Making money from your home: rent out your spare room

Finding ways to stretch your income and maximise your cash is a challenge many of us face. And while budgeting effectively is key, there are times when earning extra cash is necessary.

And one way to do so is to get your home making money for you, by renting out your spare room.

Sharing your home with a stranger isn’t for everybody. When it works however, it can see homeowners offset some of the costs of running their property, provide someone to take care of the house when the owner is away and even be a way to make new friends.

If you are keen to dip your toe into the world of being a landlord, be clear on what you are unwilling to compromise on and communicate these non-negotiables clearly to your tenant.

Non-negotiables could include pets, smoking in the house and even schedules, for example if you work nights and sleep during the day, it may be best to avoid someone who is home most of the day as this will likely lead to conflict.

If you think letting out a room could be for you, check out our handy tips…

• Research your market
  Before you put your room on the rental market, do some research and find out how much similar rooms are rented out for. Check also what other landlords include within their rent, for example utilities, satellite TV and food bills.
• Advertise your room
  Once you know how much to charge, you need to advertise the room. There are several websites you can advertise your room on as well as word of mouth and even a poster in the window.

However you choose to promote your room, be sure to take plenty of good quality photographs so prospective tenants can see what the room is like in advance and to appeal to the most amount of people.

• Vet your new tenant
  While first impressions count, before offering the room to the first person you click with when they come to view the room, do be sure to vet your prospective tenant by contacting their referees.
• Before you commit
  Before you agree to renting out your room, check that your mortgage does allow for tenants - not all do. Do your sums also, while you will earn money from rent your utility bills will probably increase and if you currently live alone and claim a single person occupancy discount on your council tax, this will increase to the full amount when your tenant moves in.

When doing your sums bear in mind the government’s rent-a-room scheme which allows homeowners to earn up to £7,500 from letting out a furnished room, tax-free. If your home is in joint names, you will each be able to earn £3,750.

Once opted-in, the exemption will be automatically applied to your tax code, though if you earn over the threshold you will be required to complete a tax return.

• Put everything in writing
  To protect yourself (and your tenant), formalise your agreement in writing with a contract. The contract should detail how much and when the rent is due, any responsibilities as well as house rules, such as whether overnight guests are allowed.
• Up the insurance
  Before your new tenant moves in, contact your insurance provider to be sure you are covered in all eventualities.

If considering renting out a room in your home for the first time, it may be beneficial to start with a short-term lease. This way you can establish whether letting a room is for you, knowing that if it isn’t, it is only for a short time.