The marital home is often one of the biggest, most significant and emotional decisions in a divorce and financial blogger Suzanne Cramer encourages people to look at it objectively, with full knowledge of all the costs associated with that decision. This month, Suzanne is back with more solid guidance on one way of boosting your income so you can afford to stay in your home: finding a roommate: Here’s Suzanne:
[contemplate1] After a divorce many of us find ourselves in tough financial situations faced with decisions we would have otherwise not been forced to make. Today’s troubled economy and high unemployment add to our stresses of finding solutions to better our financial situation post divorce. One increasingly popular way to generate additional income is by taking “renters” or “boarders” into your home; you’ll not only defray your rent, but you’ll also be able to recoup a portion of your utility costs.
There are many things to consider before taking the leap as well as precautions you should take to protect yourself; legally, physically, and financially.
You want to make sure the experience is positive for both you and your bank account. Here’s some advice on finding a “renter”, taking the necessary precautions, knowing the laws, setting house rules, and the tax implications of this life changing decision.
Finding Your Perfect Roommate
After you have made the decision to open up your home it’s time to take the first step—finding a roommate. There are several ways you can go about finding someone.
Use your social networks.
- Renting to a friend, or a friend of a friend, doesn’t always guarantee there won’t be problems, but it is a good place to start. You can start the search by posting on your Facebook, LinkedIn or Twitter pages that you are looking for a roommate or send a mass email to your friends. You may find an old friend or someone looking to relocate that may be interested in such a proposition. Be upfront with them about what you are looking for; don’t sugar coat the details, but rather explain your situation and how you envision the relationship.
Place an ad.
- While this may seem like a risky proposition, considering someone you don’t already know may be a better fit. One of the easiest and (free) ways to place an ad is your local
- . With Craigslist you can be very detailed in what you have to offer and what you are looking for in a roommate. If Craigslist isn’t an option in your area you may consider placing an ad in your local paper or rental magazines.
Protect Yourself First
Allowing a stranger into your home, even if they are a friend is a risky proposition. In an effort to protect yourself (and your kids if they live with you) there are several things you should do before sealing the deal with a new roommate.
- Conduct a background check. Where I live, you can use a system called Patch for about ten dollars. This service allows you to see any misdemeanors or felonies a potential roommate may have. I can’t stress enough the importance of doing a thorough screening of anyone you are considering as a roommate.
- Check Credit. While a person with poor credit may not be a risk it is a good way to see how much leveraged debt they may have and whether or not they pay their bills on time.
- References. I suggest obtaining both employment references and previous rental references. By contacting their employer you can make sure they are indeed gainfully employed and for how long. With previous rental references you can see what kind of tenant they were and if they paid on time.
- Warning Signs. The best way to start your screening is to conduct a thorough phone interview. Be prepared with a list of questions. If after answering you feel fairly comfortable they would be a good fit, then request both references and the necessary information to conduct credit and background checks.
- Over anxious behavior.
- Refusal to answer your questions or beating around the bush.
- Not willing to give personal information.
- If your lifestyles are similar (i.e. work hours, smoker / non-smoker, kids)
- What do they do in their spare time?
- What is their work ethic?
- Are they an early riser or a night owl?
Know the law
It can take 90 days to evict someone, and they could be living with you the whole time. Getting rid of a bad tenant is painful for any landlord. Imagine the stress and heartache if the person was actually living in your home.
- Research landlord-tenant laws. These may vary by area, but it is important to understand your rights and responsibilities. You’ll find a guide to your states’ laws on the U.S. Department of Housing and Urban Development’s website. Having a roommate or boarder may be slightly different from a typical rental situation where the person does not live in your home, but many of your rights will be the same.
- Review zoning laws. You will also want to review your city’s zoning laws when it comes to housing a tenant to avoid legal ramifications later on.
By laying out a clear set of house rules and utilizing them in your screening process you can avoid future problems. Most importantly, get it in writing. No one wants to get into a battle over misunderstandings so be sure the rules you set forth are clear and understood by the roommate.
- Who does what? Establish who will do what around the house when it comes to cleaning, taking out the trash, or other responsibilities around the house.
- Quiet hours. If you have young children and bedtime is 8:30 PM be sure they understand the household needs to be quiet at this time.
- Privacy. Explain the necessity of keeping private things private (for instance night wear should be appropriate or a closed door may signal the need to be alone).
- Laundry. Develop a laundry schedule to ensure both parties have ample time to wash and dry.
- Parking. If parking is at a premium where you live explain where they and any visitors they have need to park.
- Pets. If you aren’t open to pets make sure they understand “no pets” means no pets.
- Utilities. Determine whether or not utilities are included in the rent prior to signing any agreements. If necessary raise the rent accordingly, as an extra person in the home is likely to raise your utilities.
- Set a refrigerator and cupboard policy. Are they responsible for purchasing their own food or will you share the grocery bill and the food?
- Guest policy. Are they allowed to have overnight guests or are visitors only allowed during the day or other specified times?
- Mediation. This may sound silly but by establishing a precedent for how to handle disagreements you can ward off blow ups that can lead to bigger issues.
Uncle Sam is part of our lives and does indeed get involved when it comes to rental income. Rental income is considered taxable income, but you can offset that income by deducting a portion of your housing costs.
To do so, you must first figure out the square footage that is solely for your roommate. (For example: their bedroom, private bath or other room that is considered “their space”). Next you will need to determine the square footage of any “shared” space. Then divide the shared areas by the number of people sharing them. Add the roommates shared portion to their sole space and finally divide their total area by the homes square footage. The percentage can then be used to deduct that amount of your home’s costs; mortgage interest, property taxes, insurance, utilities, etc.
Everyone’s situation is different for more detailed advice on renting a room, your rights, and any tax implications you should consult your attorney, accountant or tax professional.
While renting a room has been on my radar, I have yet to take the plunge. If you have rented a room in your home I would love to hear how it went and any “issues” that arose.
Suzanne is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt. Follow Suzanne on Twitter @SuzanneCramer1 and @AskCareOne where she shares her insights on managing your finances.
Photo credit: beckytekkie