Hate Your House Payment? Here’s How One Man Used Creativity to Get Others to Pay His Mortgage – And the Result Changed His Life Forever

by | BiggerPockets.com

The following is a guest post from Mike from RentingOutRooms.com. In this post, Mike shares with us the strategy he used to pay his way through college using creative real estate investing. While this path may not fit for everyone, it’s another tool to add to your investor toolbox that may come in handy for you or a friend/family member in the future. Don’t forget to leave a comment below the post and share this on your Facebook wall!

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Renting Out Rooms to Create Unlimited Possibilities

I didn’t have the intention of renting out rooms when I first bought my house.

I simply bought it because I thought it would be a better alternative to renting.  The idea of renting out a room first materialized when I decided to attend graduate school and was faced with the choice of taking on additional student debt or trying to make more money to pay for tuition.

Because I already had a decent chunk from my undergraduate studies, taking out more loans was at way in the back of my head.  Although, it would have been the easiest (just simply sign a bunch of papers), but in the long run it would have been the more expensive option.

The Extra Room

I was living by myself in a two-bedroom house.  Needless the say, the other room wasn’t being utilized. With an extra room going empty, I thought about the prospect of renting it out to a roommate to make more money.

After sleeping on it for a few days, the decision boiled down to either: get a roommate and make more money or take on student loan debt and dig myself out.

The decision was simple. I needed to get a roommate.

I first thought about having a friend rent a room from me, but then I thought about all the things that could go wrong.  Arguments over money and having mutual friends pick sides if an argument ever arose.  So I quickly abandoned the idea.

Off to the Internet

I felt nervous posting an advertisement for a room to rent because of the unknowns involved.  I’ve known about Craigslist and other roommate subscription sites so I posted an advertisement looking for a roommate.

It took a week or so to find a roommate, which was much faster than I anticipated.

Skeptical At First

Despite meeting my roommate prior to move in, it felt like freshman year over again on move-in day for my roommate.  I didn’t know what to expect with the new roommate. Were we going to get along? Was he going to be messy or even worse be melodramatic?

I think it was seeing his personal belongings and his awful body odor that made me really contemplate whether it was the right move.  After a few weeks, I became accustomed to his schedule and knew what to expect sharing my house with him.

Fast-forward 10 months.

Things were working out. We were getting along for the most part, even watching TV shows together like the “The Office.” Most importantly, he paid rent on-time and in-full, which was instrumental for attending graduate school.

I think at this point, it was working well enough to call it a success – things were going smoothly, and the house wasn’t trashed.   At this point, I decided to renovate the basement so that I can move down there and rent out the bedroom I was residing in.  This allowed me to take home twice the bacon and pay for two graduate classes and accelerate my pace towards graduation.

The Renovation

The renovation took a few months and about $3,500 to finish.  Most it was material to finish the sheet rock, electrical work for heating, ceiling, and carpet.

I had no money to renovate my basement, however, I did have great credit and was able to secure a 12 months 0% credit card to finance the renovation project.  Most folks would be apprehensive about taking on this risk in hopes to make future rental income.

Two things compelled me to take this risk:

I was able to find a roommate much faster than I anticipated when I rented out my first room giving me confidence that was demand for room rentals in my town.

I was going to charge $600 a month and my payback period would be about 6 months before I can turn a profit. Given the 12–months term at the 0% rate, I had a buffer of several months before I would be in crunch between finding a roommate and paying off the credit card.

Almost immediately after finishing the basement, I again found a roommate within a week.  With the two rooms rented out, I was able to pay for graduate school and start paying back the 0% credit card.

After Graduation

I continued to rent out the rooms because it proved too lucrative to pass up the income.  My current living situation still allowed me to do so(I wasn’t married nor had children living with me).

Instead of using the money for graduate school, I used it to accelerate my mortgage payments.   With the accelerated payments, I was able to refinance to a 15-year, 3.3% mortgage, which I wasn’t able to do before since I was underwater on my mortgage.

Right now, I’m doing pretty well without a penny in loans from graduate school and a mortgage that’s right side up.   I really believe that I have a lot of options moving forward including buying a rental property with the equity I’ll have in my current house.  At the current moment, I plan to take a little time off from working to do a little traveling and enjoy life.

Key Take Aways

My situation won’t be identical to others, but I want to share some thoughts so that you can apply them to your situation.

  • After having 13 roommates cycles in and out of my two spare rooms, I got more comfortable with each new roommate moving in.  The first step to building this comfort is to simply start.  A lot of homeowners are apprehensive, which leads me on to the next takeaway.
  • For anyone starting out and feels apprehensive, set a fixed term such as 3 months so that you’ll know you’re going to get your space back at the end of the term no matter how bad the situation is. From the experience, you can judge how you’ll cope with sharing your house and whether it’s your “cup of tea.”
  • In my case, I didn’t set a finite period for my first roommate. Remember, I wanted to pay for graduate school – I wasn’t just going for a trial roommate period, I needed someone long term so that I can pay tuition while I attend classes.
  • Don’t get discouraged if you don’t find a roommate within a week. I think I got lucky when I found suitable roommates within a week.  Out of the 13 roommates that I’ve had, it took as much as a month to find a roommate.
  • If you’re single and have a house that’s bigger than what you need, start renting out a room shortly after you close.  I’m kicking myself for the opportunity cost of waiting 10 months before starting to rent out my spare room.   The extra money will be instrumental to setting up your personal finance goals.

Do you have any questions or comments? Be sure to leave a comment below!

Mike is a “live-in landlord” who rents out individual rooms for extra cash. He was motived to rent out his spare room to pay for graduate school rather than taking on additional debt. With the lack of advice to help him get started, he started a blog at rentingoutrooms.com where he writes about the topic so that others can benefit from his experience.

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  1. We are renting out a room starting soon. Our renter works nights and I work at home during the day. So, I’m hoping that this will work well!

    My sister recently purchased a home, 6 bedrooms (one is a master suite), 3 baths, and is renting out 5 of them. They are able to make their mortgage with the rental income.

    Do you depreciate your rooms on your taxes? Expense the utilities?

    • Everyone should report all income, but not everyone does. Look at a boyfriend/girlfriend couple who lives together in a house that’s owns by one of them. The other half is paying the other rent money, but I can tell you almost no one in that situation reports that income because they claim their sharing expenses. I guess it depends on your situation specifically, but in short all income must be reported.

    • Your sister should be declaring the income, BUT she gets to deduct @ 5/6 expenses (including property taxes!) and take depreciation (5/6 of the value of the STRUCTURE divided by 27.5).

      Hint — do a background check with MySmartMove, RentTec or similar — multiple bankruptcies or credit card write-offs indicate someone who can’t manage money, and no matter how cheap the rent they are liable to mis-manage again. Doesn’t mean turn them down, but means “be cautious”, and watch out for signs of financial distress, and make sure that you discuss your expectations (rent is due on the first, even if it means they get to eat Ramen for a week).

  2. Great article! When I was rehabbing one property, I rented out my living room for $600 a month (Im in the DC area, you can do that). I had 3 roommates over 3 years, and was able to save a ton. (I sectioned the living room with an 8ft wide armoire and some curtains – not chic, but it worked for the students and myself). Big fan, thanks for advancing this! Hope to hear more about your adventures 🙂

  3. Mike,
    Like you, I enjoyed having all of my space to myself, i.e. 3 bedroom house with double garage. The area where I live is densely populated near everything everyone wants to be near. Like you, one day I thought to myself, why am I not “utilizing” all of my empty space? So, I started with my garage, renting out a space to a guy who parks his sports car there over the winter. Summer rolls around and I have my garage back to do odd jobs etc. This past summer I thought what the heck, maybe I should rent out a room. I live near a university, so I advertised on Craigslist looking for visiting professors and also people on work contracts. I wanted people without a lot of personal belongings (room is fully furnished and my stuff takes up the rest of the house) who were really looking to live in a nice neighborhood within bicycling distance from the university or for those guys on a work contract, a substitute for a hotel. They get a “per diem” and a room in a house is a lot cheaper than paying for a hotel, so they can pocket the rest.

    Since then I have “gotten used to” sharing my space with a stranger for the most part. It is short term, i.e. less than 6 months and from November through the end of February, I do not rent out any rooms, so that I can have my house all to myself over the holidays.

  4. Love the Article! This is 1 of the solutions I use to give my past clients in California who were facing foreclosure. Most of them had large homes that were perfect for renting rooms. I just told them to find someone who you feel you can get along with and SCREEN THEM! Check their financials and credit. It has been my experience that this will sold half your problems. You want to know who you are renting too. I also encouraged for some of them to use the spaces they weren’t using as a storage. 1 house in particular was zoned for RV’s. Many people out there are unemployed and yet have huge houses with storage space. Rent it out! and get some extra money coming into your bank account.

  5. Andrea Shields on

    Great story! 10+ years ago while living upstate New York, I had brought my first home and shortly thereafter (within a year) lost my spouse and then my job, right after 911. My home was a mother/daughter upstairs/downstairs home, 3 bedroom and living dining kitchen downstairs/same upstairs. This was my first time renting. A friend who lived in NY city guided me and I was able to, for 3 years, rent my lower level as furnished rooms. I charged $125 per week as the people that rented were either contracted workers, I had one guy who worked for the post office who was going through a divorce etc, nurses as I was down the street from a hospital. This continued until 2005 when I decided to move to Florida, informed my tenants and was able to sell the home to someone looking for an investment property and was willing to take the tenants.

  6. Brittany DeWitt on

    My boyfriend and I purchased a duplex last June and realized by leasing one side to tenants and living in the other side with an additional roommate ($400/mo) that we could accelerate our move into a second property by saving the extra income every month from our roommate. This strategy has worked very well for us ,and I think is ideal for recent college grads and graduate students (which we also are) . It was a little scary at first to lose some of our privacy but has been worth it. Thanks!

    • Most people who buy duplexes are investors and their intent is to live in one side and rent out the other so the tenant can make their mortgage payment. Are you saying you bought a duplex and then later it occurred to you to rent out the other side or initially you hadn’t planned on it?? I don’t think your situation is apples to apples with what Mike is talking about here (renting out a room in your house). But glad it’s working out for you.

  7. I’ve had my 2 bedroom condo for 12 years and for most of the time I’ve had roommates. It takes the sting out of the mortgage payment and during long periods of unemployment, it kept me from losing it.

      • I live in a 5 person all roommate household.
        The system we have found works THE BEST is that we set a specific amount of time per person (1/2 hr per week, though that might be a bit short), and people can do whatever they want that is bugging them. Dirty floor bothering you? Mop it! Prefer to vacuum? Go ahead!
        If someone doesn’t do chores they can “cash out” at $15/hr,put into the kitty, and anyone else who wants to earn money can do extra chores to earn money from the kitty at $15/hr (IF there is money – otherwise they are just “ahead” and don’t have to do chores for awhile). Occasionally a house meeting may be needed to agree to guidelines — in our house the bathrooms don’t count (responsibility of those using them), but all other common indoor space does.

  8. My wife and I (and 2 small kids) have a 5 bedroom home. Recently, my wife’s younger brother needed a place to stay for a couple of months. So, we rented him a room in our basement (with it’s own bathroom) for pretty cheap. We did it more as a favor to him while he gets his situation figured out, but it turned out to be a huge benefit to us because it gives us a little extra income each month and he’s been really good about babysitting the kids for us when we want to go out or have errands to run. Plus, he’s in the basement and we are upstairs. So, I don’t feel like our privacy has been affected much. He’s moving out now and I’m actually a little disappointed about him not being there anymore.

  9. I guess I’ll have to throw in my story now! I purchased my 4 bed 1 1/2 bath house in December 2009. From December to early spring I renovated it to get some things updated including getting the floors refinished, a complete gut of the full bathroom, painting 75% of the house and updating lighting fixtures throughout. My original intention was to actually flip the house (I purchased with $30,000 equity in the house and there was only about $12,000 of reno’s that would have increased the value another $10,000) but unfortunately, the only way for me to get in was to an FHA mortgage which requires a minimum of 1 year ownership unless there is an extenuating circumstance. After I finished up the renovations, I decided to rent out one of my rooms to make some extra cash during the holding period and offset the holding costs. Within two weeks of advertising (also on Craigslist), I had a new roommate. I made sure to explain that I reserved the right to rent out additional spaces and that it would not affect the amount of rent that person paid. The amount they paid was for their personal space, not shared space. After a few weeks, I decided to look for another roommate which, again, was successful quickly. Finally, I rented out the last room another month later after everyone was settled.

    At one point, I had 4 other roommates and was receiving an additonal $1450 a month just to share my house (this included all utilities, internet/cable, etc.). I was very addicted and whenever someone left, I wanted to fill up the vacant space again. To be fair, two of the roommates had off hours at the time (one worked overnights and one worked evening shifts at a hospital) so it didn’t feel as cramped as it might sound. The extra money I earned went towards a duplex I purchased in 2011. I am planning to purchase again early this year and look to continue doing the same for the next few years.

    Though I am still renting out one of the rooms (this guy has been with me for 3 years now!), I have cut back. Now that I read this article, I’m wondering how soon I can get a new post up for the open spaces!

    This definitely does take a certain personality to be able to live with strangers by choice. One of my friends did the same, but struggled becuase they were OCD and the stress from someone that did not have the same lifestyle was not worth the extra cash to them.

    Best of luck and if anyone has questions, I’ll do my best to answer them from my situation/perspective.

  10. When the market crashed we decided to move from the town where we had lived for most of our lives (in far northern California), to southern California. Our house is 4600 sq. ft. with a 2100 sq. ft guest house, on 20 acres with a big pool. There’s a ministry school close by that draws students from around the world.

    I placed an ad for house managers, that lived in the guest house, and rented out bedrooms in the main house to 14 girls. It worked great. However; after one year we decided to rent to a couple of families. The lease comes up in May, and I’m trying to figure out what I want to do next.

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