Having a Roommate to Offset Mortgage Financial Stress
- posted 6.3.2014
- Brian Brice
- Personal Finance
Purchasing a home is a huge responsibility—in some ways it may even feel like a burden. The potential hazards of investing in such a long-term financial obligation are plentiful and it isn't uncommon to find yourself struggling at one point or another. As a simple preventative measure, many have found that having a roommate can provide great relief from the pressures of homeownership. Having an additional resident can also present with it its own stressors, but if you're cautious, thoughtful, and selective in your process of choosing the perfect roommate for you, the benefits may outweigh the risks.
Having another person to help out financially is an obvious benefit. The income generated by renting out a room can show its value almost immediately. How you determine what you would like to charge for rent is up to you, but a good starting point would be to research comparable local rentals. Let's say you have a 2 bedroom place. The easy solution is to just say "I'll split it down the middle". True, that is easy, however you may be pricing yourself out of the market. If your mortgage is $1,500 and you're asking $750, but housing arrangements nearby are going for $500 then you're probably not going to be receiving a lot of phone calls. Similarly, if rooms in your area are going for $1,000 then your phone might be ringing off the hook, but you'd be passing up the chance to earn an additional couple hundred bucks each month. If you price accordingly to what people are asking you will more than likely find a roommate who is more serious than someone who is just looking to get a good deal.
Lay Down "The Law"
Whether you're bringing in someone you know or a complete stranger, you will want to establish the rules before allowing anyone into your home as a tenant. Are they renting just a room or will they have full house privileges? Are guests allowed, and if so can they be overnight guests, or do you have a time that you would like all guests to be out of the house by? How do you feel about having a tenant with a pet or a child? Are you just renting to a single person, or to a couple? What hours of the day will they be in/out of the house? Is this a lease or month-to-month agreement? Does your tenant have a back-up plan on the off chance they suddenly lose their job? Make everything as clear as possible beforehand so there is no confusion down the road. This communication will also help you weed out candidates more quickly so you can focus only on serious potential tenants.
Put It in Writing
Once you've established some ground rules, it is recommended you draw up a contract. An internet search will turn up several templates and variations of rental agreements, and feel free to include as much detail as you feel is necessary. The more specific your rental agreement is, the less is left open to interpretation. Little things like use of the A/C can pose problems if not clearly laid out. It should also be noted that your contract must follow the rental agreement laws based on tenant eviction rights in the state you live in. You can't include rules like "failure to pay will result in immediate removal." Even if the person agrees to this, because this is a legal condition, they could sue you upon vacating the property. Do your research on the tenant laws within your area to make sure you know what you are getting into ahead of time so that you are not caught off guard if a problem is to arise.
It can be very difficult living with another person, regardless of if it is a close friend or a stranger. Maybe they're loud, maybe they're messy … or maybe you're just too picky (each set of roommates struggle with different issues). Communication & respect are crucial in an arrangement like this in order to keep everyone as happy and content with the living agreement as possible. At the end of the day remember it is your property—your investment—that is on the line and the situation needs to work for you and your best interests above all else.