Is it finally time to work on fixing up that unfinished spare room and start turning your extra space into extra cash? The potential return on the time and money you put into prepping a room to rent can make it more than worthwhile. Half the battle is just getting started, which means coming up with a plan to get the space ready to rent.
The first thing to consider is what potential income can be derived from renting out a room compared to any lifestyle adjustments that come from sharing your living space. Most likely, there will be a number of questions to work out regarding access to a bathroom, kitchen, or common space. Here are a few things to consider before renting out a room in your home:
Estimating the ROI of Renting a Spare Room
Each individual design element you focus on can add value to the room you’re renting out. The more appealing the space, the more confident you can be about charging a higher rate. Set a timeline for getting the room up and running, and a budget for how much you’re going to spend on renting out a room. Think about how much you’ll charge and how long it will take to recoup the cash you put in before turning a profit.
Here’s a basic example to see how a typical model might work. If you could find a renter to pay $400 or $500 a month (a bargain in certain urban locales or off-campus areas), this translates into a potentially $4,800 to $6,000 a year. Suddenly, investing a few thousand dollars on improving the space may offer a considerable return on your hard work.
Starting with the Essentials
Before breaking down the costs of potential items on your punch list, it’s important to consider what additions to the space are necessary, and why. A fresh coat of paint can make a huge difference in brightening up a space. Be sure to choose colors that are reasonable. Dark or bold colors tend to be less welcoming than something more natural, such as light blue or gray. (Also, beware the terracotta wall—home buyers might be turned off by them as a color.)
Providing a bedframe and a good mattress goes a long way in creating a comfortable environment. You’ll also probably want to include a dresser, a nightstand or two, and some nice lights. Check to make sure the windows are well sealed, secured, and in good working order. You can choose blinds or shades, and possibly curtains.
Some additional options to consider are an area rug or two, sheets and bedding, and maybe even a few sets of towels. If there’s still a bit of room left, you may even want to consider adding a desk. Of course, if you have a space to rent that includes a kitchen or living room, there are additional things to deal with such as a kitchenware, couches, televisions, and other appliances.
Calculating the Costs of Furnishing a Spare Room
When it comes to furnishings, you can be thrifty while still finding great pieces. Local thrift stores often have good finds, and Craigslist or Facebook Marketplace have an ever-changing array of options. Maybe there’s a neighborhood flea market not far from you. When you’re fixing up your spare room, don’t be shy about telling your friends and family; they might be helpful when it comes time to find a tenant.
Whatever direction you choose for your space, it’s important to take care when creating a budget, making online purchases, and keeping receipts. When renting a room in a house, receipts are useful not only for returning an item, but also for tax purposes .
The money you spend on fixing up and maintaining your home could be eligible to be deducted as a percentage of the square footage used or number of total rooms in your home. (Definitely check with a qualified tax professional or accountant for all the ins and outs of tax write-offs for this purpose.)
Here are 12 things to prep before putting your room up for rent:
Bed Frame – $100 to $300 and up. Depending on the size and style you choose, there are reasonable finds to be had. If you’re looking for a bargain, but want to avoid a thrift store frame, try checking sales at the big box outlets.
Mattress – $200 to $600 and up. There are tons of mattresses available online, and some are delivered right to your door in a box. Plus, there are plenty of other mattress stores, but prices can quickly sneak up into the $1,000+ range. One idea while you’re at it might be to put your old mattress in the rental room, and keep the new one for yourself.
Dresser, Nightstands, Chair – Each piece is likely to run $200 to $400 and up. There are plenty of online and brick-and-mortar stores that will allow you to buy long-lasting, nice pieces without spending too much, however. Look at Target, Ikea, Home Goods, and Wayfair for good-quality furniture that will fit into your budget.
Lights – $50 to $100. It doesn’t have to be too fancy, just nice-looking and functional.
Blinds, Shades, Curtains – $100 to $300 and up. You don’t need all three, of course. A simple shade can make all the difference.
Area Rug – $50 to $200. Your house may already have carpeting. Or if you want to skip this expense, hardwood floors are in right now.
Sheets, Bedding, Towels – $50 to $100. You probably don’t have to provide 1,800 thread count, Egyptian hotel-style linens. However, if you’re hosting on Airbnb, offering towels and shower supplies is a plus.
Paint – $50 to $200. Doing the painting yourself, as opposed to hiring someone, can help cut down on costs. But don’t skimp on painting needs, including rollers, trays, brushes, and tarps.
Miscellaneous Repairs – $100 to $500. You will have to be realistic about all the little things that can add up quickly. Is there patching and sanding necessary on the walls before you paint? Does the floor have issues? Also, consider locks for all the doors, both as a courtesy to your guest/tenant and as a safety precaution for your family.
Rental Agreement – Depending on where you live, there may be local or state requirements related to renting a room in your house. So you should do a little research to ensure your project gets off on the right foot.
A typical agreement adheres to local laws and typically includes topics such as maintenance, utilities, home and bathroom access, insurance, length of term, and any other key details. Ultimately, you want to be sure it is fair and legal and protects both you and the person staying in your home. To make sure all your bases are covered, it’s probably a good idea to run the rental agreement by an attorney.
Posting Your Rental – Fortunately there are many outlets where you can promote renting out a room or in-law suite online. You can consider posting on Airbnb, Craigslist, Zillow, Realtor.com, Apartments.com, and local campus housing websites.
Digital Photography – Do you have a friend with a hi-res digital camera? Getting quality photos can make a big difference. You might want to consider paying a photography-savvy friend to help you, or even bite the bullet and hire a professional. Make sure the place is clutter-free and filled with light when you take photos.
Covering the Cost of Making Your Room Rental Ready
All told, getting a room or part of your house ready to rent could cost several thousand dollars. But if you’re savvy, you can keep the costs down, and take advantage of possible tax write-offs. And while you may have to put money in, it may help to think of this as an investment, and the returns of renting a room have the potential to be high.
Finally, there is the question of how are you going to pay for all this. If you don’t have cash on hand, you could put all these expenses on one or more credit cards or tap into your savings. But because credit cards carry such high interest rates, you might want to avoid racking up a credit card bill you can’t pay down any time soon.
You can also borrow money against your house (if you own it) by taking out a home equity loan (also known as a Home Equity Line of Credit or HELOC).
However, then the loan is secured, and your house is used as collateral. The application for these can be arduous and usually require an appraisal of your home—not exactly ideal if you want to start renting sooner than later.
Another option is to apply for a personal loan. Personal loans are considered “unsecured loans,” which means you don’t have to put up any collateral to qualify for them. Many personal loans also have reasonable fixed monthly interest rates, which means they might be a better financial choice than a credit card.
To help understand your potential return on investment, you can use a personal loan calculator to see an estimated monthly payment and compare it to your estimated rental price.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
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