My wife and I have had housemates since we started dating. In fact, it turns out that neither of us has had a place of our own in our entire lives: from childhood to now, we've been living with people. Maybe we don't know what we're missing. But when we rented, we always rented a room advertised on Craigslist.
When we first met, we were both living in San Diego, a beautiful place to get tan and go flat broke at the same time. We also had a golden retriever, so we "needed" a yard...or at least what passes for a yard in southern California. Rather than paying for an entire house, we thought we'd get most of the benefits of a house by just renting a bedroom. Now, this was not as easy as it sounds. Despite our good looks and sparkling personalities, not many people were interested in renting their 10'x12' room to three mammals weighing a combined 350 pounds. But we persevered and finally found California's smallest bedroom for a mere $700 a month, plus a share of utilities. Plus, our dog had a paved concrete slab to poop on, so we had that going for us, which was nice. Things went like this for a couple years until we moved to Arizona, where we could now rent a room for just $400! And so it went from lease to lease. Occasionally we'd have to share a bathroom, and not everyone we lived with ended up being life-long friends, but on the whole, renting rooms was a great deal. We'd pay a small portion of the rent, but get the same kitchen, same big living room, and the same yard as if we'd rented the whole place.
Then in 2010, we decided to purchase our first home: a 1275 square foot 1950's ranch. And, being from Southern California, we had no idea what we'd do with all this space. We'd spent years living in less than 200 square feet and trying to negotiate a space in the living room for our papasan. Now we had a veritable mansion to wander around in and we thought hey, why not get a renter? They probably have stuff to fill that room over yonder.
The situation and benefits are basically the same owning as renting with a housemate. Our current renter pays almost half our mortgage and 1/3 of all the utilities. Also, she's insanely cool and, get this, is a hair stylist. So my wife gets nearly free hair stylings. The renter before that was an entrepreneur with really interesting diversity in enterprises: ranging from an oil change business to selling health insurance to making sports-themed cornhole bags. Neat, huh? We love our roommates. We don't often come home to an empty house, we have someone to take us to the airport and watch the dogs when we go on vacation, and we share in the things that make sense to share: internet, television, air conditioning, and, most of all, space.
I have no doubt that living with others, both while we rented and owned, gave us a huge acceleration towards financial independence. We estimate we've cut our housing costs by 50% and our utility spend by 25-30%: easily thousands of additional dollars at our disposal every year. Rather than a hassle that we choose to endure, we find that having housemates builds real relationships and gives us the benefits of having a community in our own home.
Want to try the same thing? If you're renting, it's fairly easy. You only need to look for roommate ads on craigslist or other sites after your lease is up. If you have a spare bedroom and your landlord allows for it, put up an ad of your own and just amend the lease. Of course, the trick is finding people you'll like living with. We meet potential renters once at our house and then again out at a bar, to get a sense of whether we'll like spending time together.
If you own and you have a room that's sitting unoccupied most of the time, you can view it as a underutilized asset. Sure, having a spare bedroom is great when guests come over, but is it worth $6,000 in opportunity costs every year? Maybe a futon or pull out couch in the living room can give you the best of both worlds: you get a rent check every month, and can still have a friend or relative stay over.
Some things to consider when sharing your living space:
- Have a potential renter fill out an application, and use that information to check employment, contact their prior landlord(s), and complete a background check
- Find a rental agreement that's written for renting a room, rather than an entire house
- Here's an example for one in Arizona, but it's probably a good idea to consult with an attorney to craft an agreement that is specific to your state and local laws
- Get agreement on what is expected re: significant others staying the night, chores, what time everyone is going to bed & getting up for work, parties, etc.
- Do some research for what other rooms are fetching in your neighborhood, and use photos in your Craigslist ad
- Decide whether you'd rather have a 6 month or 1 year lease, or start month to month
- Set the deposit at an amount high enough to cover typical damages (i.e. - at least one month's rent)
- Condiser charging the renter a share of utilities rather than rolling the costs into rent, to avoid a moral hazard (e.g. - I'm paying $500 for rent no matter what, so why not crank the AC?)
- Try to make it the renter's home too, rather than your home that he or she is just renting -- allow space for their stuff & their lifestyle, when possible
Some other ideas:
- If you have kids, consider having a live-in nanny or au pair as opposed to day care
- If opening your home isn't something you're willing to do, you might make income renting out space in your garage to store someone else's extra belongings or vehicle
What are your thoughts on renting? Is it something you would consider to help achieve your financial goals?