Being a homeowner can be tough, and clever budgeting might not be able to help. So, it’s quite tempting to rent out one of the rooms and get a stable source of income to help you with monthly bills and mortgage payments. After all, everyone knows that investing in rental real estate is a good business strategy, and renting out a room is like the first step of becoming a landlord, right?
That’s what I thought too. But, luckily, I decided to research the subject thoroughly first. And it turns out that renting out that room might be a huge mistake.
#1: Your Rental Income Is Taxable
The first thing to remember if you want to become a landlord is that any rental income is taxable (Form 1040). It doesn’t matter if you are a “real” landlord with several properties or if you are renting out a cot in your garage. If you make money from this, you have to report it. Therefore, calculate the taxes first before you decide if the money you get for the room is worth it.
#2: Your Renters Won’t Be Perfect
You can’t be 100% sure that your future renter will be a dependable person who will treat your property with respect and care. Also, remember that your family will have to coexist with them in some manner. If they damage the property, your insurance will, most likely, not cover the damage. And can you really be sure they won’t do anything more serious than a broken TV or scratched flooring?
#3: You’ll Need to Study a Bunch of Laws to Be a Landlord
No matter how small-scale a landlord you are, you have to obey specific laws and regulations that govern the relationship between a landlord and tenant. When you rent out a room in your house, it’s easy to slip because you are relaxed and “on your territory”. But even doing something as simple as going to the tenant’s room to tell them they must turn down the music might get you sued.
Are you still sure renting out a room is the best thing to do?