Renting out part of your house is not for everyone, but it can be a great opportunity for young adults to bring in additional income for paying down debt, saving some money, or to have additional spending money.
We personally decided to pursue rental income to help pay down our debt as well as to diversify our income. Additionally, we were well aware that houses have lots of unexpected expenses and that rental income could help pay for them when they do come up. Finally, we were certain that just like every other homeowner we would eventually want to make various upgrades such as renovating the bathroom or putting in hardwood floors. Rental income can help fund some of these things.
Below I’ve made a sort of step-by-step guide to pursing rental income. Of course it can be more or less complicated depending on each specific situation, but I think it’s a good general guide and highlights our own personal journey in pursuit of rental income.
1) Own a House
Obvious first step. If you don’t already own a house, you have to purchase one if you plan on getting some rental income. We were renters until October of last year when we became first-time home owners.
2) Decide what space is shared and what space is not shared
This will largely depend on your house. We purchased a house that has a separate entrance to the basement studio that included a kitchenette. Connected was a bathroom that included a shower. Past that is a laundry room. As you might have guessed, the only part that we decided to share was the laundry room.
As a married couple, this was the only setup that we wanted and were fortunate enough to find a house that accommodates such a rental setup. We don’t have to share any common spaces (besides the laundry room) but still get to enjoy the benefits of having rental income. If you can buy a house that is slightly larger than you need it makes it a lot easy to rent; we simply don’t need the huge fourth bedroom/studio apartment in the basement and it would probably only serve as additional storage space if we did not have a renter living in it.
3) Make sure the area is ready to rent
This is definitely my favorite part about renting out a part of your house. We had a lot of work to do to get our rental unit ready. It was in a somewhat debilitated state; everything was completely outdated and needed work or replacement.
While you can spend thousands on renovations, we spent approximately $2,000 when it was all said and done doing the following things:
- Replacing the Fridge
- Replacing the Range/Stove
- Adding a Range Hood
- Replacing the kitchen light
- Replacing all the doorknobs
- Replacing all the outlets
- Replacing the toilet
- Replacing the sink
- Installing a new bathroom light fixture
- Installing a new bathroom mirror
- Installing a new bathroom cabinet
- Installing new blinds
- Adding outdoor lights along the path
- Sheet rocking a wall in the bathroom
- Painting the bedroom/bathroom/kitchenette
While this is a seemingly long list, thankfully many of these can be DIY (Do It Yourself) projects. Prior to setting up this rental unit I had zero experience doing any sort of home project. Next thing you know, I’m installing a sink and swapping out light fixtures. Of course, you can always pay someone to do the upgrades and renovations for you, but I personally enjoyed learning how to do all these things (even if it was extremely frustrating at times).
Below are some before/after pics:
Old Bathroom
New Bathroom
Ancient Appliances
Upgraded Kitchenette
4) Write up a lease
I can’t stress enough the importance of “getting it right” when it comes to a lease; it’s the legal document that protects you in case something goes wrong or you get in a dispute with your tenant.
The easiest way to get started is to find a sample lease online, or to talk to someone you know who is already a landlord. I talked to another personal finance blogger who sent me a sample of one of their leases. It saved me a ton of time and made it easy to tweak for our rental situation. Since then I have emailed our lease to a couple of other people looking to rent either their entire house or part of their house.
You also need to decide what is included in rent and what is not. Since we were only renting a room and bathroom in our house and not the entire house, we found it easier to include all expenses in the lease. We went ahead and included the following:
- Cable
- Internet
- All utilities
- Garbage
I think this made our rental attractive because potential renters knew they would only have to pay one flat rate per month; they would never have to worry about fluctuations in expenses. As someone who tracks their expenses very closely, I know I would have appreciated the consistency that comes with an “all-inclusive” rental unit.
5) Find a renter
Especially if your renter is going to live in your house, you want it to be someone that you are likely to get along with. We know a lot of young adults who are renting and looking for places to rent, so we weren’t concerned at all about finding someone. Below are the steps we planned on taking to find a renter:
- Asking friends who we knew were looking to rent
- Posting something on Facebook asking friends for referrals
One of the friends we initially reached out to ended up signing the lease and things have been working out great. If you can find a friend or someone you trust, you are at a huge advantage because it’s easier to have shared space or trust them to house sit or take care of pets while you are gone. Our renter watched the house and took care of our cat while we went on a cruise. recently.
6) Enjoy the income!
Okay, it’s not quite that simple. Obviously, renting is not as simple as having someone move in and cashing checks. Once you have a renter, you are officially a landlord. With being a landlord, you need to be “on-call” at all times in case something goes wrong. You also need to make sure you have the money available to pay for needed repairs. There are trade-offs with everything and rental income is no different.
If you own a house have you considered renting out part of it? If you do not own a house, would you consider buying one that has rental possibilities?
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Photos by Victoria Carlson
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Looks like you guys scored a nice house that lent itself to being able to rent out part of it. Having little ones ourselves it really is not an option for us right now, nor do we have the house for it. But, we’d definitely consider doing it in the future.
This is something that we have thought about. Since we want to buy a new house, we’re unsure what we should do with our current house. Unless my sister wants to rent it out, then I think we will just sell it.
@SenseofCents Selling our house isn’t a bad decision. We’ve debated what we will do down the road when we want to move to a new house, and initially we thought we’d rent it out instead of sell. Granted it’s years down the road but now I’m thinking if you are looking strictly to rent out a second property it’s better to buy one with that in mind vs. how we bought this one with us in mind for the most part.
Great tips! Our rental properties are both free standing homes but it’s the same idea. When we first started out, we seriously considered getting a duplex and living in half of it!
@Holly at ClubThrifty I don’t know if you guys remember, but you gave me the initial lease that I reference in the article! I thought about mentioning you but didn’t want to send people your way without permission. I would love to have two free-standing homes to rent out, hopefully down the road. I imagine once I have more than one or two kids I will want our own house with no renter, and/or more space.
Awesome job of setting up your basement apartment! I think it is great that you found a trusting friend to rent it to as well, and especially for the fact that she is able to house sit and pet sit for you. That’s a nice deal :-)
Do you use a management company? The most stress free landlords I know have a management company take care of their multiple rental homes. Once I get in the rental game, I’m definitely going to use a company, because I don’t have the time for hassling with issues at a moment’s notice.
And I love the DIY! Saved yourself $10k I’m sure!
@iHeartBudgets No we do not have a rental management company. We found that to be unnecesary when we are living literally in the same house as our renter.
Yeah DIY is great! Took up most of my free time for 2-3 weeks there, but definitely worth it in the end.
I would like to rent out our house, but don’t want to deal with being a landlord. I don’t think it is for me and using a management company would eat any potential profits.
I haven’t rented out our house, but I think it’s a great idea if you have the right set up. We do have our other rental property that is a separate house, and DIY saved us tons of money on the renovation. If you can get someone else to pay the mortgage, it’s a winner all the way around.
Can’t believe you replaced the mint green toilet. That has to be a vintage classic!
@Eyesonthedollar One day I hope to have a setup like you have with a seperate rental house, but for now we are having fun doing a test-run of being a landlord (with all the perks and non-perks that come with it!) and maintaing a space.
Unfortunately, I don’t have my own to rent out space, but I have been the fortunate renter of virtually the exact same set-up as yours. I have a private entrance, my own kitchen, bathroom and we only shared the laundry room. As I still rent today, I can tell you that I miss sharing their laundry room! :) It was a great deal for me and them. They earned a little extra income on the side and my rent was more affordable than most of the apartments in the city. They went away to their cabin every weekend but I was around to look after their home and did take care of their Yorkie when they went on vacations. Honestly, it was one of the best places I ever lived and if you have the space and can find the right renter, it can be a huge win-win for everyone involved.
@Tanya M It’s definitely been working out well and it sounds like you and your landlord had a great setup for years! Honestly, what I think about with the studio is how I would have loved to have one like that when I was single and renting. It’s an affordable space, it’s better than renting in an apartment complex, laundry is right there next to your room, you retain your privacy but get the perks of living in a home, etc.
That is awesome, good for you guys. I wish homes came with basements out here in CA – I would totally rent it out for some extra income!
@KyleJames1 Yeah it is pretty nice that we have that option. Granted basement space doesn’t add as much value to a home but when you can use it for rental, storage, entertaining space I definitely like the space.
We’ll be renting our townhouse out in the near future after we move into our new house… mind sending me a copy of that lease to look over?
@Money Life and More That’s awesome! Excited for you guys and I will definitely shoot you the lease via email.
I’m not sure I could rent out part of our house. We’ve thought about having my wife’s cousin move in with us, but if we ever had children I think we’d need a little more space.
However, we do plan on buying and renting out a separate property.
Apartment looks great. We don’t rent out anything (yet) but would like to purchase an investment property in the next year or two. If we don’t end up doing an investment property we’ll likely move to the suburbs and rent out our condo in the city.
Nice job with the income property! Not only do you get the extra income, but you save yourself from purchasing a separate property upfront. Certainly the ability to limit the shared space to just the laundry makes this sort of arrangement much more palatable!
the renovation looks great! glad you found a tenant, I love love love real estate for all the reasons you mention and don’t mind sharing space to recoup costs.