Every other Monday, we look at real estate as a way to make money. I have explained why I believe real estate is one of the best ways to grow wealth, and gone over a check list for first time investors. Today, we look at doing with what you already have, that is renting part of your house or your basement to a new tenant.
Being a live in landlord
Being a live in landlord has a lot of perks. First, you are on the property first hand, so you can see if in spite of you tenant’s background check, something is still off. A tenant who is good on paper can be noisy, put a lot of wear and tear on your property by slamming the doors, or try to sneak in a pet in spite of your no pet policy. By living on the property, you can straighten things up from the start. Chances are “bad” tenants will avoid you from the start, and only good tenants will move in.
I have lived with two roommates in a place I owned and it was much better, at least for me, than the previous houseshares I had lived in with no landlord around. The landlord would come once a quarter, take days to fix something, and no one would care about the property. With a live in landlord, people behave better, and the landlord is there to solve any problem. The property should be in better shape, as no landlord likes to live in a dump.
The thing I liked the most as a live in landlady was that you could evict the tenant with no notice. In the UK the rules are pretty strict about tenant protection if you rent the whole property. But if you live there, you just have to change the locks and put the tenant’s stuff outside your property, and you are good. I never did it, but on every interview, I made sure the tenant understood it was a possibility if they were late on rent or started damaging the property. I don’t know if the threat deterred the worst tenants but I never had a problem.
Setting the rent of your property
If you bought your main residence, you probably have a mortgage, and have had to put a good chunk of money down. You may even have opted for a 15 years mortgage or be making extra payments to pay it off faster. If your normal mortgage was $1,000 a month but you are paying $3,000, it doesn’t mean that your tenant has to pay half of that.
You need to align with the market prices for similar properties. On Craigslist and other ad boards, you can find the rates to rent a bedroom in a houseshare, and a basement or attic with independent access. To make a faire comparison with the market you need to compare all the amenities you are offering.
– Will the tenant just have access to a room or also living room and kitchen?
– Will the tenant be able to use your washer and dryer?
– Are you renting furnished or unfurnished?
– Is the entrance separate or through your living room?
– Will the tenant have a parking space?
– What bills are you including?
– Are taxes and insurance included too?
– Are you offering a peer to peer relationship, say you are in your mid 20s taking on other college kids or young professionals, or is it your family house and you take in a boarder who won’t be able to choose what movie to watch on TV tonight?
In my property, I have opted for an all inclusive rate. Everyone is happy, the tenants because the do not need to budget for the bills every month, they know exactly what their housing costs will be, and me because I don’t have to make complicated calculations to split the bills, send each of them a recap counting pennies, and get bitter if they spend too much time in the shower or do laundry too often. I also make sure my bills stay low by checking once a year on comparison sites that I pay the lowest rate possible for utilities, I have well insulated windows, and installed low-flow toilets like the Toto ultramax ii and shower heads. The tenants barely watched TV so I asked them if they were OK to get rid of the cable in exchange for a better internet plan and they agreed, resulting in added savings.
Day to day living with a tenant
If the tenant lives in a room inside your property, you want to set clear rules from the start. When is it ok to make noise, can he have company over, can company stay the night, how many nights maximum before it becomes double occupancy and both have to pay rent, etc.
Imagine an abusive little brother crashing at your place for months, what would you like to tell him from day 1? Tell that to your tenant FROM DAY 1. After you become friends or discover you can’t stand each other, communication will be harder. How do you tell a friend to do dishes? To clean after himself? Give them a copy of house rules when they move in, and talk as soon as there is a problem.
Set boundaries about rooms the tenant cannot go into, it is better if each person has a key to his or her room to avoid problems, and a shelf in the kitchen, fridge and bathroom. Make space for them so they feel welcome but define your space too.
Attic, basement and separate unit
This is the best of both worlds. Instead of having to supervise a rental property far from home, you have it right above or under you, yet your tenants do not invade your space. Maybe your driveway and garden, but you will have set rules for that in your contract as well. Renting a separate unit counts as a full tenancy, and the live in landlord eviction rights do not apply. One more reason to be very thorough with your tenant’s background check.
Be discreet and leave them space, but also keep an eye for any suspect behavior, extra people staying overnight too often, are they living there, are they keeping the property in good shape, etc.
NEVER, ever even start thinking about grabbing an extra key and checking the inside of their property while they are away. It is illegal in many places and the tenant could sue you. If you have a doubt, ask nicely if they would let you in for an inspection, and if not, what is their reason.
Having them close is also very convenient to chase late payments.
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I wouldnt rent out a room in my home with the wifey and young children unless it was a family member. I think the best approach I would take would be to purchase a home with a separate space or living space with a separate entry that allowed the renter to have his/her own kitchen/bath etc.
Thomas | Your Daily Finance recently posted…The First Step Toward Becoming a Real Estate Investor… It’s a Doozy
Yes, that would be better. Some friends do that with kids but they host foreign exchange students for 4-6 weeks then they can have quality time as a family.
I think renting a room out of your house would be a great way to make some extra cash. I wouldn’t consider it though because our house is on the cozy side so it would be difficult to have any privacy.
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Sure, it depends on how much space you have. I decided to buy a bigger house considering roommates would offset it because I don’t mind sharing, when there is space for everyone.
I agree with Thomas. Because of the kids we’d never rent out a room within the house, but we’d eagerly buy a duplex/triplex and live in one half ourselves.
Laurie @thefrugalfarmer recently posted…July 2013 Recap
That would be a great idea and way to lower your costs. People also turn garages or barns into smaller units to rent.
But the tennants donnot pay and i try to kick them out. I notice them and give them 10 days to pay but they donnot and they donnot want to move out too. They are still in my basement until now. Can i phone police?
We have a basement rental with a separate entrance. It’s a studio, but it’s a pretty big room. They have their own bathroom connected to our shared laundry room. Our last renter moved out last week and the next one is moving in next week. It’s definitely a nice setup because you can tackle issues right away, and we also are able to offer someone an affordable place to live (it is definitely a place I would have considered when I was looking for rental spaces). We do the all-inclusive rate as well and it has worked out for the most part.
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Not sure I would do all inclusive when winters are so cold and they have the heat on all day!
We are currently contemplating this option, however, we are not allowed to have a stove in our basement unit. Which, at first wasn’t the case. We can however, have a boarder. Because of this change, we are trying to figure out whether to have just one big room with a bathroom and kitchen area, minus the stove, or stick to the original plan which included a bedroom, livingroom/diningroom, kitchen area, but no stove. Does that even make sense? We do not want to provide access to our kitchen area. What do People normally do when there is no stove? I don’t know, I’m, since there is no stove if we should just keep more of our basement and just give them a bigger room and bathroom and they can figure out their meals. Any suggestions are appreciated.
I wouldn’t let tenants live in our house because I have kids. I wouldn’t want some weird creeper around my children. The only exception I would take is letting a family member move in and pay rent!
I would take in a young girl, a student or something, indeed not a creepy old man.
Pauline! Love the focus on the terms and conditions. Prevention is certainly the way to go. Our house is set up in such a way that renting would require restructuring and a lot of hassle. We are thinking instead that we may rent space for storage, not living. Have a fun one!
cj recently posted…I Do Good, But I Am No Do-Gooder
Hi CJ! Storage is a bit more complicated but if you have enough yard space you can store RVs or boats for example.
We had considered it for a while, but since having a baby there is pretty much zero chance I am having someone else live in my house while I am still living there. It isn’t that I don’t trust people around my child; it is more of just not wanting to deal with it now.
Also I would feel like a real jerk the couple times a year the little guy gets sick or decides to have an impromptu dance party at 3 am.
Sure, with a kid it is more complicated. Some friends did it but they had separate living space. They had foreign students coming to learn English so it was short term and they could choose when they wanted to be a family. I would feel so bad too and stress the kid even more and he would never shut up!
Hello, Pauline! While this sounds so tempting, I know we couldn’t make it work with our current townhome. I’m really used to a very quiet house and walking around dressed however I please. We don’t have basements here in Houston, or I might be more inclined to pursue it. I do love all your suggestions from presenting the rules and navigating the What ifs. I think this is a great idea for many people who find themselves with extra space and a great “renter set up.”
Tammy R recently posted…I Do Good, But I Am No Do-Gooder
oh, a clothing optional house, I see 🙂 haha. It is very hard to revert to it when you are used to living on your own. I was living with roommates so buying my first house and putting roommates was not too much of an invasion but now it would be hard.
I rented a room in a house share where the owner also lived there, and it was a bit stressful for her. I think making it all inclusive and hiring a cleaning lady would have made everyone happier since there was a lot of disagreement per utility costs and who kept leaving messes in the kitchen and attracting mice.
I’m glad our renters live 20 minutes away from us. =)
Mrs PoP @ Planting Our Pennies recently posted…PoP Balance Sheet – July 2013
Cleaning and bills are the only thing we fought about too, it is so easy to get that out of the way.
I wouldn’t rent out a room in my home as I just wouldn’t be comfortable. I’m an looking into purchasing a home in the next couple of year and I’ve been looking into properties where I can rent a part out, whether it be a basement or an entire unit.
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that would be a great option, having people near but not too close.
I would have rented out a room in college but I wouldn’t today unless it was family. But it is a great way to save money.
My grandparents have often hosted grandkids from their friends who come study in Paris, they keep them company and pay a low rent, everyone is happy.
My sister rents a room from us for $325 per month. She’s easy to live with so the money is nice! 🙂
Michelle recently posted…July Goals and Life Update
I would only consider it if I had a separate building like you describe. This is largely because I am out of the house for 13-14 hours a day and I would feel like it was an invasion of my privacy!
Savvy Scot recently posted…Awesome Infographic: The Best Things In Life Aren’t Free
mmm now you got me curious as what you have in there hahha!
I would love to have rental properties but I would be a little hesitant renting out part of my home to someone I didn’t know. I would be okay with it if it was a friend or family member it just makes nervous to have stranger in the house with my kids.
Alexa recently posted…Goals Galore: July Update & New August Goals
I would take a high school or college student recommended by family or friends too, otherwise not a Craigslist weirdo.
I won’t let the house for rent unless some close relative or family, it is great idea to get some cash but due to kids and privacy i won’t let strangers in
Rita P @ Digital Spikes recently posted…How to get rich quick tips and actions
You definitely know what to prepare for with renters! I wonder if tenants rules like the one about changing the locks apply where I live. I agree that all bills paid is the best–I had that with my last on-my-own living situation and it definitely made things easier. Plus like you said, if rent is late, you know where to find them!
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Yes, sadly it is from experience, but I am learning so if it presents itself again I am prepared!
I like the idea of having a live-in renter, but I don’t think I would ever be able to do it in practice. I like having my place to myself too much.
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The next place that bf and I buy will hopefully have an rental property (either a duplex or a basement rental). After years of city dwelling we’re very used to apartment style living, so having a renter wouldn’t bother us at all. In fact it would be nice to have some control over the “neighbors”. I love the idea of the extra income and hopefully your renter paying for a part or all of your mortgage.
That would be awesome! If the bank lends you enough you can get a bigger place, have them pay for you and get them out if you have kids.
I’ve never done it, but my brother-in-law owns a home and always has a couple of roommates. It’s been great for him, especially when he goes away and has people he can trust to watch the place and his dog. I’m sure not all experiences are as positive, but his has been great and it’s been an easy way to make some extra money.
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oh I forgot about that, free dog and house sitters!
This is what we’ll be doing form September. However, we have a really large house (so if I don’t like the tenant I don’t even have to see her) with four bathrooms etc. Also we are not doing it long term – we have an academic visitor to the university staying for three months. Still, will bring in something and make ‘accumulation’ a little bit faster.
maria@moneyprinciple recently posted…Property today: has the game changed?
I have had a few students coming for 3 months, didn’t like changing them so often but they are awesome, studying all day, discreet… best rental money ever.
I rent a basement apartment and I think it’s pretty convenient for our landlords. They keep everything in nice shape, and if we have any issues we can address it pretty quickly. Likewise, they didn’t hesitate to inform us that our little light over our door can’t be left on late as it shines directly into their bedroom. We get an all inclusive rate and you’re very right in that it’s less of a burden for us. I would definitely consider getting a house with a basement for the rental potential in the future.
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It must be really convenient for them, and they get the rent on time or can come directly to ask for it!
I would not rent out a room with a small child at home. She would be in the tenants room going through their stuff or walking in on them in the shower!
I think it could be a great way to earn extra income, especially with the right kind of renters. When I did one of my optometry rotations in Albuquerque, there was a lady who rented out rooms in her basement to traveling students. I was there for 3 months, so it was perfect for both of us. She had a never ending stream of renters coming through and we were not into partying because we had to be in clinic early every day. She even had a hot air balloon that I got to go for a ride in!
Kim@Eyesonthedollar recently posted…Finding a Job In a Tough Market
Really wow that sounds awesome! And a great way for the lady to change tenants if they aren’t right at least in 3 months they’re gone.
Did you have access to a kitchen in the basement, or how did that work?
We’ve thought about getting a roommate in the past. Our mortgage is pretty low and rooms around here go for about 35% of what we’re paying each month on our mortgage. But right now our spare rooms are taken by my office and the stock room for my store. We may consider it in the future if one room is available, but I have a hard time thinking about someone I’m not very close to being in my house all the time, sharing a bathroom with them, etc.
If we were to actually be in a financial crisis where we needed a roommate, though, it’s good to know we have that option with 2 spare rooms that would could rent out.
We’re looking at hopefully buying another home in the next few years and will definitely be looking into homes with guest houses, etc where we could rent out a portion of the house without it interfering with our privacy as much.
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A separate basement or attic is ideal, I don’t mind too much sharing the bathroom, more having people in the living room when you want to have friends over or watch TV on your own, but when it was my house, my rules haha. With roommates sharing a house that wasn’t mine it was more complicated.
We’ve rented out a room in the past and stopped. We had a couple of good renters but some that had no care for our home. One girl you couldn’t even open the door she had clothes all over the place. My wife had a fit. Her theory was she was renting and she could keep the room a pig sty.. ya.. move out please. I have no desire to rent to slobs when we keep our house immaculate. Our other renters were amazing, they cleaned, even their bathroom which was a requirement. If someone wants to live like a slob, move in with slobs. If you want a clean house, move in with clean people and do your part. As a homeowner unless you live in large home with a wing you give up your right to privacy. The only time we were private was in the bathroom or the bedroom even then they would try to come home late at night, drunk and start cooking in the middle of the night when we had to work in the morning. If you plan to rent, set guidelines and ask yourself how important that extra few hundred bucks a month really is.
canadianbudgetbinder recently posted…Bust our budget: July 2013 Saving money
That is why I set clear rules about cleaning and noise, no shoes in the house, limiting the nights they can have a boyfriend over, etc. I had a girl who was a slob in her room but took very good care of her cleaning rota so didn’t mind too much, I can’t believe you had such careless people, who wouldn’t behave even with the landlord under the same roof. Can’t imagine what it would have been on a rental of their own.
We rent out our basement suite, so that brings in a nice income each month. It’s better because my brother rents it from us, so we don’t have to deal with the unknown and renting to strangers.
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That is the perfect setup! And pretty cool to have your brother around so he can have your keys if you go and an emergency arises too.
My very first apartment was a basement apartment and I LOVED it. I actually had two private entrances and my rent was inclusive, including satellite TV! So it was a great deal and they were a great couple. I’d like to think I was pretty good renter too! I need my own home first but some day I’d absolutely love to have rental property. I would definitely consider a set-up similar to what I had but I don’t know if I could rent out a room within my personal living space. I’m pretty private and I’m pretty sure that after the initial glow wore off, I’d be crabby that they were sitting on my spot on the sofa – stupid things like that!
Tanya @ The Heavy Purse recently posted…How to Ensure Your Goals Align with What You Truly Want
I tried a student tenant and I had to declare the $390 per month as income and it ended costing me more than it was worth. I usually get a nice tax return but as the student was deducting the rent on her return I had to declare it. No income tax return for the 2 years that the 8 months of income covered.
I felt like a guest in my own home and I was always tiptoeing around so as not to disturb the studying student. She was a perfect tenant but I found her very annoying. We are loud and we are messy and we had to be try and be less of both of those things and it was just too hard.
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You have to be a good match in your habits too, if people are quiet you have to be quiet, messy and messy etc and usually people lie at first, who is going to say I never clean if they want to rent the place… In the UK there is a tax free allowance to rent a room, up to $6,000 a year more or less, to prevent the small rent from hitting your tax return too badly.
I had roommates for a few years after college, and maybe I’m old and set in my ways, but I’d prefer not to go back to a shared living space. Granted, if I was in a tight spot financially I’d be more open to it. Currently our place is small enough that it doesn’t make sense to add anybody.
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Sure, it is weird once you are used to privacy to share again. I don’t mind too much as I have always lived with people or significant other.
I am sure that is a great way to make extra money. For people who can do this, and have the strong motivation to make money, this can really work. With a family, this won’t be happening for me, no way. But if younger and/or childless, that’s a different story!
$500 a month make a huge difference, and you don’t do much to earn it unless the tenant trashes the place of course. My grandparents have done it with grandkids from their friends who came to study for a year, they have had good experiences.
I would definitely have tenants apart of my main residence if my residence was a duplex. I don’t think I would ever rent a room out because I value privacy. I would rent my basement out if it had a walk out entrance/exit. I’m currently a property manager for several apartment complexes and I love property management.
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The duplex situation is ideal, having your tenants nearby but not invading you.
I think for me to rent out a share of the main space, it would have to be to family or a VERY close friend. I’d often rather have a smaller space than have strangers in my own personal space.
However, if you can separate out everything, it sounds like a brilliant idea. Great article, you covered a lot of things I’d never thought of!
Alex @ Searching for Happy recently posted…Life examined every 7 years
I never thought I’d have to cover that, and then I lived with roommates haha the weirdest things have happened.
I completely agree with you, Alex. The person has to be someone you can trust and you know well about, because it’s scary to just allow someone who is a total stranger stay with you.
Marissa @ Thirty Six Months recently posted…How To Invest In Property The Right Way
Very helpful advice as the BF and I decide whether to rent out our ‘extra’ room. There’s so many bad things that could happen, but it could turn out really well too (as well, of course, as the financial benefits). We’ll leave it a little while before we decide though.
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This is a brilliant idea, however, you have to be careful about who you will allow to stay in your house with you. You have to make sure that person is not going to do harm.
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Yes, a thorough background check is a must. You don’t want to end up with more damage than their deposit, and even with good people, they can damage the place. One of my roommate left the oven all night when she came back drunk and wanted to eat a burrito then dozed on the couch, we woke up to a cloud of smoke and could have all be injured…
Great ideas and this will surely help me as I am planning to rent my house to others. Thanks for sharing these ideas to us!
No pet policies are void and not legally binding.
I think that having separate living quarters makes perfect sense. You’re on hand most of the time to ensure that there are no rowdy parties and that the area rented out is being properly cared for – but you also have some privacy yourself which can be difficult if you have tennants going in and out at all hours of the day and night.
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Interesting. My insurance definitely doesn’t allow for short term rentals. I asked and they would require a whole different insurance policy. I hope you are %100 sure on this. Because if there is an accident you could lose everything. Also do you have umbrella insurance and have your insurance set to a high payout? Again if there is an accident you could need enough to pay millions and not lose all your properties just from one accident on one property.
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After college,I decided to start a business of my own selling life insurance. I used this strategy of renting out several rooms of my basement. It helped pay my mortgage, and allowed me to grow my business. Not to mention, I enjoyed having people around in my youth. It may be harder with other living situations involving a family. Nice article!
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One of my early apartments was a basement apartment and while I wouldn’t want one for the long term, it was fine for our needs at the time. We got enough light (not a ton though) and we didn’t have the noise or sprinkler problems you have. Bugs can definitely be an issue though for sure.
This is really a perfect house. I enjoyed your post and I found it very informative. Thanks for sharing. I love to learn new things.
I and my husband rent from a live in landlord and it is frustrating. first he eats our food as do the other tenants and his friends……a whole sara lee pie gone the night we bought it. a whole large strawberry cheesecake gobbled up in one night he was kind enough to leave the crust.had just bought a jar of mayo…he lends it to his sister without asking me and she brings it back with only enough to scrape at the bottom. He is constantly asking for money to borrow while he may pay it back when rent is due its frustrating to constantly being asked for money. his friends and family come to our window and knock if no one comes to the door quick enough…we are expected to watch the home if he has a floozy over and leaves for work…he had one over and she stole his tv….and he exploded at me like i should have heard her…mind you she stole his tv once before yet he allowed her to stay again….and the constant asking for cigarettes by him and his friends….he plays the t.v. loud and plays loud music…when i go to bed i like peace and quiet.And if my husband has a seizure and we call the ambulance we will get evicted or if my husband has a seizure infront of him we will be evicted…he wrote that in the lease when he found out my husband had seizures. also if my husband runs out of meds…eviction . we are expected to pay all of his wireless internet bill…yet he has given everyone and there kid brother the password. and also to pay half the cable bill ( bs) especially when there are other tenants. using it. We have tried talking to him…and nothing but a blank stare..we are saving to get our own place….but keep hitting road blocks. also sewage backs up into his basement due to a broken pipe. so we get to smell the nieghborhoods flushables…….so would i recomend renting from a live in landlord…F@CK NO!!! nor would i recomend roommate situations. they always end up bad. just my story and 2 cents.
Most of the landlords give that property on rent where they live and it is good for them because in live in property tenants don’t do any damages to their property and they can help their tenants at any time. But sometimes it would be awkward for both of them.