If you’re close to retirement age and you’re concerned that you haven’t saved enough, you might be thinking about other ways to generate income. Renting out a room in your home is one way to bring in extra money every month, but it’s not for everyone. Here are some things to consider and issues to explore before making a decision.
Do You Want to Be a Landlord?
The idea of generating rental income might seem appealing, but the realities of being a landlord can be stressful. You’ll have to advertise the room, meet with potential tenants and run credit and background checks to select a qualified applicant. You’ll also have to maintain the room and common areas, fix things that break and collect rent.
Do You Want to Share Your Home With a Tenant?
Many people who are retired and live by themselves become lonely. Having another person around can be beneficial – if the two of you get along. If the tenant turns out to be loud, messy, or annoying, life at home can become unbearable, and you won’t be able to go to the office to escape.
What Part of Your Home Would You Rent Out?
Your house’s design can play an important role in your decision-making process. If you rent out a bedroom that’s on the same floor as your bedroom, you and your tenant might have to share a bathroom. Renting a bedroom on a different floor or a master suite with its own bathroom would give you and your tenant more privacy.
Do You Understand the Legal and Financial Implications?
Renting out a room in your house can be complicated. You’ll have to comply with zoning rules, occupancy limits and other state and local laws and regulations. If you belong to a homeowners association, you’ll have to follow its rules. Your mortgage lender and homeowners insurance company might have requirements of their own. For example, you might have to purchase landlord insurance. Premiums will reduce your rental profits.
You’ll have to draw up a legally binding lease agreement. It should include the amount that’s required as a security deposit, the cost of rent, when the rent is due, amenities the tenant is permitted to use, and rules the tenant is expected to follow. Money that you earn by renting out a room will be taxable. You might be able to claim some deductions that will reduce your tax liability.
Think It Over Carefully
Renting out an unused room can seem like an easy way to help pay for expenses after you retire, but it’s not as simple as you might think. Research the laws in your area and contact your homeowners insurance company to learn about your responsibilities as a landlord. Once you have all the relevant information, you’ll be able to decide whether you should rent out a room in your house.
