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Rent a Room: How to Turn a Spare Bedroom into Cash Flow

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July 11, 2016
Pile of pillows: How to rent out a room and turn that spare bedroom into an income source

The sharing economy is exploding. It's also known as collaborative consumption, or the peer economy, but no matter what you call it, disruptors like Airbnb are here to stay. A recent finder.com survey counted a surplus of 33.6 million bedrooms across America, which equates to roughly $174.9 billion in untapped opportunity. Want to get in on the action?

If you’re not using a spare bedroom, you could generate cash flow to help pay off a mortgage faster. The finder.com study assumed a spare bedroom could be rented for $100 a week or nearly $5,000 a year.

"If you have several spare bedrooms and live in a house in an appealing location, it may even be possible to cover most or all of your mortgage by renting out spare rooms to long- or short-term tenants. I have a couple of friends who are doing this, living in their own property and having their mortgage fully covered by rental income," says finder.com CEO Fred Schebesta.

Fringe Benefits of Renting a Room

In addition to an income stream, there can be other benefits to renting out a spare bedroom. "A non-financial benefit with having a long-term tenant is company. For those living alone, and for some elderly homeowners, having an extra person around the house may be a comfort. A tenant may even be able to provide a hand with household chores like lawn-mowing, as long as you've agreed beforehand," Schebesta says.

Homeowners interested in renting a spare room need to first determine if they want a steady long-term tenant or short-term renters through a company like Airbnb.

"A long-term tenant provides stability and reliable income, but can lead to difficulties if you ever have issues. On the other hand, short-term renters can result in higher income over the rental period, and a varying cycle of tenants. There’s also the benefit that you can keep the room free for specific periods if you need it, for example, if you have family staying over. You’ll only receive rent, however, when the room is occupied," Schebesta says.

A Host with the Most

If you’re okay with strangers cycling through a spare bedroom, the short-term rental site Airbnb, and others like it, charge a service fee to handle marketing and offer insurance. Use this calculator to estimate how much your room is worth based on your location. A new sub-industry has cropped up of third-party services like Guesty and Pillow Homes, which help coordinate booking, guest support, and cleaning.

Spruce Up Before Listing

If you decide to rent out a bedroom or even your entire home, the process to register at Airbnb is simple and quick. But experts suggest that you take time to redecorate and perhaps even renovate the rental area. Take professional-quality photos and write a detailed profile on Airbnb.

Zoning for short-term rentals is becoming a hot issue in some cities as investors purchase properties to turn into high-volume, short-term rentals. Check with your city council or local government website to determine any new laws on the books that could affect you.

"Once you've got a tenant living with you, it can dramatically change your lifestyle. However, the benefits can be huge, especially if you can cut years off mortgage repayments. Sit down and plan it out, put together a budget, talk to an accountant, investigate insurance options, and make sure you’re as informed as possible," Schebesta says.

Fixed-Income Investments

TD Ameritrade offers a wide range of fixed-income investments designed to help meet needs like preserving capital or generating income.

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