August 26th, 2018 10:21 AM by Jackie A. Graves
hacking" is renting out part of your home and using the income for monthly
costs or home improvements.
aren’t ch eap, and the money you plunk down on closing day is only the
30% of homeowners say their monthly housing costs, such as mortgage payments,
homeowners insurance and property taxes, are expensive, according to a 2018 NerdWallet
homeownership survey. About 65% have experienced anxiety related to owning
some have found a clever way to dial back the financial stress: “house
strategy isn’t as new as it sounds. Owners rent out rooms in their home, or
units in a multifamily property, and put the funds toward the mortgage payment
a way to let other people pay for your home, and if you follow some ground
rules, it could be life-changing.
this has been the best financial decision I've ever made,” says Amy Breyer, a
28-year-old tax accountant. Breyer rents out three bedrooms in the Minneapolis
house she bought soon after graduating from college. “The tenants cover the
whole mortgage and almost all the utilities, and I get to save extra for
retirement and pay off debt,” she says.
to hack your housing expenses? Here’s what you need to know.
1. Make sure it’s
local zoning laws, or contact your local government to make sure it’s OK to
take in boarders, says Stephen Fishman, an attorney in Olympia, Washington, and
author of “Every Landlord’s Tax Deduction Guide.” Some laws may require a
permit or limit the number of tenants allowed.
2. Double-check your
insurance company how renting rooms may affect your policy. Breyer has
extra liability coverage and requires tenants to have renters insurance since
their personal belongings aren’t covered by her homeowners policy.
3. Decide if you’ll
rent to friends or strangers
tenant will ever care about the house as much as you do, and that requires a
lot of patience." AMY
BREYER, HOMEOWNER AND HOUSE HACKER
some, the intimacy of living together requires a strong, existing relationship.
For others, a lack of emotional attachment is essential.
prefer not being friends with the tenants because then I don't have to worry
about ruining relationships,” Breyer says. She interviews and runs background
checks on all of her boarders, but sometimes things still get complicated.
“I've had tenants expect special treatment — breaking the lease or paying less
rent — when I was too friendly,” Breyer says.
4. Know what to
the rent too high, and you’ll have trouble finding tenants. Set it too low, and
the income may not be worth the space you’re giving up. Research average rent
prices for your market on sites like Rentometer.com or ApartmentList.com, or
look at the price of similar properties on Craigslist to help you decide.
5. Use a written
if your boarder is your BFF, renting makes you a landlord and you have to
behave like one, Fishman says. He recommends using a standard, state-approved
lease, which you can often find online for a small fee. Even if you don’t use a
formal lease, be aware that state or local landlord-tenant laws still apply.
prefers a month-to-month lease because it gives both parties the flexibility to
part ways quickly if circumstances change or if there’s a personality conflict.
6. Pay your taxes
to report income from renters could mean paying back taxes, interest and
penalties if the IRS audits you. On a happier note, you may also be able to
deduct some of your landlord expenses, like repairs, improvements or insurance,
so keep good records. Talk to a tax professional before renting out your space
to make sure you fully understand how income from rent may affect your taxes.
7. Think about the
hacking may work well now, but plans change. What happens if you decide to
start a family or sell the house? What if a boarder wants to move in with their
significant other? Consider writing an exit strategy into your lease or
creating a separate agreement. It could detail, for example, how boarders would
be reimbursed if they had helped pay for permanent home improvements while
also need to have an honest conversation with yourself about the landlord
lifestyle. “You’re always on call, and you have to be prepared to fix issues
immediately,” Breyer says. “No tenant will ever care about the house as much as
you do, and that requires a lot of patience.”
addition to covering your mortgage now, renting rooms could help you refinance
your house or upgrade to a better one later.
loan programs, like Fannie Mae’s HomeReady
mortgage, allow borrowers to include boarder income on their application.
That extra money may improve your debt-to-income ratio enough to qualify for a
larger loan, but you have to plan in advance.
generally need to prove the same person shared your residence and paid rent
directly to you for at least 12 months, says Kathleen Beck, a mortgage lender
at West Coast Mortgage Group in Sacramento, California. This could mean
canceled checks, bank statements or tax forms. If everything’s in order, those
rent payments could account for up to 30% of your qualifying income.
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