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More people rent space in their home…but often overlook the legal issues


The number of people who rent out space in their home, such as an extra room or an apartment, is skyrocketing. But many people don’t realize that doing so can create legal problems.

Craigslist reports that the number of people offering to rent a room in a home has nearly doubled over the last year or so. Some of this is due to the economic doldrums. But another phenomenon is that many baby boomers whose children have grown up and moved away have houses that are larger than they need, yet they don’t want to move – or they can’t sell because they owe more on their mortgage than their home is worth. Often, these people rent out extra space to generate income.

That’s fine – but many people who rent out a room or convert a garage into a studio apartment don’t realize the complexities of landlord-tenant law. Even if you only have one apartment, or even if you only rent to “friends,” you still need to have a formal lease and understand the legal rules for tenancies, or you could find yourself facing unexpected legal issues down the road.

For instance, you’ll need to make sure that everything in the rental space is up to code – loose steps, lead paint, and other issues can cause problems. And remember that if anything breaks in the rental area, you’ll need to promptly repair it.

You’ll want to talk to your homeowner’s insurance company about any issues that might be created by having a rented space, and whether your insurance will cover damage to your home that is accidentally caused by a tenant.

You’ll need to think through the rules you want for the tenancy – such as pets, smoking, noise, storage areas, and utility payments – and put those in writing. You’ll also want a security deposit, and you’ll need to know the sometimes-complex rules that can apply to handling security deposits.

Many people don’t realize that rental payments are taxable as income – so you’ll need to determine not only how much you’ll receive as rent, but also how much you’ll get to keep after taxes.

The good news is that you can often offset your taxable income by your expenses, which could include advertising, cleaning, maintenance, insurance, repairs, supplies, utilities, and depreciation. But you’ll need to know what’s deductible and what isn’t, and keep careful records.

Also, many communities have zoning ordinances that limit rental apartments or the number of unrelated people who can live together in a structure. You’ll need to make sure that the rental is legal, and if it is, whether you need to obtain a permit.


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