Income From Your Home

Mar 15, 2012 by

A strategy that’s gaining traction is using one’s personal assets to boost household income. One example—and the subject of an upcoming post—is the evolution of carsharing toward a peer-to-peer business model in which car owners let their personal vehicle be used by strangers and share in the revenue generated.

Home Sweet Home

But what about many people’s biggest asset, their house? Should we think of our likely largest single investment as a sort of business and manage this asset to get more out of it financially than tax deductions? I think we all recognize now that counting on a capital gain from a home investment may not be wise.

 

 

Our Experience

We relocated in 2009 to a spectacular coastal area with world-class tourism appeal. That means the real estate is pricey, probably at least 75% more than the area we moved from, for comparable property. While on house hunting trips, we initially stayed in hotels, but eventually found a much better option: Self-contained apartments built into private homes. The daily rent is considerably less than a hotel, the comfort level far greater, and with a complete kitchen, we could save on food expense too.

We liked this idea so much we decided to steal it, after getting the courtesy approval of one of our hosts who had been doing short-term rentals for years and with whom we’d become good friends. To help make property here more affordable for us, we added a criterion to our home search: Equipped with a self-contained apartment (not unusual in these parts), or configured so that an apartment could be added without too much expense or hassle.

We were fortunate to find a home we liked that already had a self-contained apartment. We’d never been landlords before and weren’t quite sure we wanted to be, so the idea of short-term, temporary rental fit well. If we had tenants we didn’t care for, they’d be leaving soon. And regulations here make problematic terminating a rental arrangement with full-time, long-term tenants, even if the tenant is occupying part of your home.

So Far, So Good

We decided to rent our apartment for periods of one week to two months. People of course are welcome to stay less than a week, but our minimum charge is one week’s rent: $350. One month’s rent is $1,100.

We began renting in February of 2010 and aimed to achieve 50% occupancy over the course of a year. We’ve done that, for both 2010 and 2011, almost on the nose. We’re shooting for 50% because, as we expected, though it’s great to have tenants give us money, it’s also great to have the house to ourselves. We advertise only on Craigslist and a similar, regional online service, both free. We took in about $8,000 in rent in 2010 and about $7,800 in 2011. Not a fortune, but not chicken feed either in my book, and relatively easy money. Some expenses are higher due to the tenants: Utilities primarily, but also our home insurer tacked on 25% to our premium solely because of the short-term rental business we’re operating. And we made some one-time improvements before we began renting.

Disadvantages

Renting out part of your home obviously isn’t for everyone. Some disadvantages we’ve found:

  • Privacy: Though our house is fairly soundproof, we still hear activity in the apartment, and I assume tenants hear sounds from our part of the house.
  • The way our house is configured, the tenants (occupying the lower level of our house) have direct and immediate access to the back yard, which the apartment overlooks. That means I’m reluctant to spend time in the back yard when we have tenants. I don’t want to infringe on their privacy, and I don’t always feel like chatting with them, which seems to happen if I venture out. We have a nice back yard, so having tenants cramps our lifestyle a bit.
  • We have gone away on short trips while hosting some tenants, after we grew to know and trust them. With others we’ve had, there’s no way I’d leave them on their own in the house. So say a tenant books a two-month stay a few months in the future. We feel we can’t both be away even overnight until and unless we get to know the tenants a bit, so we can’t plan anything for those two months until sometime after the tenants arrive and we can size them up. And the reality is, I don’t feel I can be away, and leave my wife here alone, until I’m comfortable with new tenants.
  • We’ve had no tenants so far I’d characterize as “bad.” Even so, sometimes damage accidentally happens, and some tenants don’t clean up after themselves. This can especially be irritating when your home is involved.
  • Liability: Our insurer is fully informed about what we’re up to with our apartment. We tell tenants plainly that our insurance doesn’t cover their belongings or personal injuries. (I actually don’t know whether our insurance would cover them or not, but I tell them it won’t.) Still, you know how attorneys are, and I’m sure we’re at greater risk of being sued because of the rental apartment.

Other Ways to Generate Passive Income From Your Home

How about these ideas (none of which we’ve tried):

  • Rent surface or garage parking space, if you have extra.
  • Rent storage space.
  • Rent a room.
  • Swap homes: If you live in a desirable area, there are online tools you can use to trade homes with another family who lives somewhere you’d like to visit and who’d like to visit your area. Neither of you pays the other, so the arrangement makes travel far more affordable.

Do you make money from your home? Do you have any other ideas?

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