I’ll share my thoughts on how renting out a room in my townhouse for the first time provided me with some extra cash and how the extra person, ie roommate affected my expenses. My expenses may not fit everyone’s current scenario, but it this should get your thought process going on renting a room will make you money.
If I were living by myself in my townhouse, I would have the following expenses:
- Home Insurance
- Association fees
- Electric Bill (Heat/AC)
- Public Utilities (sewer/water)
When my first roommate moved in, I had him pay me a fixed amount for rent for the bedroom he was renting. Cha-Ching!
This provided me with extra income to help pay the aforementioned expenses. I know some of you may be wondering why I charged a flat monthly rate versus splitting the utility usage. I’ll touch on that later. Let me explain the net effect on my living expenses by renting out my spare room.
With fixed expenses such as mortgage, cable, insurance, and association fees, it doesn’t matter if I am living by myself or living with a roommate. I will always have these expenses as long as I am living in my townhouse. I know, I don’t have to have cable or Internet, but it’s just convenient to have these things.
I want to note that my townhouse is about 1,500-square-feet including the basement, so it’s not that big. When my first roommate moved in, there was a small increase in utility costs. The small increase was due to the fact that my place is not that big and we were sharing common areas such as the kitchen and living room. Thus, the increase on the utility bill was caused by the bedroom that my roommate was occupying, the additional use of hot water, cooking, and laundry. So in my case, the increase in the utility was small enough that the fixed amount I was receiving could absorb the increase in utilities costs. This is one reason why I chose to charge a fixed amount for rent. In addition, the utility rate drops significantly during the spring and fall seasons because the heat/AC is rarely turned on, nearly offsetting any increases during summer and winter season.
If you have a bigger house than I do, this situation probably wouldn’t hold true and you would probably incur a higher utility bill. In this case, I would highly recommend splitting the utilities. By doing this, the roommate would be mindful of their utility usage and not be wasteful. If you do live in a smaller place and then the heat/AC bill may see a slight increase, I would collect a fixed rate rather than worrying about the headaches of splitting the utilities.
Since I have been renting out my spare room for some time now, I have had different people living in it. Not everyone is the same when it comes to utility usage. Sometimes I get that roommate that is perpetually cold or vice versa, thus increasing my utility usage to be marginally higher. This is something I cannot control and I am 100% fine with that as long as they are not wasting resources. I kindly remind them to turn off the heat/AC off when they go out and often use the analogy “would you leave your car running in the parking lot when you’re not using it.”
My water and sewer bills are other variable costs and these are billed on a quarterly basis. When my first roommate moved in, these bills went up by a total of $10 per month at most. This increase was easily absorbed by the rent.
A small portion of the monthly rent covers the increased variable cost of renting out my room, but a good chunk of the rent is extra income that can assist in paying other bills such as student loans, and so on. Of course, you have to set aside some of that profit to pay taxes. Despite the taxes on the rental income, renting out a room is a great way to make some extra cash for those that are in dire financial need. For those that are unsure whether if the income from renting a room out is worth it, sit down and write down your expenses and see how that extra income can help your financial situation out.