Renting Out Extra Rooms Can Bring in $$$

Becky Worley explains how renting out your extra room could bring in cash.

May 15, 2009 — -- As incomes shrink and bills grow, renting out a room in your home seems like a way to make ends meet. Craigslist reports that room rental listings have almost doubled in the last year as people look for ways to convert extra space into extra money.

Ruth and Paul Muto hope to cash in on this trend by renting out the extra bedroom in their Sacramento, Calif., home. The economy has hit the Mutos hard: They've lost about 60 percent of their income this year, they are behind on bills, and they even are worried about losing their home.

"I'm robbing Peter to pay Paul," Paul Muto said. "Somebody doesn't get paid this month, but they get paid the next month and I don't like that."

So, Ruth Muto put an ad on Craigslist and placed a flyer at the local community college.

Craigslist is the main repository for room rentals in all 50 states. Placing an ad entails signing up for a free account and posting a detailed description of the house and room.

If you can, include pictures of the room. List the rough geographic area of the home, but do not include your street address. If you have children in the house, do not include information about their age or gender, but use neutral language to alert prospective renters to a family environment.

Craigslist relays e-mail inquiries to you without revealing your e-mail address, but use common sense when you get e-mail from strangers. Anyone who's out of the country who wants to pay you up front with a Western Union money transfer or who has some other obscure set of circumstances is not a good gamble for a first-time room renter.

Be patient and wait for inquiries that feel right.

But don't exclusively trust your gut, said Leigh Robinson, author of "Landlording."

"Most people who are looking for a roommate are real amateurs," Robinson said. Therefore, you have to do credit checks, call references and go beyond the gut instinct that you get when you first meet someone.

"So many people like the person they are interviewing and neglect to check the application thoroughly," Robinson added. "They find out later the renter couldn't afford to pay the rent."

Online, you can download rental application forms and find credit and background check services that cost you less than $30.

Searching online for someone through Google also is a window into their personality. Check their Facebook or MySpace page, call their references and make sure they are actually employed.

"You'd be amazed at how many people lie on rental applications," Robinson said.

The bottom line is: Can they afford the rent? And does their history have any red flags that make them poor candidates as roommates?

Finally, the written rental agreement is crucial. This doesn't have to be a document in strict "legalese," but there are templates online that help you articulate the amount of the rent, the date it's due, eviction terms and month-to-month status.

Robinson said the more specific you can be in these documents, the better.

How will food be shared? Where will the renter park? Are there designated quiet times? Will there be sleep-over guests? How will utilities get paid? Those are things that should be considered, so settle it in writing up front, Robinson said.

Robinson added that in most states there are very few zoning or legal issues around room rentals, but you may want to talk to your insurance agent to make sure your homeowner's policy adequately covers you.

The best advice is to realize that opening your home to a renter opens you up to a liability and drama, but also to a possible stream of income.

So, take your time and use plenty of common sense as you decide who is the right roommate for you.

"Renting a room in your house is a lot more like a marriage than your traditional landlord-tenant relationship," Robinson said.