RISKS OF RENTING OUT YOUR EXTRA ROOM
Many individual have at least considered opening up their spare rooms for rent to offset their mortgage payments and have an additional source of income. The proceeds can be used either as savings or compensation for a property hence many are attracted to the idea. However, as nice as it sounds, putting up part of your home for lease has its own share of potential burdens as well.
First off, rental income is taxable and is bound to scrap a portion of your revenues. This is known as marginal tax rate. For instance, if you are included in the 25% tax bracket and receive a $800 monthly salary, you will only be able to keep $600 of it. Other considerations include state and local income taxes. Before plunging into this field, make sure you will still be able to get enough to meet your needs.
Despite this, you can also offset taxes by additional expenses associated with the property such as maintenance, insurance, and advertising. You can also price a higher fee for the space but keep it in accordance to what the market can bear as any add-ons will be taxable as well. Make sure to report your wages and expenses on Form 1040.
It is a normal practice a security deposit from your tenant before he moves in to cover any damages. Small ones such as those incurred accidentally might be resolved in a snap however, massive defacements such as fires cause major impact not only on the renter but also on you. While your insurance can take care of this, it will not compensate for the time and effort spent on building the structure, as well as its sentimental value.
Sometimes, your tenant may also intentionally vandalize or drag you into conflict. For example, there are scenarios wherein the occupant used the property as a venue in running drug operations. You may suddenly find yourself in court, filing criminal charges against the person.
Being under violations
If you are not familiar enough, the landlord-tenant law has many traps that you might fall into. Here are some of them:
- Entering the individual's unit before prior notice is prohibited
- Failure to provide a housing that is safe, and without any required major repairs
- Offering spaces that can harm a person's health in any way
- Breaches of city housing code, like the number of people a property can accommodate based on its size.
- Failure to maintain or provide amenities that you have included in your charge
- Excessive security deposit charges and failing to return it within a given timeframe after your tenant leaves
- Absence of sufficient air or heat conditioning
The occupant may simply move out under these circumstances but a worst-case situation can have you sued. These legislations are also state specific so obtain all the necessary information first.
Refusal to leave
In case you change your mind about renting part of your home or there is a sudden shift of plans that would need the spare room you initially offered for lease, you may encounter a problem of making your tenant leave. At times, they may even stop paying but keep on occupying the space hence you will have to resort to eviction proceedings. These can require a court appearance, and is time consuming plus costly as well since you may need to hire an attorney.
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