Renting out that spare room

Some cash-strapped homeowners are deciding they can use income more than they can use that extra room in their too-big house. So up goes the ad: Room for rent. Separate entrance. Share kitchen.

Call them a boarder, a roommate or a tenant, but the relationship is the same. One person owns the home. The other pays to live in part of it. Some people may keep everything unofficial, because they are concerned about local regulations about renting space, or worried about their home insurance policy rates going up. They may not even think of the arrangement as a business deal, but a private transaction that nobody else needs to know about.

As long as all goes well, that unofficial agreement will seem fine. But how often does all go well? If the home gets robbed, damaged in a flood or fire, or if the tenant injures themselves in the home, questions of liability start to come up and pave the way for anger and mistrust. That’s why a rental agreement should be worked out from the start and put on paper. In addition to setting the terms of the rental, the document is the homeowner’s proof that they are getting rental income. If damage to the home results in a loss of that income, the insurance company will take that into consideration.

Chances are good that the homeowner’s policy will not restrict a boarder or roommate or two, and rates will not rise as a result. Still, it’s wise to check with the insurance company to be certain. It’s unlikely the policy will cover the renter, however, so the landlord should explain that fact and urge their tenant to purchase renter’s insurance.