How I Generate Extra Income by Letting Strangers Pay My Rent
Published on - April 7th, 2010 (by J.D. Roth) This is a guest post from Rebecca Rosenfelt, the founder of RealSavvyRealEstate.com, a website devoted to demystifying the home buying process for first-time home buyers.
I almost never pay the entirety of my rent. I don’t have roommates and I’ve never been evicted. In the four years I rented a one-bedroom New York City apartment, I paid the full rent only one month. I now own a condo in Portland, Oregon, and I almost never pay my mortgage.
I’m able to keep my condo and apartment because I let strangers pay my bills for me. I’ve created a situation where my home generates income.
Letting strangers pay my rent
Here’s how I did it in New York City for four years: I traveled nearly every week for my job as a management consultant. I was out of town Monday-Thursday most weeks. I reasoned that other people like me may have the opposite commute pattern, where work brings them to New York weekdays. I posted an ad on Craigslist for a “part-time roommate”, and sure enough, lots of people were interested in paying me for the privilege of staying in my cute, East Village apartment three nights a week while I was away.
With an aggressive savings plan and the money generated from my “roommates,” I was able to squirrel away enough money for a down payment on a condo in Portland, where property is much less expensive than in New York.
I purchased a reasonably-priced condo between the trendy Pearl District and Nob Hill areas. With permission from my company, I relocated to Portland for two months while working on a West Cost project. Living in Portland gave me the opportunity to decorate and fully outfit the condo. Before moving back to New York at the end of the project, I hired a local management company to handle advertising, tenant screening, and rent collection. The management company rents out my furnished condo to business people coming to Portland for 3-6 month stretches or people in town on extended vacations.
These are just a couple examples of ways people can turn their home into an income-generating asset. My circumstances are a little unusual, but the concept is nothing that can’t work for nearly everyone in some capacity. In my experience, there are four main ways nearly anyone can leverage their apartment or home to generate income:
- Vacation Rental. When you know you’ll be out of town for several days, post an ad for your home in the vacation rental section of Craigslist. Other great resources are AirBnB.com and SecondPorch (a Facebook application).
- Home Exchange. Consider doing a home exchange when you take vacations. If you have a home in Maine, you can potentially “swap” with a couple in Paris for a week or longer (fun fact: Europeans seem to love Maine). A great place to start is HomeExchange.com, a vacation swapping website.
- Room for Rent. If you have an extra bedroom in your home, consider listing it on a site like AirBnB.com, where travelers all over the world look for inexpensive accommodations.
- Part-Time Roommate. If you travel regularly for work, find someone with the opposite commute pattern who needs a place to stay in your home city. Craigslist and social media like Facebook and Twitter are great resources for this.
One potential scenario
To give a sense of the income potential of these arrangements, let’s take an example of a couple who lives in a 2-bedroom home in Portland, Oregon. Assume they live in a fairly desirable area and use their spare bedroom as a home office and guest room.
- They rent their spare room to vacationers four nights a month, charging $50/night. Annual income: $2,400.
- Once a year, they take a 10-day vacation in Europe. This year, they opt for a home exchange, saving $150/night in hotel costs. Annual cost avoidance: $1,350.
- They usually go camping a couple times over the summer. They rent out their home two weekends each summer, charging $150/night. Annual income: $600.
- During the holidays, they travel cross-country to visit family. They rent out their home over Thanksgiving (four nights) and Christmas/New Year’s (10 nights) at $150/night. Annual income: $2,100.
- Total annual income/cost avoidance: $6,450.
This is a fairly realistic scenario, with prices typical for Portland. Let’s assume this couple earns the local median income of $56,000 for a two-person household. With minimal work and a little flexibility, this Portland couple is able to boost their income by nearly 12% annually.
To take this a little further, let’s say they continue renting out their place, earning $6,450 annually for five years. They invest their income with an 8% annual return. At the end of five years they’ll have $37,800. Then they have a baby, so they stop renting out their space. They convert the second bedroom into a nursery and stop taking long vacations. They leave the $37,800 in the investment account, which continues to earn 8%. By the time their child is 18 years old and ready for college, the account will be worth over $150,000, which should cover their child’s Harvard education (assuming the kid is smart, like his parents). Not bad, right?
Is this realistic?
Many people think that this story doesn’t apply to them. They think either that no one would pay to stay in their home, or that it would be too weird to have strangers around their stuff.
When I first had these doubts, I had to tell myself: I like my home, don’t I? Is it that far fetched a notion that someone else might, too? As for the aversion to having someone else around my stuff, I had to think through that reaction: Was I really willing to turn down hundreds or thousands of dollars of income because I wanted to protect my things from being near strangers? I had to discipline myself not to let my Stuff take over my life, limit my opportunities and cost me money.
After conquering my doubts, I forged ahead. Looking back, I have no regrets. My belief is there’s no harm in trying — all the listing services I mentioned (except HomeExchange.com) are free. If you’re curious to give this a try, spruce up your place, take some well-lit photos, and write a snappy ad. The more positive energy you put into your home and your ad, the more success you’ll have. You’ll likely be surprised at how many people are interested in paying to stay in your home, and you may even make some friends while you’re at it!
A final word of advice
Be sure to check your lease, zoning laws, or condo bylaws to ensure you’re not violating any rules. Also, check with your homeowner’s or renter’s insurance policy to ensure you’re covered for damage from renters and visitors.
This article is about Advanced, Entrepreneurship, House and Home, Real-Life
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We had some good friends who rented out their place and it got destroyed/cleaned out. They asked my boyfriend, who is an attorney, about pursuing legal action – he said not to bother. Even if they could be tracked down and prosecuted properly, the odds of them getting any compensation for their stuff would be slim to none, and they’d have to pay probably tens of thousands of dollars in attorneys’ fees as well.
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“… all the listing services I mentioned (except HomeExchange.com) are free”
Actually, Airbnb.com charges a 3% fee to hosts, as well as a booking fee to guests. It’s a great service, but it’s not free.
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These bad experiences with renting (#49 and #51) really underscore the importance of screening tenants, securing a deposit, getting verifiable ID (if employment verification isn’t an option, I often get a Passport/Driver’s License photocopy), and having insurance.
For every horror story, there are tons of happy stories, but these bad experiences (while horrible for the homeowners) can be a great learning experience.
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I don’t care if someone sits on my couch or eats off my dishes even.
I do care if they’re on the wrong side of my computer firewall or can break one unattended door down to get to my financial files, tax returns, or other such “valuables”.
I suppose maybe I would do it if I owned a place that couldn’t be harmed if I left two cats, a dog, and a raccoon together in it for a week. (Just kidding, animal lovers. I once had a neighbor who had every other wood stair pulled up by tenants who wanted to burn them in the fireplace. Stuff happens.)
Truth is, I cannot even bring myself to let anyone but old friends into the sanctuary of my home. Strangers… for money? Not in everyone’s comfort zone, is it?
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Very cool article. Though, I can’t see doing that, I’m way too protective of my nest. This is my fort. I would not compromise that.
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I wrote a post last week on how we rented out our spare bedroom for 2 years for $500 a month…our mortgage is only $740.
It worked great until the last roommate ended up being an immature idiot…then we decided we’d take a break for a while. I’d do it again if we ever need the cash.
I didn’t mind giving up a little privacy and we never had any issues with things being stolen (they live in the same house…less people are willing to steal if the owners live with them).
We live in one of the the suburbs outside of Houston, so vacationers probably don’t want to stay, but we really liked the single guys that just needed a place to crash…our favorite roommate was laid back and sooo clean. We miss him.
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Great article. Interesting how it really hit a nerve with lots of people, and it’s unfortunate to hear about the bad experiences that some folks had.
I’m very interested in trying something like this, and have also tried to figure out how to rent out my vintage cars to share the costs.
One thing I have learned over the years through multiple moves, home is where my family is. When I’m with them I’m home, the actual physical dwellings have moved plenty of times over the years.
This is also a great way to keep you focused on having less stuff, and frankly while we have some nice stuff, it’s nothing I couldn’t live without.
But most of all this has me thinking of steps to take to make this possible so that we can travel more. Thanks!
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@Kevin (#42) – owning property is definitely risky, even without a mortgage:
* your employer could transfer you to another town
* you might want to move closer to faraway relatives who need help for a while
* insurance rates can go up
* property taxes can go up
* neighborhoods change (in only 13 years at my place, 2 entrance ramps and one exit ramp have been removed from the local freeway, part of the street I use to get to my street has been removed, the airport has been moved away and replaced with shopping centers and extremely expensive housing, stores and restaurants have changed, bus route service has been reduced, the library has been relocated, and speed bumps have been added).
* underground poisons could be found (oops, used to date a wastewater engineer)
* a natural disaster could make life difficult, even if insurance did pay for most or all of it
* you might get mold or termites or a fluke earthquake that are not covered by insurance
* you may become incapacitated in such a way that you can no longer access the upstairs part of your house
* you may turn into the sort of person who thinks everything gets dated every five or ten years and needs to be renovated.
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This idea sounds like an insurance and liability nightmare.
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What an interesting post about a creative idea. I think we will see more of this kind of thing as people remain out of work for awhile. Or, may be we SHOULD see more of this. Families don’t need to be on the street when some of us could help them. In the 1930′ people regularly turned their homes into bording houses. Interesting thought. Several years ago, my family and I rented a house from some people when we visited a city that was hosting an event. The experience was quite positive for us.
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I have a three bedroom condo, and I am currently renting out the two extra bedrooms (go craigslist!). I prefer this option to those described in this article for one big reason: the guys I’m renting to have something to lose if they break my stuff or cause undue wear and tear.
If I was renting out my place by the night or by the week, I wouldn’t know anything about the people in my place, and they wouldn’t know me. With long term renters they have something to lose if they damage my stuff… namely they will have to find a new place, also I know where they work or go to school. It may sound kind of weird, but it’s nice to know I have some leverage should the people staying in my place do something outrageous (say, steal my stuff, bring drugs into my place, etc).
People who are just staying a night or a few days have no reason to respect me or my place.
Plus, renting each room in my place at $400 each, I bring in nearly $9000 a year, which covers my mortgage, taxes, and insurance (homeowner’s and renter liability).
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I’m a little surprised everyone is focusing on the potential for bad tenants to steal all your stuff or trash your apartment. The thing that stuck out for me was that this is an extremely atypical situation, not only being away from your home a lot but having a regular schedule of when you’ll be away.
I don’t ever travel for work, so it’s just plain not an option for me. But the people I work with who do travel, aren’t out of the office for repeating or even predictable periods. They may be gone half the year, but it’s always based on when they get sent to a customer site. So they’ll be gone for three weeks, back for one, then gone for another four. I don’t know anyone who has a set schedule that could accomodate another person living in their apartment when they’re away, but maybe that’s just my industry.
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I used to do this when I lived in a studio apartment in Brooklyn. I rented it out on a nightly basis to tourists/business people unwilling to pay the exhorbitant hotel prices, then stayed with my boyfriend. I advertised on Craigslist and collected a security deposit upfront. I also made them pay the room charges upon arrival, in cash. I never had any problems and never had anything stolen, although a pitcher was broken once. Then again, I didn’t have much worth stealing.
The longest stay was a week, usually they were for anywhere between one and four nights. Most months I recouped my rent, and some months I actually made a profit.
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The people around West Point often move out for at least a week for graduation. They rent out houses with deposits that are quite high. I have a feeling the one week rent pays for several house payments. It has been good for both sides.
I think if I were single, in a big city, I might consider this way of life. Currently, not many people want to house swap to a country house in the middle of no where:>)
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I too think the title is sort of misleading. You in fact have roommates whether you see them or not. Further, the idea isn’t universally useful. I used to live in New York City, L.A., and Chicago. Now I live in rural Michigan.
Commuting to different residences is far more common in some cities like New York. In New York people often rent an inexpensive as possible place for the work week, but have what they consider a home in Maryland, Long Island, New Jersey, or Connecticut. They don’t want to be in New York other then for work. The commute is more stressful and expensive then they want to deal with. It is worth renting a part time place if you can afford it.
In the far more common rural towns, like where I live, not so much. People want to live there and owning cars is more common. So, you will be stuck with roommates you actually have to live with.
Further, location is a big factor in being able to temporarily rent a place you are not living at. My mom does something similar with a condo she owns. It however is right on the Great Lakes in a ski resort. There are many people who are looking for a short stay at a place. It is practical to get a professional management company to take care of that. Where I live in Ann Arbor Michigan, not so much so.
Also, it also depends on the type of place you have and how mush people are willing to pay. If you have a Madison Avenue type place, only people in a certain income bracket are going to be able to afford paying your to live there part time. That decreases the chance of having problems with the tenant.
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I’m too paranoid to rent out my home. I have paintings that are worth more than some cars–and I’m a germophobe.
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@Ian (57)
“I’m very interested in trying something like this, and have also tried to figure out how to rent out my vintage cars to share the costs.”
- You should look into using them to drive newly weds on their wedding day! I haven’t a clue what would be involved or if you could make enough off it, but I know a lot of couples are interested in vintage cars for their wedding day
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Students do this all the time when they sublet their furnished apartments or rooms for the summer so they can move back home, travel or do an internship. The worst I’ve ever heard is people who are late with rent. But some of the posts made me think twice about ever doing something like this.
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Becoming less attached to our “stuff” seems to be a key here. Not quite there yet!
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“Was I really willing to turn down hundreds or thousands of dollars of income because I wanted to protect my things from being near strangers?”
…yup
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@Meghan: I had a friend get completely stiffed for a few thousand dollars from subletters. I subletted once to a “friend-of-a-friend-of-a-friend”, and came back to find my place trashed. There was no permanent damage, but about a day’s worth of cleanup involved.
The fact is it takes a lot of due diligence to reduce the risk, so there’s a time cost involved (or an actual cost if you decide to use a management company).
My parents used to rent their vacation home out in the summer, but gave up on it after 5 or so years because of the amount of effort it takes to maintain a property for rental, and the amount of risk. For most people, the effort it takes to recover from the effects of 1 bad tenant is enough to not want to deal with the good tenants.
This is a good idea for the very few people who are in a situation to do this, but not practical for the general public.
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Just was going to make the same comment TR did above.
My in-laws used to rent out a condo each year for the vacation season and gave up on it after 5-6 years because people continually stole things from the condo – even going so far as breaking into the ‘owners closet’ and taking everything in there.
My parents used to do long term renting of a house down in a beach community as well (as in, the house would be someone’s home). Same thing. The turnover costs, effort, and just general BS involved with someone destroying property (and neighbors bitching to you when they do something they don’t like) wasn’t worth it in the end.
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I have friends who have swapped their Manhattan apartment for vacations in Maine, Spain, Italy….I think through Home Exchange. Great experiences each time!
I would totally do that, and would not really worry about my “stuff,” but the kitties are a bigger obstacle….being robbed would be sad, but what if they weren’t good to the cats?! Eek!
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I am really amazed at how hard people are trying to find excuses not to do this. I have been leasing out extra rooms in my house for ages and not once…not once, have I had a weirdo, thief or serial killer.
If you have half a brain you can employ a little screening to ensure you not only get a normal person, but someone you WANT to have in your home. No, that does not mean doing a “background check” on someone you met off Craigslist.
Quit thinking like robots and you can make it happen.
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This is a great idea, but one (very large) word of caution: your homeowner’s insurance policy will not cover this.
All policies have an exclusion for damage or losses caused by “business pursuits,” and guess what? Renting out your home for cash is a business pursuit. This is the same reason landlords have to get landlord insurance policies rather than homeowner’s policies on their property, and that’s what you should consider getting as well. Talk to your local insurance broker to make sure you have appropriate coverage, because it would hurt if someone stole your property while you were renting to them! A large deposit from the renter may also help–just something to think about.
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I think this is a creative way to make money from unused/under utilized real estate. I own a townhouse and rent out my spare rooms to help pay my mortgage.
In either case, I think you need to be a minimalist, ie not own a lot of stuff and the little stuff you do own are not big ticket items.
When do you have strangers from craigslist as your roommates it is a bit awkward for the first several days they move in, but once you get to know their personalities and habits, it does get more comfortable.
I think a litmus test(before any logistics) on whether you can handle the thought of renting out your house to a stranger on craigslist is asking yourself the question, would you ever stay in a hostel? (A hostel is a place where you get your own bed in a dorm style room sharing a common bathroom). I am in my late 20′s and have stayed in numerous hostels in several different countries and had no problems with strangers sleeping the same room,
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Thieves, bed bugs and perverts are everywhere… there are some things in life that we can’t afford to not have in the long run, and sanctity of a private bedroom should be one of them.
Now, if you have a 2BR apartment/condo and you put a lock on your own BR while away, that’s a different story–you figure, I put what’s valuable in there, I insure it, then you just hope for the best.
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