How to Start House Hacking

Step 2: Prepare Your Room for Rental and Define Rules and Regulations 

 

Once you’ve accurately priced your room, you need to prepare it for rent. Typically, house hackers rent their bedrooms unfurnished. As such, you’ll need to clear everything out, clean the room, and throw on a fresh coat of paint - want it to show well when potential renters come to see it. 

 

Concurrently, we highly recommend writing out a list of rules and regulations. These are separate from the formal lease terms and focus more on daily life in the home. Having a stranger in your house can absolutely lead to friction, but getting everyone on the same page up front with clear, documented expectations will mitigate potential problems. While you, ultimately, will dictate your own unique rules and regulations, here are a few items to consider:

 

• Does your tenant have full access to house common areas (e.g. kitchen, living room, porch, etc.)? If not, what restrictions exist?

• Will your tenant be allowed to have guests? If so, are there any limitations? 

• Will you enforce “quiet hours” in the home? 

• Will your tenant be expected to help out with any household chores? If so, which ones and how often? 

• If there’s a driveway, will your tenant have an assigned spot, or is it open parking? 

 

This certainly isn’t an all-inclusive list. Rather, the important takeaway is that creating rules and regulations should be a process. Think about potential friction points between you and a future tenant, and identify ways to avoid that friction before it becomes an issue. 

 

Step 2a: Identify a Property Manager (Optional)

 

Normally, house hackers don’t use property managers, because they’re on-site and can address issues themselves. But, if you plan on renting out a spare bedroom to help fund your travels, you’re likely going to be away from the home for extended periods of time. In this situation, you certainly don’t need a property manager. But, if you anticipate stressing about your home while overseas, you may want to consider hiring a property manager to serve as a point of contact for your tenant. This will cost you money, but it could also potentially provide you some needed peace of mind. 

 

Personally, we’ve never used property managers for house hacking or renting single family homes. That’s not to say that, in the right context, paying for one doesn’t make sense. Bottom line, it’s up to you. 

 

Step 3: List Your Room for Rent and Screen Applicants 

 

Next up, you need to list your room for rent. Depending on your personal situation and local network, this may include a combination of 1) word-of-mouth announcements to friends and family, and 2) online listings. 

 

Regardless of how you go about listing your bedroom, you’ll want to screen potential applicants. For people within your personal network, this screening may be more informal in nature - asking around to confirm this person will be a reliable roommate. But, for applicants you don’t know (likely people who apply via an online listing), we highly recommend conducting both a formal background check and former roommate/landlord reference review. Landing the wrong roommate can potentially lead to tons of emotional, legal, and - in a worst case scenario - criminal issues. A little up-front screening can prevent a ton of back-end problems.

 

Fortunately, when you list your spare bedroom on Zillow Rental Manager, you can use Zillow’s Applications product. With this product, Zillow will run applicant background and credit checks on your behalf. The cost is nominal, and it’s well worth it for the peace of mind these checks provide. Combined with phone calls to prior roommate or landlord references, you’ll have a good sense of whether or not the applicant is someone you’ll want living under your roof. 

 

NOTE: Zillow doesn’t actually list spare bedroom rentals on Zillow.com. Instead, these listings populate on HotPads, a Zillow subsidiary.  

 

Step 4: Collect the Security Deposit, Sign a Lease, and Automate Rent Payments

 

The Importance of Security Deposits

 

Once you’ve selected an applicant, you need to collect a security deposit. Unfortunately, we’ve been burned too many times in the past by potential tenants who verbally agree to move into a place then back out at the last minute. When this happens, you lose, because you’ve likely told other applicants the place is no longer available, which costs you money to start the search process all over. 

 

Requiring a security deposit before accepting an application weeds out potential flakes by acting as an insurance policy. If an applicant plans on backing out, he or she likely won’t be willing to provide a security deposit, meaning you simply pick another applicant. While your local market will dictate the deposit amount, we recommend one month’s rent as a rule of thumb - enough to protect you but not too much to be cost-prohibitive for potential tenants. 

 

You’ll likely receive the security deposit before signing the lease. To provide the tenant peace of mind, issue a security deposit receipt saying something along the lines of “I, [insert name], confirm receipt of your security deposit of [$] on [insert date]. I will return this security deposit in accordance with the terms of our lease no later than [legally required # of days] following the conclusion of your lease term.” 

 

Drafting a Legally Compliant Lease Agreement

 

With a lease agreement template, you get what you pay for. You can download a free one online, but there’s a good chance it won’t comply with state and federal landlord/tenant laws. 

 

Instead, we recommend shelling out a little money up front for a local attorney to draft a lease agreement for you. Yes, you’ll pay for this, but you’ll then 1) have a template to use for future leases, and 2) know that template complies with all relevant laws. In the awful situation that you have to take a tenant to court, you’ll want to ensure your lease agreement is actually enforceable. 

 

Automating Rent Payments

 

Collecting checks or cash every month is a hassle, especially if you anticipate traveling around the world while renting out a spare bedroom. Instead, we highly recommend automating rent payments as much as possible. When you use Zillow Rental Manager, tenants have the option to make and automate rent payments online. It’s free for landlords, and the money gets deposited directly into your bank account! If tenants choose to pay via ACH, it’s also free for them. A small fee applies for tenants when they make credit and debit card payments. 

 

Step 5: Track House Hacking Results and Build Wealth While You Travel

 

Once a tenant has signed the lease, received your rules and regulations, and moved in, you’re officially a house hacker! Now comes the not-as-fun part - tracking results for tax purposes. As a landlord, you’ll need to include Schedule E, Supplemental Income and Loss with your IRS Form 1040 to report rental revenues and expenses when you file your taxes each year. While a tax preparer can help you with completing this form and maximizing your deductible expenses, you need to track the following on a spreadsheet throughout the year:

 

• Rents and other fees collected

• Rental-specific expenses (e.g. painting your spare bedroom to get it ready to rent, a second phone line used solely by your tenant, repairs to light fixtures in that bedroom, etc.)

• Expenses for the entire home (e.g. mortgage interest, property taxes, insurance, utilities, etc.), as many of these can be partially deducted as rental expenses

 

Yes, house hacking cash flows will help you build wealth while traveling. But, accurate recordkeeping will also allow you to grow your wealth another way - minimizing your tax bill by maximizing rental-related deductible expenses. 

 

Good luck getting started on your house hacking adventure!