If you are going to rent out a room in your house, especially to a friend, you need to pick a fair price that also reflects the market. One reader asks:
Dear Splitwise,
How would you charge if you rent out a room with a private bathroom in the home that is your primary residence, which you own?
Sincerely,
Landlord in Training
Hi Landlord in Training,
Great question. As it happens, I just had to help my parents do this. Here’s what you need to know:
- Find out the approximate value of your home. You can look up this value from Zillow.
- You can use this amount to calculate the rental value for your whole house. One good way is to take the sale price and divide by the “buy-to-rent ratio” for your neighborhood. You can look up the buy to rent ratio for your metro area or specific neighborhood on Trulia. A range of 7-15 is relatively normal.
- After finding out what your whole house would rent for, you can figure out the price of a single room using our trusty rent splitting calculator.
Let me give you an example. Using my psychic powers¹:
- I can tell that your house is in Isle Of Palms, SC
- The total size of your house is 2700 sq feet.
- You have 3 rooms in total:
- 1 is the master, which you currently reside in.
- 1 room with a private bathroom and normal sized closet.
- 1 room without a private bathroom and a normal sized closet.
Bottom line: my best guess from the information given is $1385 a month, assuming it’s a year-long habitation.
To break it down in detail:
- Zillow thinks your house is worth $867,000.
- The buy-to-rent ratio on Zillow for Isle of Palms, SC is 6 – which is insanely low because Isle of Palms is a vacation town. This would mean that your monthly rental price for your whole house would be $11,600. Despite what I said above, this seems nuts to me if this is a year-long renter.Let’s just assume a non-vacation ratio in a nice town, like 15 (as it is in Boston, Chicago, San Diego, or Denver). This gives a more sane $4,817, which I used for the rest of the calculation. I’m also guessing that you are living alone in the master, and that the other bedroom is unoccupied. This makes a modest difference in the calculation.
- I’m assuming that your master bedroom is twice as large as his bedroom and has a nice closet, along with a private bathroom as well. Using the rent calculator, here’s what I get: $1384 per month for a non-master bedroom with a private bath. Round-off as you feel is appropriate.
I hope this helps you graduate to being a landlord!
Splitwise
¹ or possibly the follow-up email we had
If you have a fairness or money etiquette question you’d like Splitwise to address anonymously for you, email Dear Splitwise at ask@splitwise.com.
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