Living With Renters: What You Need to Know Before Sharing your Home

It seems like everyone has a side hustle these days. With the cost of living through the roof and the price of just about everything seemingly on the rise, many of us are looking for ways to boost our earnings, reduce our living expenses, and make “adulting” just a little bit easier. While not everyone wants to share their home, renting out a portion of your home can be a great way to generate extra income.

The Pros of Living With Renters

Additional Income

Starting with the obvious – having renters in your home means additional income in your pocket each month. Rent payments can help cover your mortgage, property taxes, utilities or even your daily $8 latte. The point is, we can all benefit from extra income and the choice of what to use the extra cash for is yours.

Maximizing Unused Space

Many people have space in their home that simply doesn’t get used or gets used as storage for bins of clothes that should have been donated years ago. Make that Goodwill trip, and turn that room into a revenue-generating asset.

Flexibility and Financial Security

Layoffs happen, contract roles come to an end, and despite our best efforts, periods of financial instability and unexpected expenses can happen to all of us. Having consistent rental income to lean on can provide a safety-net and help reduce financial anxiety.

Potential Tax Benefits

While rental income is typically considered taxable income, depending on your location and situation, you may be able to claim deductions on certain expenses related to renting part of your home, such as repairs, maintenance, and even a portion of your mortgage interest. Be sure to consult a tax professional to explore potential benefits.

Social Interaction

For those that currently live alone, having a renter can provide companionship and a sense of security. Choosing the right renter is critical, because you of course want to enjoy living together.

The Cons of Living With Renters

Reduced Privacy

It’s a safe assumption that having more people in a home means less privacy for everyone living in it. Adjusting to sharing spaces, increased noise levels, and people coming and going at various times of the day and night can be challenging.

Potential for Conflicts

Just like when you choose a Loan Officer, you should aim to choose renters that you know, like, and trust. Regardless of whether your renter-to-be has been your best friend since Kindergarten or is someone you just met, living together harmoniously will require setting clear boundaries and expectations.

Property Wear and Tear

Renters typically have less “skin-in-the-game” than the owners they rent from. Unfortunately, this can mean that renters may not treat your home with the same level of care that you do. Extra use of appliances, utilities and common areas can lead to faster wear and tear, requiring more maintenance and repairs.

Late or Missed Payments

Not all renters are reliable when it comes to making rent payments on time. If you depend on the rental income, it can create financial stress if their payment is late or missed. If possible, ask your potential renter to provide references and ensure their past rental history is positive.

Landlord Responsibilities

Becoming a landlord, even on a small scale, comes with responsibilities and legal obligations. You need to comply with any applicable local rental laws and should ensure renters have signed lease agreements.

Making it Work

There is often a lot of “making it work” involved with living with renters. If you decide to rent out part of your home, here are some tips on how to set you and your renters up for success:

Screen Potential Renters

If your potential renter is someone you aren’t already close with, be sure to conduct background checks, verify employment, and ask for references to find a responsible tenant. Unfortunately, it’s not all that uncommon for people to turn out not to be who they say they are, so it’s always best to err on the side of caution.

Set Clear Rules

Have conversations with your potential renters about house rules. Things like noise levels, guest policies, shared spaces, household chores are all possible areas of contentions that should be discussed proactively.

Draft a Lease Agreement

Even if it’s an informal arrangement, be sure to have a written lease in place. This protects both you and your renter by outlining expectations and responsibilities.

Respect Boundaries

While it is still “your house”, living with renters means you share a home. Give your renter the privacy and space that they deserve and pay for so that they feel comfortable and at home.

Communication is Key

Address any concerns or issues early to prevent conflicts from escalating.

Is Renting Out Your Home Right for You?

Renting out a part of your home can be a great way to earn extra income and make use of unused space, but it also requires careful planning and consideration. If you’re willing to compromise on privacy and take on the responsibilities of being a landlord, it can be a rewarding experience. However, if you value total control over your living environment, it may not be the right choice for you.

Ultimately, the decision comes down to your personal circumstances, financial goals, and ability to manage a tenant relationship. By weighing the pros and cons, you can make an informed choice that best suits your lifestyle and needs.

If you’re purchasing a home with the intention of having renters, consider loan programs that may help cover costs for things like adding an additional room in your home or converting your basement or attic into an apartment, such as a home-improvement loan. For those looking to add a renter to your current home, you may want to leverage your home-equity or refinance your mortgage to fund these projects.

Connect with a Summit Loan Officer to discuss any home-financing needs you may have.