Are you considering renting out your spare bedroom to make some cash? Or would you rather rent a room from someone and then rent out your whole house?
While both of these options will net you income, there are pros and cons to each option.
Pros & cons of renting out your whole property
Pros:
· You can hire a property management company. Wouldn’t it be nice to be a landlord without having to do the work of a landlord? Renting out your entire house means you can hire a property management company to handle everything for you. For instance, Green Residential handles nearly all landlord duties for property owners in Katy, Texas. They collect rent, screen tenants, manage finances, perform repairs, handle evictions, and provide 24/7 support.
· You’ll generate more income. A whole house rents for more than a single bedroom.
· You won’t have to babysit anyone. Some tenants are lazy and/or messy. When you rent out San Jose, California apartment your tenant – not you – has to live with their clutter.
Cons:
· You can’t see what’s going on. You won’t know how your property is being treated until your tenants move out or you need to perform an emergency repair or inspection.
Pros & cons of renting out your spare bedroom
Pros:
· More legal flexibility in choosing your renter. When you live with your tenant in the same house where you’ll share a common area, you have the freedom to exercise certain preferences when choosing a tenant. For example, you can choose to rent to males or females. However, some states – like California – prohibit landlords from expressing this preference in writing or orally. Check your state laws before expressing any preferences.
· Less potential for whole-house damage. When you share a house with your tenant, they’ll be less likely to create damage across the house. While it’s possible for a tenant to damage your home while you’re at work, it’s less likely.
Most major damage comes from carelessness and/or reckless behavior rather than intentional sabotage. Chances are, your tenants won’t feel completely at home in shared spaces when all the furniture and décor is yours. This means they probably won’t feel comfortable enough to play baseball in the sunroom and smash a baseball through the drywall.
Cons:
· You never know who you’re getting as a tenant. Even after passing a background and credit check, there’s no way to know who your tenant really is. For example, they might have perfect credit and a clean record, but be argumentative and demanding. Or, they might be messy and leave their stuff laying around in common areas.
By renting your spare bedroom, you have to live with your tenants’ habits whatever they may be. You won’t know what their habits are until they move in, so be prepared.
· Eviction can be emotionally draining. Evicting a tenant is always rough, but when you’re evicting a housemate, you have to be in their presence daily. Things can escalate quickly if you engage in arguments. They might destroy or steal your property while you’re gone or sue you for frivolous reasons.
· They might bring shady people into your home. Hopefully your lease agreement prohibits unapproved guests at all times except immediate family members like parents and children. Many landlords fail to prohibit guests and end up with tenants that throw parties and bring people home who steal from the household.
If you’re going to rent a room, you need to protect yourself and your property in the lease agreement by prohibiting unapproved guests. If your tenant wants to have someone over, they need to arrange a brief meeting where you can sit down and chat over coffee or tea. You might even require a background check if you live in a sketchy neighborhood. It’s an inconvenience to tenants, but you can’t take any chances.
· You have to claim rental income on your taxes. If you’re renting out a room to make the rent, charge a 10% markup and save that money for taxes. Income received from a renter is taxable, even if you’re splitting rent evenly. If utilities are included in the rent, you’ll have to claim that money as income, too.
To avoid having to claim utility costs as income, don’t include utilities in the rent and have your tenant write a check for their portion directly to the utility company.
What’s your priority?
Although a whole house will net you more profit, you may not want to move out of your house.
You may find more convenience in renting a room and be willing to accept challenging tenants.
Either way, honor your priorities – sometimes it’s not about the money.