Renting out a room in your home: Are you insured?

Renting out a room in your home can be beneficial in a number of ways - it can help you earn extra income to put towards household bills or mortgage payments, and it can even be a way to make use of a space that’s sitting dormant. That said, if you are considering becoming a landlord, even on a small scale, then it’s important to understand the legal requirements and the workings of the rental market, as well as how renting out a room could potentially affect your home and contents insurance. 

Can anyone rent out a room in their house?

If you are the owner of a property, then you will generally be free to rent out a room to anyone you choose; if you are a renter, then you will need to check the conditions of your lease and speak with the owner or property manager about the possibility of subletting a room. 

As a homeowner, if you are looking to rent out a room in your house, then it is important to ensure that you are in compliance with any relevant rules and regulations. Each state in Australia has different rules about renting, so it’s a good idea to check the requirements in your state or territory before you set out. 

Depending on where you live, the person you’re renting a room to could be classified as a tenant, a lodger or a boarder, and this distinction could be significant from a legal standpoint. 

For example, according to the Tenants Union of NSW, “boarders and lodgers (or ‘marginal renters’) are renters who pay for the right to occupy residential premises but who are not covered by the Residential Tenancies Act 2010.” This may include agreements where a person boards or lodges with another person in a private home, or share-housing arrangements where a person sublets part of a premises to another without a written tenancy agreement. Additionally, boarders and lodgers do not have the right to exclusive occupation of the premises (unlike tenants), and boarders usually get meals as part of their agreement, while lodgers do not.

Should I rent out a room in my house?

If you have a spare room in your house, then before renting it out, it’s important to consider both the financial implications and the potential impacts on your own life. 

On the financial side, renting out a room can provide an additional stream of income and can be useful for covering household expenses, or helping pay off your mortgage.You will need to consider the tax implications of renting out a room in your home, too, as according to the Australian Tax Office (ATO), the rent you receive will usually be regarded as taxable income, and will likely need to be accounted for in your tax return. For more information on the tax implications of renting out a room in your home, you could speak with a tax accountant or contact the ATO. 

Regarding your lifestyle, inviting a tenant to share your home means adjusting to less privacy, as well as the changing dynamics that come with a new housemate. Weighing the pros and cons, such as the potential for rental income versus the loss of personal space, is crucial before making a decision.

How do you rent a room out?

If you are considering renting out a room in your home, then there are several key steps to take, to ensure the process runs smoothly and you are compliant with any relevant rules and regulations:

• Understand the law: Familiarise yourself with local tenancy laws, which govern bond, rent collection, notice periods, eviction processes and more.
• Prepare the room: Ensure the room is clean, safe, and meets any specific standards or requirements for rental properties.
• Set a fair rent: Research local rental prices to set a competitive yet fair rent. You could consider including utilities in the rent as an added convenience for your tenant.
• Create a tenancy agreement: Draft a clear tenancy agreement that outlines the terms of the rental, including rent amount, payment schedule, rules regarding guests, and maintenance responsibilities.
• Screen potential tenants: Conduct thorough background checks, including references, to find a reliable and compatible housemate.

How do you find a good housemate?

If you’re looking at opening your home up to a stranger and inviting a roommate to live with you, then it’s important to find the right person to ensure your living situation remains harmonious. Depending on your priorities, you might consider seeking out a tenant who has a stable income, good references, and a lifestyle that matches yours. It is important to be transparent about your expectations, house rules, and any particularities of the living situation in your advertisement - for example, whether the house is pet-friendly, or if you yourself have any pets. 

It can be worthwhile to utilise social media and rental websites as well as word of mouth to reach potential tenants. Conduct interviews to gauge compatibility, and don't rush the decision — you may regret it if you compromise and allow an unsuitable candidate to rent a room in your house. 

Does home insurance cover share housing?

When renting out a room in your house, it's vital to review and possibly update your home insurance policy. Standard home insurance may not automatically cover situations arising from renting out part of your home. Prospective landlords may need to consider additional coverage for tenant-related risks, such as loss of rental income, damage to your property by tenants, and legal liability. 

Some insurers offer specific landlord insurance policies or additions to your existing home insurance policy to cover these risks. It is important to disclose your renting situation to your insurer to ensure you're adequately covered and to avoid any disputes in the event of a claim.

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