When you think about rental income, you immediately think of a bank loan, or having to convince a bank. You believe that the efforts that it needs to get are big and that you must be rich. In the case of renting a room in your main residence, you don’t have this sort of thoughts. You don’t need any funding. Let’s talk about cash and see what it means to set up this activity in terms of money.
Significant results right away
Unlike activities often used to supplement an income, renting a room at home will pay significantly more than if you babysit or if you gave tutoring lessons for a few hours. It is also much less work.
Find out how much monthly income you could get from your private room
Do market research
This is an important step to do before you take any action. Why? because if there is no rental demand in your neighborhood, it is not worth pursuing your actions any further. Several techniques exist for this. I wrote an article specifically to cover this subject. The goal for you is to understand if other people are doing the same activity in your neighborhood, and if it works well for them. You will then be able to compare your private room with other private rooms that already exists on the market.
Go to Airbnb to find out their monthly rental income estimation: it’s an efficient and quick way to find out the rental income you could get from your room for rent. They base their calculation on their experience in your city, for similar accommodation and at the same number of sleep that you provide. They use fairly strict and conservative assumptions not to give an income which will be unrealistic. Click on this link to access their simulator.
Regular direct transfer on your account
Almost all short-term rental platforms transfer the rent to your account the day after the check-in of your guests. So, you have access to this money very quickly and don’t have to wait for the end of the month to get it.
What does this amount mean to you?
With additional income amounting to hundreds of euros, pounds or dollars, the prospects are different than when you earn a few tens per month babysitting, or by giving tutoring courses to students. You can start to make plans!
Finance your rent
Are you currently renting a home that you love and have had happy moments in, but is it too expensive for the size it is, and especially for your current use? If so, you may have thought of moving to a smaller, cheaper location, but it means letting go of your past here.
Are you the owner of your main residence but do you think it is too big now? Your kids moved out and it feels empty now. Do you still have monthly repayment and think you are paying a lot each month?
In all these cases you can consider that renting a room in your accommodation will be a good strategy to co-finance this property. In addition you will have very interesting advantages: You will get a substantial income, which will be able to be flexible depending on how you manage the booking calendar: if you want to reach a certain amount of monthly income, you can block the schedule for the rest of the month once this goal is reached. Or, you may want to earn more by renting more. In any case you can easily stop this activity if you want. It wouldn’t be as easy to get your space back if you decide to have a long-term roommate.
Fund a project
By renting a room at home, you can seek to finance renovations in your home, or finance a personal project. In this case, your need for money will be limited in time.
The advantage of this rental activity is that you can temporarily share your space with other people and get it all back exactly when your goal is reached. It’s only a matter of time for you.
Increase your income or retirement benefits.
If you own your home and that it is fully paid, then you may just be motivated to increase your income as a way to improve your purchasing power. This is the case if you are retired for example. In this case, renting a room permanently will be a great boost.
Requires little or no initial funding
The room for rent is already there
You will create this activity in your main residence. So, you have no real estate research to do or financing to find, because this step is already completed. You just have to optimize a space that already exists. Most of the work is already done! You are taking advantage of an opportunity that presents itself to you: to have an unused guest room and that you want to optimize so that it brings you money. So, there is no investment at this level. The great advantage here is that you don’t have to own your home to be able to do this activity. However, you are strongly advised to have a written agreement from your landlord to protect you in the event of a dispute.
You already have the premises; you may just need to buy furniture suitable for rental. If the room you are going to rent was an a study room, you will need to find a bed, a mattress, some storage space and a little decoration in order to make the room pleasant and comfortable. You can obviously use furniture that you already own. If this is not the case you can find furniture for a few hundred euros, which will represent only a few weeks of rent for you.
The online platforms to advertise your room are free.
A huge advantage is that the entry ticket is free: because there is no membership fee to pay to anyone to earn your cash. In the past, you often had to pay an annual fee on websites like VRBO or pay for the publication of an advertisement in a newspaper to publicize your property. Now it’s free. Short term rental platforms get paid with a small commission on each booking. So, if you don’t have reservations, you don’t owe anyone money.
On Airbnb this commission is around 3%. On booking.com it is around 17%.
Each site will have its commissioning policy. They will each bring different types of tenants. It’s up to you to choose the one that suits you. I like Airbnb because they base their business on a more human relationship that is created between the tenant and the owner.
No initial bet
Unlike all profitable investments, there is no contribution to be made at any time. You don’t have to be rich, or get a loan from your bank, to make money. This will not be the case if you want to make money with traditional rental property or even by Airbnb for entire home where you must pass the step of buying property.
Doing rental arbitrage is a different strategy that is in between renting a private room and renting an entire place that you own. The system here is that you pay a rent for an entire place that you rent long term, and then you rent it short term and cash the difference between the rent you pay and the rental income you get. It is a more dangerous way of doing business. In that case your landlord must be aware that you will be doing rental arbitrage with his property and agree with it.
The long-term costs are very low
Costs on a daily basis
Over time this activity does not require regular purchases, apart from toilet paper, cleaning products every now and then. Every year you can think of renewing bed or bath linen. So, the costs are kept very low.
Concerning the cleaning costs, you can charge a specific fee that will be added to the rent. This fee will cover your expenses if you employ a cleaner. It will be an additional gain if you do the cleaning yourself.
It is important to properly declare this rental income, and you will not be able to escape it if Airbnb is paying you on the bank account of your country where authorities have the power to investigate your incomes. In some countries, Airbnb now communicate to the local authorities the rental incomes generated for each owner.
This depends on your country and on the local laws applicable. You should investigate with an accounting company to get the accurate information covering that topic.
Renting a short-term room in your main residence will be exceptionally profitable. The cost of its installation being very low, you will very quickly get back every penny you paid to launch it.
Consult the monthly rental simulator that Airbnb provides and get an idea of how much you will to be convinced.