Instead of using your spare room as a place to hide your dusty treadmill, you might consider renting it out.
There are many potential financial and social benefits to renting out your spare bedroom. But there are drawbacks too, including a loss of privacy and the chance you’ll be pushed into a higher tax bracket, and the potential for the requirement to pay capital gains tax when you sell.
Here are some of the pros and cons of getting a roommate when you’re the homeowner.
Pumping up the income
The most obvious benefit of renting out your spare room is the extra cash. You could put this toward your mortgage repayments, use it to save for a property upgrade, or just enjoy a little extra spending money.
At tax time, having a tenant means you could potentially claim deductions for the associated expenses of your property. Check what you can claim with your accountant or financial planner.
Sharing the workload
There’s a lot to be said for having an extra pair of hands around the house. If you’re living in a bit of a fixer upper and your tenant has DIY skills, they might even be willing to help out in exchange for discounted rent.
Planning a holiday? There’s no need to worry with a live-in house-sitter holding down the fort. If you have a good relationship with your tenant, they might even agree to look after your pets while you’re away.
A new tenant could help get you to socialise more. You might even find yourself with a whole new circle of friends.
To be sure you will enjoy their company, spend a little extra time interviewing potential candidates. You’ll want to find someone who will be a good personality match.
As a landlord you have several legal responsibilities to uphold. That includes drafting a proper lease agreement and ensuring any bond you charge is held by the residential tenancy authority in your state or territory.
With no bond, you may be left to foot the repair bill if your tenant damages the property. Not to mention how uncomfortable the living environment could be if your tenant is disrespectful to your home.
Also bear in mind that you will pay tax on any rent you receive, so you might want to check whether the extra income will push you into a higher tax bracket. You may find it will eat up all of your profits.
Renting out part of your home also means you may not be entitled to the full main residence exemption from capital gains tax (CGT). That means you may have to pay CGT on part of any capital gain made when you sell. Again, check this with your accountant or tax advisor.
Sharing your space
Renting out a room in your house will cost you some privacy, and you might need to consider scheduling shower times on weekdays if you are both nine-to-fivers. This is where a second bathroom can come in handy.
Speaking of schedules, make sure your tenant’s work hours and lifestyle are going to suit yours. For example, if you need to wake up early, the last thing you’ll want is a night owl making lots of noise while you’re trying to sleep.
On the other hand, if you’re someone who values your alone time, you might prefer living with someone who is at work while you’re at home.
Whether you want to pay off your mortgage faster or get your hands on a little extra spending money, bringing a roommate into your home could bring you benefits.
And if you put time and effort into selecting the right tenant, it may even be the beginning of a beautiful friendship.
Be sure to weigh up the pros and cons before taking the plunge.
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