Extra income or Extra Headache
May 1, 2006 5:51 PM Subscribe
What do I need to be aware of when renting out rooms in my house to friends?
My girlfriend moved out of my house a couple of weeks ago and now 2 of my friends are interested in moving in to my 2 extra bedrooms. I've seen this question that asks a similar question and would like more advice, suggestions of things to think about or anecdotes about taking on lodgers.
While I don't need the extra money to get by, it would be nice and would allow me to do some home-improvement projects a little sooner. I know both guys very well, and have lived with one in the past, so I am not too worried about the inter-personal type of problems. I'm sure they'll come up, but I've had roommates before.
I'm more concerned with being a landlord. Specifically, what rights do I have to kick them out or what rights do they have to stay? Should I have a written agreement? Do I have to claim the rent they pay me as income, or is it shared living expenses? What risks do I run by not going the lawyer route, or what extra obligations do I incur if I do?
Any other suggestions of questions to think through or problems that may come up are greatly appreciated.
My girlfriend moved out of my house a couple of weeks ago and now 2 of my friends are interested in moving in to my 2 extra bedrooms. I've seen this question that asks a similar question and would like more advice, suggestions of things to think about or anecdotes about taking on lodgers.
While I don't need the extra money to get by, it would be nice and would allow me to do some home-improvement projects a little sooner. I know both guys very well, and have lived with one in the past, so I am not too worried about the inter-personal type of problems. I'm sure they'll come up, but I've had roommates before.
I'm more concerned with being a landlord. Specifically, what rights do I have to kick them out or what rights do they have to stay? Should I have a written agreement? Do I have to claim the rent they pay me as income, or is it shared living expenses? What risks do I run by not going the lawyer route, or what extra obligations do I incur if I do?
Any other suggestions of questions to think through or problems that may come up are greatly appreciated.
Everything will start out fine. Then maybe a month or two into it:
One of them will turn out to be a slob.
One of them will bring random strangers in all the time, usually in groups of 5 or 10.
One of them will ask for some leeway in paying the rent - every other month.
One of them will do something you ask them not to, repeatedly.
One of them you will no longer talk to after the experience.
They will all eventually resent you for making them pay "your mortgage".
... Or it could go off without a hitch. You never know. I guess the best advice is to still treat them as friends, and not tenants. Don't play the landlord role, unless you want to be treated as such.
posted by o0o0o at 6:21 PM on May 1, 2006
One of them will turn out to be a slob.
One of them will bring random strangers in all the time, usually in groups of 5 or 10.
One of them will ask for some leeway in paying the rent - every other month.
One of them will do something you ask them not to, repeatedly.
One of them you will no longer talk to after the experience.
They will all eventually resent you for making them pay "your mortgage".
... Or it could go off without a hitch. You never know. I guess the best advice is to still treat them as friends, and not tenants. Don't play the landlord role, unless you want to be treated as such.
posted by o0o0o at 6:21 PM on May 1, 2006
Your rights as a landlord are going to be regulated mostly by local laws, so that information will be important for others to help you (and for you to help yourself). There may also be zoming issues if you want to officially become a landlord, so look into whether you can even be a landlord.
I heartily second that you absolutely must have a written agreement that sets out in as much detail as possible what you want. There will likely be no major problems, but if something does go wrong, you will be thankful that it was anticipated.
I think you should see a lawyer, though. If you are taking this seriously, then you need to go all the way and get sound legal advice.
posted by Falconetti at 6:26 PM on May 1, 2006
I heartily second that you absolutely must have a written agreement that sets out in as much detail as possible what you want. There will likely be no major problems, but if something does go wrong, you will be thankful that it was anticipated.
I think you should see a lawyer, though. If you are taking this seriously, then you need to go all the way and get sound legal advice.
posted by Falconetti at 6:26 PM on May 1, 2006
At any office {depot|max|*} there will be cheap, pre-written forms that you can buy and have your friends sign. They are boilerplate rent agreements and will set pretty standard rules, like how late the rent can be and circumstances where you can kick them out. I used them with friends in the past, and it was just nice to feel like I was covered.
posted by Alison at 6:29 PM on May 1, 2006
posted by Alison at 6:29 PM on May 1, 2006
Also, the rest you collect is taxable, but you can gamble and not report it. There will be little paper trail especially if you are paid in cash.
posted by Alison at 6:31 PM on May 1, 2006
posted by Alison at 6:31 PM on May 1, 2006
It's nice to rent to people who have something else to do during the day other than hang out at the crib.
I rent a room and dude treats me like Santa Claus. That's about how often I see him.
posted by airguitar at 6:34 PM on May 1, 2006
I rent a room and dude treats me like Santa Claus. That's about how often I see him.
posted by airguitar at 6:34 PM on May 1, 2006
the rest you collect is taxable, but you can gamble and not report it.
I'm assuming you mean rent here.
We do this. We own the house and had three tenants, then two, now one (soon to be leaving as replace her with a non-rent paying newborn). Our tax folks advised us that because the only priviate spaces were bedrooms, we could treat the "income" as shared living expenses and not report it. Your tax situation, of course, may vary.
Here's my three big tips, having lived like this for the past (nearly) ten years:
1) Don't try to have your new shared co-housers write a seperate check for the electric, one for the cable, one for the water, one for the rent, etc. Just figure out what you've averaged on all the utilities over the past 12 - 18 months, then charge them a single, "full service" fee and collect that from them every month, then turn around and pay whatever utilities you need to pay. Much easier than dealing with three or four seperate checks for each bill.
2) Have a basic written lease.
3) Make up a "chore chart" and make sure everyone uses it. Don't try to rotate things. But! Make sure that doing the dishes is everyone's job, and not just one person.
posted by anastasiav at 6:40 PM on May 1, 2006
I'm assuming you mean rent here.
We do this. We own the house and had three tenants, then two, now one (soon to be leaving as replace her with a non-rent paying newborn). Our tax folks advised us that because the only priviate spaces were bedrooms, we could treat the "income" as shared living expenses and not report it. Your tax situation, of course, may vary.
Here's my three big tips, having lived like this for the past (nearly) ten years:
1) Don't try to have your new shared co-housers write a seperate check for the electric, one for the cable, one for the water, one for the rent, etc. Just figure out what you've averaged on all the utilities over the past 12 - 18 months, then charge them a single, "full service" fee and collect that from them every month, then turn around and pay whatever utilities you need to pay. Much easier than dealing with three or four seperate checks for each bill.
2) Have a basic written lease.
3) Make up a "chore chart" and make sure everyone uses it. Don't try to rotate things. But! Make sure that doing the dishes is everyone's job, and not just one person.
posted by anastasiav at 6:40 PM on May 1, 2006
You may call it "shared living expenses" and not count it as YOUR income, but as I understand it, everybody's income together is supposed to be reported as total household income when figuring out taxes related to your house, it's value, and what you owe.
Also, if they are reporting rent on their income taxes in order to claim a tax credit (ie Homestead Property Tax Credit in Michigan) you better make sure you are claiming said rent as income. I had to give up this credit this year but my girlfriend (we share a mortgage that I'm not listed on) got an even bigger break than I would have. Refer to a local tax advisor to figure out the best way to handle your particular situation.
Realize that you will have to keep your business relationship separate from your friend relationship, and if you think this may be a problem, I wouldn't offer them the room.
posted by Roger Dodger at 6:50 PM on May 1, 2006
Also, if they are reporting rent on their income taxes in order to claim a tax credit (ie Homestead Property Tax Credit in Michigan) you better make sure you are claiming said rent as income. I had to give up this credit this year but my girlfriend (we share a mortgage that I'm not listed on) got an even bigger break than I would have. Refer to a local tax advisor to figure out the best way to handle your particular situation.
Realize that you will have to keep your business relationship separate from your friend relationship, and if you think this may be a problem, I wouldn't offer them the room.
posted by Roger Dodger at 6:50 PM on May 1, 2006
when figuring out taxes related to your house, it's value, and what you owe.
Huh? The value of my house is the value of my house. Its assessed by the city based on the sales price of other similar houses in our area. The income of the people living in the house has nothing to do with the value of the house, or the property taxes assesed on the property.
My tax professinal advises that we do not need to count "shared living expenses" as part of our income to the IRS. The downside of this is that we cannot take the same tax deductions that the owner of an "income property" can take. Is this what you mean by "taxes related to your house"?
posted by anastasiav at 7:19 PM on May 1, 2006
Huh? The value of my house is the value of my house. Its assessed by the city based on the sales price of other similar houses in our area. The income of the people living in the house has nothing to do with the value of the house, or the property taxes assesed on the property.
My tax professinal advises that we do not need to count "shared living expenses" as part of our income to the IRS. The downside of this is that we cannot take the same tax deductions that the owner of an "income property" can take. Is this what you mean by "taxes related to your house"?
posted by anastasiav at 7:19 PM on May 1, 2006
Get your friends to sign a lease or rental agreement and pay someone to clean your house. Both things will save you a lot of strife.
As for giving them notice, it's usually about a month but I'd check the tenant rights for your state to be sure.
posted by kechi at 10:59 PM on May 1, 2006
As for giving them notice, it's usually about a month but I'd check the tenant rights for your state to be sure.
posted by kechi at 10:59 PM on May 1, 2006
friends + rent + utilities + other bills = BillMonk
I'm not associated with them, but I'm an evangelist
posted by hatsix at 11:58 PM on May 1, 2006
I'm not associated with them, but I'm an evangelist
posted by hatsix at 11:58 PM on May 1, 2006
This "shared living expenses" thing doesn't make any sense to me. I had boarders (not friends, strictly business) in my house for a few years.
The tax ramifications are complicated. First, you declare the rent as income (as others pointed out, this can bite you on the ass if you don't, and my tax guy says the IRS is getting really good at data-mining to uncover exactly this sort of thing). You can take a depreciation on the rental portion of your house, but if you ever sell the house or stop renting, you need to wind that up. It can get complicated.
For a lease, I found boilerplate language online and modified it to my needs. From what I understand, the landlord is better off with a month-to-month agreement, because a longer-term lease basically has the effect of making bad tenants harder to kick out.
Be prepared for the fact that your boarders will indifferent to your house's condition as long as it doesn't directly affect them, and can be surprisingly destructive. Apart from the rented bedrooms, I did the lion's share of the house-cleaning, and I believe that's just the way these things go. I had one boarder who moved out early, complaining of a "roach problem." After he moved, I discovered he had been hoarding his used Taco Bell wrappers.
For bills, I covered all the bills and notified the boarders of their share after the fact. If the utilities are in your name, you don't want your payment record dependent on them being on-time.
Home-improvement projects will be harder with other people in the house, not easier.
Finally, if these are friends, be prepared for the possibility that they will not be after a few months living together.
posted by adamrice at 6:17 AM on May 2, 2006
The tax ramifications are complicated. First, you declare the rent as income (as others pointed out, this can bite you on the ass if you don't, and my tax guy says the IRS is getting really good at data-mining to uncover exactly this sort of thing). You can take a depreciation on the rental portion of your house, but if you ever sell the house or stop renting, you need to wind that up. It can get complicated.
For a lease, I found boilerplate language online and modified it to my needs. From what I understand, the landlord is better off with a month-to-month agreement, because a longer-term lease basically has the effect of making bad tenants harder to kick out.
Be prepared for the fact that your boarders will indifferent to your house's condition as long as it doesn't directly affect them, and can be surprisingly destructive. Apart from the rented bedrooms, I did the lion's share of the house-cleaning, and I believe that's just the way these things go. I had one boarder who moved out early, complaining of a "roach problem." After he moved, I discovered he had been hoarding his used Taco Bell wrappers.
For bills, I covered all the bills and notified the boarders of their share after the fact. If the utilities are in your name, you don't want your payment record dependent on them being on-time.
Home-improvement projects will be harder with other people in the house, not easier.
Finally, if these are friends, be prepared for the possibility that they will not be after a few months living together.
posted by adamrice at 6:17 AM on May 2, 2006
Having been the deadbeat roommate, I suggest that you get first and last months rent and a deposit just like a real landlord. I screwed a former friend by stiffing him on 3 months rent, skipping out, and leaving him with stains on the carpet where my fishtank leaked. (If I had the money I'd pay him back today, but it's probably been too long)
document document document.
posted by Megafly at 5:14 PM on May 2, 2006
document document document.
posted by Megafly at 5:14 PM on May 2, 2006
This thread is closed to new comments.
Yes, yes, yes: it will be better for your friendship in the long run to have everything agreed to by both parties documented from the beginning. You don't have to stop being friends, but you will all need to take the landlord/tenant relationship seriously.
posted by PinkStainlessTail at 6:17 PM on May 1, 2006