House Hacking Rooms To Rent - First House

[Foster Zlab]

I recently bought a single family house and had a lot of questions covering rooms to rent out. I currently live in the house and have 1 room to rent with a potential second room to rent with a little rehab.

1. Should there be a legal document signed (rental agreement) if you are renting out a room to someone to cover assets if anything were to happen? I.E if the roommate wouldn't pay and needed to get evicted, property damage happens while renting a room, etc. Would I need to start and LLC or collect rent on the side?

2. For income purposes, how would rent be recorded as it is only covering a portion of the current mortgage I am paying on the house?

3. What are the best ways to source people to if they are open to renting out just a room?

I have been a follower of BP for quite some time but want to get more involved in the BP and real estate community. Any info is greatly appreciated.

[Dan Guenther]

@Foster Zlab - Welcome to BP and congrats on the purchase, big moves! 

I've been renting by the room now for 2 years and definitely know how overwhelming it can feel when you're first starting out. It's going to be a trial and error but here are some tips to get going. 

1) Yes there should always be a lease in place. There are specific leases out there that are tailored toward renting individual rooms. Make sure to work with a lawyer to cover all local laws in your area. If you are going to short-term rent the room on Airbnb then this looks different. I would not recommend collecting rent on the side not only for legal reasons. In the case that something does happen and then you'll have a tough time making a case as the rent was not reported or tracked in any way. Also, you'll want to start reporting and collecting rent for tax benefits and for future leverage as an investor going forward. 

2) You'd collect rent just like you would for a normal rental. Either using your own accounting (all business funds go into a separate account from personal funds) or a rent collection software. Then when it comes tax time you'll have the benefits of a portion of your house being used for business purposes. Find a good CPA to talk more about this ASAP. 

3) I'm not sure about Lincoln, but here in Denver, we have multiple FB groups specifically for rooms for rent. You can also use websites like Roomies.com or SpareRoom.com. 

Hope this helps and feel free to reach out if you need any specifics!