Sometimes side hustle opportunities are lying right in front of us. Or in this case, perhaps down the hall and on the left.
Jennifer Riner from Zillow contributed this post on how some fellow side hustlers are turning their extra space into extra cash.
Traditionally, real estate investors don’t live under the same roof as their tenants. However, most don’t consider the income potential that stems from renting out excess space in primary residences.
Homeowners (and leaseholders) can generate revenue from spare bedrooms, accessory dwelling units (ADUs in industry lingo), and mother-in-law suites.
They operate like investment properties – just without financing deposits and mortgage payments for additional space.
Nick’s Notes: Accessory Dwelling Units sound like something out of a bad sci-fi movie.
Whether you’re after short-term or extended-stay renters, this post is intended to get your brain thinking about the pros and cons of becoming a micro-landlord or hosting out-of-town guests.
Aspiring spare bedroom real estate moguls can implement the following tips to best prepare, price, and market their homes and rooms.
Renting vs. Owning
Homeowners aren’t the only ones allowed to generate passive income from their superfluous square footage. Renters can profit from their extra space as well.
Emily G., a resident of West Seattle, regularly rents out spare bedrooms in her leased townhouse. The legal process is a bit more complicated than renting out spare bedrooms as a homeowner, but she says it’s worth the bonus income.
“It’s important to inform leasing agents or landlords before new housemates move in. Make sure they sign the associated documents and put down deposits — about a week’s worth of rent,” she says.
“It’s best they are on the lease in case something happens,” Emily adds. “Two previous sub-renters left stains all over our carpet, but our security deposit wasn’t affected – theirs was.”
Notifying property management and documenting roommates is the only way to safeguard individual deposits. Two-bedroom condos are typically less expensive per person than single bedroom units or studios, so investing in larger apartments in the hopes of finding individuals to fill spare rooms can save money long-term.
However, renters must budget to pay rent on their own in case months pass without roommates.
Pricing Your Rental
Pricing largely depends on the location, amenities, and the size of each spare room. For long-term leases, it’s not uncommon to see rents ranging from $400 per month up to $1000 per month or more.
Friends might consider leasing extra space to close acquaintances at extremely low rates, at least until they are financially stable enough to contribute fully. John M. of Irvine, Calif., rented out his spare bedroom in a leased property to a close friend going through difficult times.
“Our rent was roughly $1,250 per month and since he was a friend, we let him live rent free for a couple months and then asked him to pitch in $500/month to cover rent, utilities, and to keep the fridge full. I had often heard of horror stories where a friend moves in with a married couple, but things couldn’t have been better. He started working almost right away, was back on his feet in two months and began chipping in on the third month,” he recalled.
Although John’s situation turned out positive, be wary of “friends” who try to take advantage of their host’s generosity.
They might assume a great deal of leniency when it comes time to pay rent or utilities. Remind them that the living situation is still a business transaction where both sides must uphold professionalism and timeliness.
Nick’s Notes: Bringing in a long-term roommate can throw off the dynamics of your living situation and may not be worth the additional income if it causes stress or anxiety in your relationship.
Paula Pant of AffordAnything.com shared an interesting case study of her Atlanta rental property, comparing the results of a traditional long-term lease with more short-term Airbnb rentals. The Airbnb option ended up earning her more money but was not without its unique challenges.
Updating and Staging
Parents and couples tend to stash personal mementos in spare bedrooms – especially when these spaces previously belonged to college-bound children or relocated relatives. After making the decision to rent out a room, clear the space of any family photos, trophies and personal touches.
Renters shouldn’t feel like they are staying in someone else’s bedroom. Rather, they should have the opportunity to customize the space with their own possessions.
Some short-term rentals operating similarly to a bed and breakfast might offer linens for guests. For these situations, purchase new comforters and fresh sheets. Potential guests might be deterred upon seeing dated, stained towels and blankets.
Regardless of rental type, opt for neutral color schemes. Beige, gray and white are all safe tones for bedroom rentals.Apply fresh paint to walls and consider replacing older carpets or refinishing hardwoods.
Keep in mind that spare rooms are like investment properties – and should be modernized to compete with comparable rentals. (The upgrades should be relatively inexpensive, given the lack of kitchens and/or bathrooms to renovate.)
Andy G. of Seattle owned a home with one laundry room, located in his rental unit. Rather than impose on future tenants, he invested in a second laundry space in the main part of his home.
Lindsay C. of Southern California recommends investing in more than just aesthetic upgrades.
“I installed dead bolt locks on my bedroom door as well as the two back bedrooms to ensure the safety and privacy of each roommate as well as myself. I never did give anyone a key to my actual home. I have a garage code and simply changed it each time someone moved out, which made it easier than changing locks … and less expensive,” she said.
Airbnb offers advertising for homeowners and leaseholders who prefer to rent their spare rooms for short periods of time. Hosts manage their own schedules, limiting availability during personal vacation time.
Hosting tourists is more of a part-time gig than a full-time operation.
Individuals might be hesitant to allow numerous strangers in their primary residences throughout the year. However, Airbnb and similar sites keep review systems and strict guidelines in place to protect the finances and safety of all parties involved.
“I don’t know of any other platform that supports reviews and ID verification the way Airbnb does. That’s critical to me; I don’t rent to folks I don’t feel 100 percent comfortable with. Their transaction management – the passing of money back and forth – is also really good. Even the messaging system is nice. Plus, Airbnb is the only site that seems to focus on room rentals versus vacation rentals or full apartment rentals,” says Carey A., who regularly hosts travelers in her mother-in-law suite.
Nick’s Notes: Last year on the podcast, Scott Bold explained how he “accidentally” got into the Airbnb business and how it covered nearly his entire monthly rent.
He added that the company covers a $1 million liability insurance policy to protect homeowners and landlords.
Cover Your Bases
Those planning on renting out rooms in their homes have to submit the proper tax forms and insurance extensions like any other property management firm. Run potential roommates’ credit to best protect personal finances and research state laws to determine if landlord insurance is a necessary expense.
Have you rented out a spare room on a long-term or short-term basis? I’m still curious to test out Airbnb though we don’t really live in an area heavily trafficked by travelers or tourists.
Could it be a $500/month income stream? Is it worth it to open your house to strangers for $6000 a year? Probably not a bad side hustle and might meet some new and interesting people.