You probably have heard about this before. Some friend at the office just bought a townhouse and is renting all the bedrooms upstairs and living in his walkout basement studio apartment. He tells you how great it is because the three roommates are covering his mortgage! He doesn’t pay for his mortgages, his renters are covering it for him!
It’s a great idea, but it’s not that simple. When is anything that simple?
You need to consider the rental income as a possible tax income, and also consider the high turnover rate and possible issues with the Condo or Homeowners’ Association not accepting roommates who live in the property for less than 6 months.
But it can work! And we have clients that are successfully making this happen!
In expensive real estate markets like DC, new homeowners are renting rooms to help with mortgage payments. If you are one person and have a three-bedroom townhouse, renting the bedrooms can be a lucrative way in covering the mortgage and making some side income.
The upside to the plan? It’s extra income to cover the mortgage and the return on investment can be higher than if you rented the entire house to one tenant. The tenants may be interested because the cost of renting a room is much less than renting an entire unit, townhouse, or house.
The downside to the plan?
The tenant turnover can be high because you are just renting a room. A tenant may get tired of sharing the kitchen and bathrooms. If the property is governed by a condo or home association, there may be restrictions on just renting rooms. For some associations, the room rentals are like AirBnB’s, and many associations are changing their bylaws to prevent temporary rentals. Therefore, it is important to review your association rules before embarking on room rentals. It is also important to consider the tax implication of receiving rental income.
But we are not turning you off on the idea!
It is a great proposition, especially with such high mortgage payments these days. We have two clients that bought properties with the initial plan of renting out rooms. If you are thinking of renting rooms in your next home purchase, talk to us. We can work with you to figure out whether or not this is a good strategy for you!