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I get a lot of questions about various things, but I tend to receive frequent questions from folks who intend to buy a house and rent out a room because they’re going to be living in a house that’s bigger than what they need.  Generally, these folk don’t have children nor  are they married.  So what better way to capitalize on space that would otherwise go empty by renting out their spare rooms.  Now, I understand some folks like their privacy and don’t want roommates, but I feel the financial gains make it worthwhile.

So for folks that are in this boat, I want to point out there’s a right way and wrong way to go about this.

THE WRONG WAY
The wrong way is to buy a house that’s more than you can afford and hope that you can rent out the rooms to PAY the mortgage.  This is risky because there WILL be times when you’ll find yourself without roommates and your spare rooms will idle empty rather than generating cash the you had hoped.

Nowadays, borrowing more than you can chew is hard to do as lenders are conservative in the amount you lend AND the anticipated rental income cannot be included as part of your income.  So the combination of the two nearly eliminates one from borrowing more than they can handle.

THE RIGHT WAY
The right way to go about it is to use the spare rooms to generate extra income in such a way it HELPS you with your mortgage payments rather than depending on it.  In other words, your regular paycheck covers your mortgage and other living expenses while the income from the spare rooms is just a extra income.

As for my situation, I can afford the mortgage payments entirely on my salary from my day job so I don’t need the roommates.  The roommates simply assisted me to pay for graduate school, but after I graduated, I found the living arrangement financial beneficial and still continue to rent out the rooms.

There are other things I want to point out for those first time homebuyers.

  • Location is the crucial.  I got lucky with my location because it’s convenient to what my roommates value.  I didn’t plan it this way, it just worked out this way.  When I bought my place, I just wanted to be close to work.  When I advertised my spare room, my roommates found it a great fit as my location was close to the grocery store and the highway.  I strongly feel that location is the key selling point out of any aspect of a house.
  • Don’t wait to rent out a room, start right away. After I bought my residence, I waited 10 months before renting out my first room.  I waited because I didn’t need the rental income as I stated, I could afford the mortgage on my salary, but my salary wasn’t enough when I started graduate school.

Looking back on it, I wish I started as soon as I bought my residence.  I had the whole house to myself and the spare rooms were going empty.  The 10 months I let the spare room go empty is money that could have been in my pocket.

MAKE IT TIP TOP
When you buy the house, ensure everything is fit and operational.  Don’t immediately rent out a room just because you have a spare room.  It needs to be a livable shape.  Throw a coat a paint and put new carpet to bring a room back to life.  Spend the time and the money to make it appealing.  Yes, the carpet and walls will get dirty, but that’s call depreciation, which can be written off as an expense.

Any “live-in landlords” who just bought a house want to chime in about advice?

{ 2 comments }
  • Matt August 23, 2013, 9:15 pm

    I just bought a house a few months ago and luckily I have an extra bedroom/bathroom combo in the back which I have rented out.

    For first-timers, i recommend renting out to friends (or in my case, friends of friends). That way your not renting out to a complete stranger; a good way to ease into being a live-in landlord.

    Reply
  • Washington Zulu November 22, 2014, 10:28 am

    Sir,
    May I ask if it’s legal for first time home buyer to rent his house immediately? Does the Law allow him to do so?

    Reply

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