Guide to Renting Out a Room in Your Home

If you have a spare room in your house and are interested in making some extra money, renting it out may be an option. But before you do, there are a number of things to consider, including what your tax responsibilities will be.

If you wish to rent out a room in your home, you might first consider whether you wish to open it up to someone who can move in on an indefinite basis, such as a roommate. Or, whether to welcome guests for short stays only, on a platform such as Airbnb.

Whichever option you go for, you need to make sure that you are comfortable with the people who’ll be sharing your space, that you have appropriate insurance, and that you understand the potential income and tax implications of renting out your space.

In this article we cover:

Who can rent out a room?
How do you find a flatmate?
What rules should you set?
Flatmate vs. Tenant: What’s the difference?
Tips to finding a good flatmate
How to rent out a room on Airbnb
Does home insurance cover flatmates?
Tax obligations

Who can rent out a room?

Obviously, if you are the owner of a property such as a house or apartment, then you are free to rent out a room at any time you choose.

If you yourself are a renter, though, don’t think you can do the same. If you get caught subletting a room you’re not supposed to, you could get in big trouble!

Firstly, you need to check your lease agreement to find out whether or not renting out a room is possible under your lease. But, generally speaking, you need to get written permission from the manager or owner of your property before renting out a room.

If you are looking to leave a rental, and get someone in to fill your room, you can read our story Tenancy Agreements: Can I Break a Lease Early? for more information.

How do you find a flatmate?

When renting out a room in your home, the first question to ask may be whether you want to rent out to a person you know, such as a friend, or to a stranger. You may either wish to ask people you know to find a prospective housemate, or post an advertisement on a flatmate-finding website, social media or community board.

Renting to a person you already know may be an easier option. You will not need to advertise the room, and you’ll already have an idea of who the person is. A potential downside is that if you rent to a friend or family member and you do not get along as housemates, your relationship might suffer.

If renting to a person you already know is not an option, you might instead choose to take out an advertisement to find a housemate. If you want to do this, then advertising on a reputable website may be a good option. There are a number of websites that connect potential housemates with rooms for rent, such as Roomies and nzflatmates and, of course, Trade Me Property. Another option could be advertising on one of the many Facebook groups for renters.

These sites typically require you to post photographs of the room or rooms for rent, along with a description of the property and the available amenities, as well as the weekly rent amount you’re seeking for the space. You may also be able to browse profiles of prospective tenants and share information about yourself.

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What rules should you set?

When you take a housemate on or rent a room to somebody in your home, it’s a good idea to establish house rules to ensure you can cohabit together successfully. You may like to consider factors such as:

  • A bond amount, if you want one to be paid at the start of the agreement
  • The date you’d like them to pay the rent regularly, and how you’d like it paid
  • Bills for utilities and streaming services, and whether these will be included in the rent
  • Food and cooking expenses, and whether these will be shared or separate
  • Cleaning duties, and who is responsible for what tasks
  • Guests and what kind of visitors are appropriate
  • Pets, and whether or not these are allowed
  • Noise in the house and your expectations around this
  • Where they can park any car/s or bike/s (if necessary)
  • Moving out, including the terms and how much notice you would like

If you choose to advertise your room online, it’s worth considering these things beforehand, so that you can mention them in your listing. Once you have chosen a housemate, it may also be useful to write these things down in order for you to have a document to refer to, should any disputes arise.

You can see an example of a house-sharing agreement here.

Flatmate vs. tenant: the difference and what rules are involved

If you rent out a house that you do not live in, you are, by law, required to have a tenancy agreement with your tenant(s). A tenant who is on a signed tenancy agreement has certain rights that you (and the tenant) must adhere to. These laws and rights are set out in the Residential Tenancies Act (RTA). For example, you won’t be able to kick out a tenant without reason or notice. Much like a tenant cannot break a lease agreement without notice.

However, if you are renting out a room in your main home i.e. getting a flatmate, and you will be living in the property with them, they are not considered a tenant. Rather, they are a flatmate. And flatmates (that are not on a tenancy agreement) are not covered by the RTA.

As a result, there may be fewer rules involved.

This is why it’s a good idea to write up your own contract, like the one mentioned above. As the level of legal protection for you both will depend on the rules written into your agreement with the flatmate.

For example, if your agreement doesn’t stipulate notice periods, you can kick out a flatmate without having to abide by the notice period set out in the RTA. But, your flatmate could also leave without giving you notice, too. For this reason, it pays to write up a thorough contract. As it gives both yourself and your flatmate peace of mind.

Tips for finding a good housemate

When seeking a housemate to rent a room in your home, things you can do to help narrow down your selection include:

  • Inviting potential flatmates over for a room inspection and an informal sit-down chat
  • Asking potential flatmates about their habits, lifestyle and work situation, in order to get an indication about their suitability for the home
  • Finding out whether potential flatmates have a girlfriend, boyfriend, partner or any children who will also be spending time at your home
  • Asking potential flatmates for references, either from former landlords or employers

How to rent out a room on Airbnb

If you choose to rent out a room in your house on a short-stay platform such as Airbnb, you will first need to create an account on your platform or platforms of choice, and verify your identity and banking information. Depending on the platform, you might need to give information such as a formal ID and even a photograph of yourself.

You will then likely need to write a listing describing the space and its amenities. It’s important to be upfront if doing this, as misleading information can lead to negative reviews for you. You will also need to upload photos to showcase the room and any other areas of the property you want to highlight. Taking your time and uploading appealing photos may help you to generate extra interest from prospective guests.

You will need to set a price for the room, taking into account the prices of similar properties nearby and the time of year. In busy holiday periods, for example, you may wish to increase the price of the room relative to demand. It’s also important to keep in mind that if you use a short stay website to rent your room, you will need to pay either a fee or a percentage of the money you make to your platform of choice.

Finally, it’s important to consider that your property is clean and ready to receive guests; that the room itself is appropriately furnished and has clean linens on the bed, as well as towels for guests; and that all amenities are working as advertised. It can also be a good idea to stock toiletries and bathroom supplies.

Does home insurance cover flatmates?

Typically, standard home and contents insurance policies cover you for damage by guests in your home. And this may extend to paying guests. However, this might come with higher excess costs. Furthermore, it may depend on whether your guest is a one-off short term paying guest, or one of many paying guests/a long-term boarder.

In some cases, you may need to get landlord insurance to be fully covered.

If you plan to regularly rent out a room on an app such as Airbnb, or take in a long-term renter, talk to your insurer and let them know. This way, they’ll be able to ensure you’re covered.

Some alternative insurance options may also be offered by short stay website providers. For example, Airbnb does offer a Host Guarantee to provide protection for damages (in NZ the guarantee is for up to $4.9 million) So if you do have issues, you may not need to make an insurance claim, as this cover may be adequate.

This type of policy might offer coverage towards your legal responsibility for bodily injury to guests or others, damage to property belonging to guests or others; and/or damage to common areas, like building lobbies and neighbouring properties, caused by a guest or others.

Keep in mind that it’s always important to read the terms and conditions in the product disclosure statement (PDS) when considering an insurance policy. You can speak with an insurance provider for any questions you might have while evaluating different options.

If I’m renting/boarding am I covered by my landlord’s insurance?

If you are a renter, your landlord’s insurance won’t cover loss or damage to your possessions. While it should cover the house itself, even if you’re the one that burns it down, it won’t cover your contents.

If you’re renting/boarding it pays to take out renters insurance. Renters insurance is a type of contents insurance for people renting a property. It can cover all or part of the cost of repairing or replacing your belongings if they are stolen, damaged or destroyed.

If I get a flatmate, do I have to pay tax on that income?

Whether you have a long-term flatmate or are using an app like Airbnb, any income will be subject to tax. And you could even face a different rates valuation from your local council.

However, you will likely be able to deduct certain expenses from this income. For example, if you feed your boarder, or pay for the utilities, these expenses (or part of these expenses) may be able to be deducted from the rental income before tax is calculated.

The two methods used for working out that relevant tax will likely be either the actual cost method or the short-stay standard-cost method. Using  the actual cost method, you will have to calculate your own allowable rental expenses to deduct.

On the other hand, the short-stay standard-cost method allows homeowners (if applicable) to earn $59 per night tax-free. This figure is designed to cover the costs of hosting short-term guests.

If you do intend to get a flatmate or list your property for short-term stays, be sure to thoroughly research your tax obligations and what method you will need to apply. And if necessary, be sure to speak to a tax expert. As this article is only a starter guide and isn’t designed to serve as tax advice.

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About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.

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