The Ins and Outs of Renting Out a Spare Room

With the rising costs of living, interest rate increases, and rental affordability issues, many people are considering renting out a spare room in their home to help make ends meet. But before taking on a new housemate, experts say there are several financial and non-financial factors to consider.

Financial Considerations

According to Kate McCallum, a former financial adviser, people can rent out a room in their home, but they should "do the real numbers" with an accountant or tax agent first. "Your water, power and internet bills will rise, and then there's wear and tear on your property [to factor in]," she says.

McCallum also notes that rent is taxable income, which can impact some Centrelink payments and capital gains tax exemption if the property is eventually sold. She recommends seeking advice on the following:

• How the rent is taxed, which expenses can be claimed, and the capital gains tax impact on the home
• How government payments will be assessed
• Changes to insurance cover
• Any restrictions from the mortgage lender or strata
• State or territory fair-trading agency rules

Understanding Tenancy Laws

Dr. Lyndall Bryant, a senior lecturer in property economics, notes that there are paid home sharing and homestay schemes in Australia that don't affect a homeowner's taxable income. However, she suspects that many people are renting out spare rooms under informal arrangements, as tenancy regulations typically don't cover boarders or lodgers.

Lynn Smith from the Residential Tenancies Authority in Queensland says tenancy laws come into play if a bond is taken, if four or more rooms are being rented, or if the room is classed as a secondary dwelling. "So, if you've got a granny flat or a fully self-contained area underneath the house, then our Queensland tenancy laws will be applicable," she says.

Renting a Property

If you're renting a property, it's possible to take on new housemates to help share costs. However, the tenant must ask for the property owner or manager's permission in writing to share the property with additional occupants.

Smith notes that in Queensland, there is no legal requirement for all rental occupants to be on a lease, but it's worth checking state or territory legislation. "It's not uncommon that a property manager or owner may ask a new occupant for a formal application and references and go through that process."

Putting Agreements in Writing

Experts recommend putting any agreements with new housemates in writing, including with friends and family. McCallum says the agreement should cover:

• Rent — the amount, when it's paid, what's included, and when it will be reviewed
• A bond, a trial period, and vacate notice periods for both parties
• How bills are shared, and reasonable usage expectations
• Which shared facilities can be used, how often, and when
• House rules on noise, cleaning, food storage, smoking, and pets

McCallum also recommends using electronic payments, so there is a "clear record for both of you". "Whoever you're considering, meet them more than once, check ID and references, and talk through day-to-day living in detail like work hours, cooking habits, guests, showers, how warm or cool they like the house," she says.