Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored five books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. His signature wit will have you laughing as you learn. For more from Peter, visit www.petetheplanner.com.
The main objective when it comes to budgeting is pretty simple—spend less than you make. That is, unless you have major debt or are trying to save for a large financial goal, in which case budgeting can get tricky fast. Once you’ve made a plan and cut your expenses, you may find your current income still isn’t enough to support your financial goals, and you need to find a way to make extra money.
Extreme solutions like selling your home or getting a second job are options worth investigating when you have a financial goal that’s unattainable in your current financial situation. Renting out a room in your house—or moving into a new space to share with a roommate—is one such solution to consider. It may sound like a terrible idea initially, but renting out a room in your home is a great way to make extra money each month. Like any extreme solution, there are pros and cons to consider. Check out the list below to weigh whether it could be a good option for you.
Pro: Increased cash flow.
If you are looking for increased cash flow, look no further than your own home. There is cash in your home just waiting to be found, and no, it isn’t hidden in the attic. It’s in your spare bedroom. You know the room, the one that’s empty 98 percent of the year. If you want to increase your cash flow, renting out an unused bedroom or basement (or attic, or garage apartment) is a great way to make extra money with minimal effort.
Pro: Shared household responsibilities.
Tired of mowing the grass and doing the dishes? Having a renter live in your house can be a great way to split up household chores. Sharing duties around the house is common in a rented room situation. Duties would be laid out and agreed upon before the renter moves in. You know what you also get to split? Utilities! No longer will you be solely responsible for paying that very expensive gas bill. Help around the house and lower bills are both major benefits of having a renter live with you.
It may sound odd, but sharing your home with someone can be a wonderful way to expand your family circle. Whether you are single, a family with young kids or even empty nest-ers, inviting someone to live in your home can create special and lasting friendships. Opening your home up to a renter may just be a means to more cash, but it can evolve into an agreeable situation for all.
Woe: Privacy Concerns.
While there are many pros to renting out a room in your home, there are also many cons; the number one concern being privacy. Living with a complete stranger can be weird and uncomfortable for many people. In order to avoid an awkward situation, consider only accepting a renter you know or one whose references you approve of. Setting up boundaries in the beginning can prevent uncomfortable situations.
Woe: Shared Living Space.
It can be difficult to share common living spaces, like the living room and kitchen, with someone you don’t know well. Sharing household responsibilities is a major benefit of having a renter, but it can also be a major downside if the renter doesn’t hold up their end of the deal. The best way to avoid frustrating situations like these is to clearly establish expectations before the renter moves in. Your agreement with the renter should be very specific and personal. Avoid the frustration of unmet expectations by laying out guidelines before the renter moves in.
Woe: Breach of Contract.
If you owned a rental property and the tenant didn’t pay rent, you could evict them. If someone living in your home doesn’t pay rent, it can get awkward fast. Their financial problems automatically become your financial problems. Before your renter moves in, create a rental agreement. This rental agreement should state the exact procedure and repercussions involved with delinquent rent. Having someone in your home can be wonderful, but protecting yourself is also important. Planning for the worst-case scenario before they move in will protect you from being left in the lurch.
Woe: Becoming dependent on the income.
Having access to extra cash each month is great, but don’t get too attached. Renters come and go, and if you are depending on the extra money each month to pay bills, you can get yourself into a tough situation. Don’t absorb the rent into your regular budget. Instead, keep it separate and use it for special projects and goals. If the money goes away, your regular budget won’t affected.
Creating additional cash flow can be all that stands between you and your financial goals, so it’s important to consider every avenue to help you get there. Renting out a space in your house is a creative solution, but it’s definitely not for everyone. Evaluate these pros and cons to determine if renting out a room in your house is the right solution for you.