What you need to know before renting out your spare room

According to census data, almost 80 per cent of Australian homes has at least one empty room. If you live in your home and you’d like to pay off your mortgage faster, renting this space out can be a great idea. But before you create a listing and start interviewing people, you should know the ins and outs of sharing your home.

Insurance

Standard home and contents insurance policies don’t cover damage caused by flatmates who are subletting a room, or their guests. Instead, you need landlord insurance or a specialised short-term home and contents insurance policy if you’re going to list your place on Airbnb or Stayz.

Finding a tenant

You don’t want to get stuck living with a bad housemate and it’s usually an unwise decision to live with friends, so you’ll need to list your home on a property site. According to Experian data, Flatmates.com.au is Australia’s number one accommodation website. Alternately, you can list your home on Airbnb for short-term to mid-term tenants.

Screen tenancy applicants

There are plenty of great tenants but there are always a few bad eggs. How do you tell the difference? The National Tenancy Database from Equifax will tell you if a tenant has been blacklisted before and whether they’ve been summoned to court or have declared bankruptcy. It’s easy to sign up, and it’s free.

Decide on rent amount

This is the big one — it’s the whole reason you’re letting your room in the first place. How do you decide how much you should charge? Many things factor into this equation — such as location, whether you live near public transport and shops, and whether your home has luxury inclusions or on-site amenities and associated strata fees. Check other properties similar to yours in the area to get an idea of the base market prices.

Factor in extra costs

While renting your spare bedroom will give your mortgage a boost, it can also come with extra costs. According to the Australian Tax Office (ATO), even renting just one room is regarded as taxable income. And, if you decide to sell your home later down the track, you may have to pay Capital Gains Taxes. On the positive side, many household expenses may be tax deductible — you can find out more on the ATO website.

Security

If you have concerns about your home’s security, you can always get the locks changed after a tenant moves out. If this is too expensive a cost for you, get your doors rekeyed. The locksmith will rearrange the pins in the lock cylinder so an old key will no longer work.

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