Renting out a room in your home

ALASDAIR DUNCAN
If you have a spare room in your house and are interested in making some extra money, renting it out may be an option. But before you do, there are a number of things to be wary of and steps you’ll need to take.

If you wish to rent out a room in your home, you might first consider whether you wish to open it up to someone who can move in on an indefinite basis, such as a roommate, or welcome guests for short stays only, on a platform such as Airbnb.

Whichever option you go for, you will need to make sure that you are comfortable with the people who’ll be sharing your space, that you have appropriate insurance, and that you understand the potential income and tax implications.

In this article, we’ll answer the questions:

  • Who can rent out a room?
  • How do you find a housemate?
  • What rules should you set for a potential housemate?
  • What are some tips for choosing a good housemate?
  • How do you rent a room out on a short stay website?
  • Does home insurance cover your flatmates?
  • Does rental income count as part of your regular income?

Who can rent out a room?

If you are the owner of a property such as a house or apartment, then you are free to rent out a room at any time you choose. If you yourself are a renter, though, then you will need to check your lease agreement to find out whether or not you can rent out a room in the property as part of your lease. Generally speaking, you will need to get permission from the manager or owner of your property before renting out a room. If you want more information, the Residential Tenancies Authority (RTA) has a fact sheet on the rules for sub-letting.

How do you find a housemate?

If you are looking to rent out a room in your home, the first question to ask may be whether you want to rent out to a person you know, such as a friend, or to a stranger. You may either wish to ask around people you know to find a prospective housemate, or post an advertisement on a flatmate-finding website or community board.

Renting to a person you already know may be an easier option, as you will not need to advertise the room, and you’ll already have a fair idea of who the person is and whether you’ll get along. A potential downside is that if you rent to a friend or family member and you do not get along as housemates, your relationship might suffer.

If renting to a person you already know is not an option, you might instead choose to take out an advertisement to find a housemate. If you want to do this, then advertising on a reputable website may be a good option. There are a number of websites that connect potential housemates with rooms for rent, such as flatmates.com.au and flatmatefinder.com.au.

These sites will typically require you to post photographs of the room or rooms for rent, along with a description of the property and the available amenities, as well as the weekly rent amount you’re seeking for the space. You will typically also be able to browse profiles of prospective tenants and share information about yourself if you’d like to.

You may also be able to find prospective housemates on community boards such as Gumtree, or in Facebook groups.

What rules should you set for a potential housemate?

When you take a housemate on or rent a room to somebody in your home, it could also be a good idea to establish ‘house rules’ to ensure you can cohabit together successfully. You may like to consider factors such as:

  • A bond amount, if you want one to be paid at the start of the agreement.
  • The date you’d like them to pay the rent regularly, and how you’d like it paid.
  • Bills for utilities and streaming services, and whether these will be included in the rent.
  • Food and cooking expenses, and whether these will be shared or separate.
  • Cleaning duties, and who is responsible for what tasks.
  • Guests and what kind of visitors are appropriate.
  • Pets, and whether or not these are allowed.
  • Noise in the house and your expectations around this.
  • Where they can park any car/s or bike/s (if necessary).
  • Moving out, including the terms and how much notice you would like.

If you choose to advertise your room online, it is worth considering these things beforehand so that you can mention them in your listing to make prospective housemates aware.

Once you have chosen a housemate, it may also be useful to write these things down in order for you to have a document to refer to, should any disputes arise in future.

What are some tips for choosing a good housemate?

When seeking a housemate to rent a room in your home, things you might do to help narrow down your selection include:

  • Inviting potential flatmates over for a room inspection and an informal sit-down chat.
  • Asking potential flatmates about their habits, lifestyle and work situation in order to get an indication about their suitability for the home.
  • Finding out whether potential flatmates have a girlfriend, boyfriend, partner or any children who will also be spending time at your home.
  • Asking potential flatmates for references, either from former landlords or employers.

How do you rent a room out on a short stay website?

If you choose to rent out a room in your house on a short stay platform such as Airbnb or Stayz, you will first need to create an account on your platform or platforms of choice, and verify your identity and banking information. Depending on the platform, you might need to give information such as formal ID and even a photograph of you.

You will then likely need to write a listing describing the space and its amenities. It is important to be upfront if doing this, as misleading information can lead to negative reviews for you. You will also need to upload photos to showcase the room and any other areas of the property you want to highlight. Taking and uploading appealing photos may help you to generate extra interest from prospective guests.

You will need to set a price for the room, taking into account the prices of similar properties nearby and the time of year. In busy holiday periods, for example, you may wish to increase the price of the room relative to demand. It is also important to keep in mind that if you use a short stay website to rent your room, you will need to pay either a fee or a percentage of the money you make to your platform of choice.

Finally, it is important to consider that your property is clean and ready to receive guests; that the room itself is appropriately furnished and has clean linens on the bed, as well as towels for guests; and that all amenities are working as advertised. It can also be a good idea to stock toiletries and bathroom supplies.

Does home insurance cover your flatmates?

Standard home and contents insurance policies do not cover damage caused by flatmates who are subletting a room in your home, or their visitors. In order to be covered for this, you will need landlord insurance. Some alternative insurance options may also be offered by short stay website providers (in conjunction with insurers) that you may decide to consider.

Some short stay platforms such as Airbnb, for example, offer host protection insurance. This type of policy might offer coverage towards your legal responsibility for bodily injury to guests or others, damage to property belonging to guests or others; and/or damage to common areas, like building lobbies and neighbouring properties, caused by a guest or others. Keep in mind that it is always important to read the terms and conditions in the product disclosure statement (PDS) when considering an insurance policy. You can speak with an insurance provider for any questions you might have while evaluating different options.

If you are a renter, your landlord’s insurance won’t cover loss or damage to your possessions. If you want, you could apply for renters insurance, which is a specific type of insurance for people renting a property, that can cover all or part of the cost of repairing or replacing your belongings if they are stolen, damaged or destroyed.

Does rental income count as part of your regular income?

According to the Australian Tax Office (ATO), if you rent out part of your home – even just one room – the rent that you receive will usually be regarded as assessable income. You’ll need to include it in your tax return and pay tax on it accordingly. If you sell your house in future, you may also have to pay some capital gains tax (CGT). On the other hand, there may be some expenses with subletting that might be tax deductible.

The ATO has further information about

renting out all or part of your home. You can also find out about different side hustles if you are considering subletting to make some cash, and consider advice from the ATO about the sharing economy and tax.

Cover image source: Halfpoint/Shutterstock.com

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