House Hacking Beginner - What are the rules for charging rent to my tenants?

Question

Hello community,

My partner and I just recently paid off the mortgage to our house. We are planning on house hacking this property and investing in a new property in the near future. The mortgage payment on this house was roughly $1800/month so when we get tenants (or technically roommates while we're still living in the house) we figure we would have them split the rent evenly, or as a percentage of the house since someone could have the entire basement to themselves. Now that there is no overhead cost of the mortgage, how much should I charge my tenants? Should it be the same as if the mortgage still existed? Or should I raise the price of rent to match the current rate in Denver? And how transparent do I need to be with my tenants when it comes to the fact that the house is paid off?

I have more questions, but this is where I will start. Also, if anyone has any books or other media about house hacking or becoming a first time landlord, send them my way!

David Ramirez · Answer

If the house is paid off or not, that's irrelevant to your tenants. You should charge the market rent in the area you are in based on what you are offering.

Anthony Swain · Answer

@Dailyn Souder

First off, congrats on paying off your property! This can be a major cash-flowing asset for you & your family. Kudos to you, because I am sure that took a lot of consistency and determination.

To answer your question about rental rates,

1) You should do some market research to see what comparable properties are renting for in your specific neighborhood or close by. Rent-o-meter, Zillow, apartments, etc. are great tools for checking rental rates and comps.

2) Your rental rate should not be reflected by the paid-off mortgage. In other words, you should not lower rental rates because you have it paid off. That would be doing you an injustice for actually paying it off.

3) I'd suggest never discussing your mortgage with any tenants. Worst case scenario they do something intentionally to hold you & your paid-off property liable. I'd encourage you to speak to an attorney to make sure you are set up with good protection to cover any incident that may happen i.e. umbrella policy or increased liability coverage.

Recs

Craig Curelop- The House Hacking Strategy: How to Use Your Home To Achieve Financial Freedom

Chad Carson- Small & Mighty Investor

BiggerPockets & BiggerPockets Rookie Podcasts

Good luck! Feel free to reach out if you have any more questions :)

Wale Lawal · Answer

@Dailyn Souder

To charge tenants in Denver, consider market rates, fair distribution, and transparency. Charge rent based on market rates and allocate based on square footage or amenities. Avoid disclosing paid-off status and handle utilities and shared expenses. Ensure clear lease agreements and screen tenants thoroughly. Use books, podcasts, and online resources to learn and refine your strategy. Seek further advice as you move forward with your house hacking and investment plans.

Good luck!

Sarita Scherpereel · Answer

You don't need to explain your rental price to the tenants if it's justified in the market. They shouldn't ask questions as long as it's in alignment with the fair market value. You can ask your rentals for rental comps or look at rent-o-meter for estimates. I think it's a good idea to see what is currently active on the market in your area. That tells you were your competition is at and will help you keep the listing within a reasonable range.

Kevin Sobilo · Answer

@Dailyn Souder, what your mortgage payment was is pretty irrelevant to what you charge someone to rent a room.

Like any other kind of rent, it's market based. It may be difficult to get numbers on renting by the room, but I would compare it to your prospective tenant's likely options.

For example, splitting rent & utilities with a roommate on a comparable quality rental. If the rent of that 2 bedroom was $1600, that person would expect to pay $800 rent and maybe another $250 for electric, water, heat, internet for a total of $1050 all included.

Also, consider that this person may not wish to be stuck with random roommates when you move out. So, that could be an issue. In addition if you plan to rent by the room after you move out, check zoning because that style of rental is sometimes called a "rooming house" and regulated differently and may not be allowed where your home is.

House Hacking Beginner - What are the rules for charging rent to my tenants?

House Hacking Beginner - What are the rules for charging rent to my tenants?

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