I’m so excited to announce that today I will be guest posting over at Taylor’s blog, Engineer Cents. Since Taylor recently purchased a condo, I’m sticking with the theme and sharing my thoughts on how to determine rent for a roommate when you own your home. I hope you’ll take a look and let me know what you think!
Here is a copy of the article:
Rent: How Much Should You Charge a Roommate?
I have always had roommates. In fact, now that I think about, I have never in my life lived alone. That’s kinda strange. I always liked the idea of living alone, but I guess it was just never in the financial cards for me.
Anyhow, for all my years of apartment living, both in college and when I moved out of my parents’ house after graduation, it was easy to split up rent amongst the roommates. A landlord set the price of the whole apartment based on market rates, and we split it. Sometimes there was an even split when the living situations were all fairly equal. Sometimes one person would pay more than another for a private bathroom, a larger bedroom or a dedicated parking space. In any case, there was always a determined number that we had to get to and a fair, agreed upon way to reach it.
Condo living with a roommate
When I purchased my condo, I knew that I would have a roommate. After all, that is one of the ways I was able to afford to buy a condo in the first place. I didn’t have any friends looking for a place to live, so I looked to the wild world of Craigslist (where I’ve always had great luck finding roommates). But before I could begin the roommate search, I had to determine the rent.
This sounds like a simple proposition, and maybe I overthought it, but I spent a lot of time trying to figure out the appropriate amount of rent to charge my theoretical future roommate. On the one hand, I didn’t want to leave money on the table by charging less than the market would command for my apartment. On the other hand, I didn’t want to charge too much and have my roommate come to resent me. It was a tricky balance.
I was planning to essentially rent out half of the condo. My condo has two bedrooms which are nearly identical. Both have two large windows, a large closet, and fit a queen sized bed. All other spaces in the condo would be shared – the living room, kitchen, bathroom, hall closets, laundry, etc. I had largely furnished the apartment already, but the bedroom was empty and I was open to adding new furniture or replacing certain pieces if a potential roommate wanted to. For all intents and purposes, I thought of everything as a 50/50 split between me and my roommate.
How your actual expenses factor in
My first step was to give some thought to how my actual monthly expenses should factor in. After all, I had to pay my mortgage, condo fees, insurance, etc., and my roommate should be contributing towards all of that. However, because the rental market in Cambridge is insane, simply adding up all of my regular, recurring expenses and diving by two would yield a rent substantially below market rate. That would also leave out a buffer for those unforeseen expenses (a broken appliance, storm damage, etc.) that a renter doesn’t have to deal with but I, as landlord, sure would.
Ultimately, I decided that my actual expenses really shouldn’t factor in to the calculation of rent. If I had paid for the condo in cash (I wish!), then my expenses would be incredibly low. Does that mean that my roommate deserves to live there for next to nothing? On the flip side, in some markets a monthly mortgage payment might be substantially higher than rent. Do you think you’ll be able to convince a roommate to pay more than market rate because that is a fair split of the expenses? These are the two extremes, but clearly the answer in both cases is no.
Market rate, less a little for good luck
After thinking through all of these scenarios, I decided that using market rate was the most fair and accurate way to determine rent. I did a lot of online research to see what similar apartments in my area were renting for. I then subtracted a little off the top to make the apartment more attractive. After all, I wasn’t just looking for a roommate; I was looking for someone I could enjoy living with.
I also wanted someone who would feel invested in the condo and would want to help take care of it as if it was their own. I figured that if my roommate felt that they were getting a good deal they would be more inclined to treat me and the apartment well. (I’ll have to ask my roommate if this theory really worked. We did become great friends and are still close now that we no longer live together.)
Have you ever rented out a room in your home? How did you determine what to charge for rent?