How to make money from your spare room

Are you interested in paying off the mortgage faster, adding some breathing room to the monthly budget, having some company or even avoiding losing the house?

If you're thinking of becoming a live-in landlord by renting out one or more rooms in your home while continuing to occupy the home as your primary residence, you should first learn about the numerous tasks involved and the essential legal procedures you'll need to follow.

Decide what's for rent and prepare the space

Which parts of your home will the tenant be allowed to use? Is it practical to restrict parts of the property? Where will the tenant park? Which bedroom and bathroom will they use? Will you include any furnishings? Keep in mind that you'll have to make the tenant's accommodations at least as nice as other rental options in the area if you want to charge the going local rate.

Ensure the safety and soundness of your property

As a landlord, you become responsible for your tenant's health and safety as it relates to your home. Nuisance problems and other repairs that might not have seemed like a big deal when living alone must become a priority when you have a tenant.

You want to keep that person happy so they'll keep paying the rent, and you don't want to cause yourself any legal problems by failing to maintain the property.

Check you are covered by your insurance policy

Having more people at the property can increase the odds of something going wrong, such as a personal injury occurring on the property, illegal acts by the tenant, accidental damage and so on,  so you may want to protect yourself by increasing your house insurance coverage.

In fact it may well be a legal requirement that you notify your insurers, so be sure to check your policy so that you do not accidentally invalidate it. Extra insurance charges will cut into your rental profits, but the coverage may be compulsory and will certainly be indispensable in a worst-case scenario.

Enjoy the tax-free income

Renting out a room in your home is one way to enjoy a tax free earning through the government's 'Rent a Room scheme'. This scheme allows you to earn a tax-free amount of £4,250 per year from letting out furnished rooms or an entire floor of your property.

Keep yourself and your family safe

Handing over a house key to a stranger can be daunting. Furthermore, if you live with other people, you must consider how a lodger will affect them. The safety of your family has to be more important than the extra income, and renting to someone you know can ease this concern.

Locate and screen prospective tenants

Think about what type of tenant you want to attract when deciding where to advertise. If you're looking for a college student, put up fliers at the local campus. If you want someone older (and possibly more responsible!) consider a local newspaper or rental magazine. An online advert will return a wide array of applicants. Word of mouth advertising is free, and may turn up a potential tenant who comes recommended.

Include the rent amount, size, location, lease length, pet policy and number of tenants you're seeking in your advert. Once you've narrowed down the responses to your best bet, meet the applicants and check their references. If they permit you to, you may want verify his or her employment and income.

Sign a tenancy agreement

The lease or tenancy agreement should lay out all the terms of the arrangement, including but not limited to the tenant's name; rent amount and payment arrangements; rental term; deposit amount and refund conditions; and whether pets are allowed. Make sure the lease is legal. If your tenant becomes a problem, you will want to have the option to enforce your lease in court.

The Direct Gov website is a government run source of free information which has a section on renting out your home or rooms within it. The citizens advice bureau also has helpful sample tenancy agreements that you might consider using to ensure you have a thorough legal document prepared.

Hold up your end of the bargain

The tenant is not the only one who has terms and conditions to meet. As a landlord, you will have ongoing responsibilities - such as maintenance. You also must be certain to respect your tenant's privacy - your home is now their home as well.

Understand how to end a renter's tenancy

If your tenant violates the lease to the point where you want to terminate the agreement, you must follow specific legal procedures. If the tenant doesn't leave, you may have to take them though the small claims court and go through the eviction process. The Direct Gov and Citizen's Advice websites will be good places to start if you find yourself in this situation.

The bottom line

Renting out part of your home is a major decision. It's not as cut and dry as a traditional landlord-tenant situation, and comes with increased responsibilities. But it can also be a very wise financial move, whether you're trying to get ahead or just trying to stay afloat.

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