheel
- There can be encroachment over the dividing line between yours and theirs
- Untaxed income must be reconciled in your return
So there you have it, renting out a spare space in your home can be mutually beneficial, but if you don’t do the groundwork from the beginning, it can also turn into a nightmare. Be sure to consider all points, before deciding if this is the right move for you.
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product