Hey everybody!
I want to rent out my garage, to start gaining some rental income. It has a separate bathroom, shower, the plumbing and electric are up and running, It has a separate entrance too.

I don't have permits to use it as a bedroom. 

Am I suppose to get permits? what other legal related things do I need to do?

Am I obligated to let my home insurance know? 

Would appreciate any advice from you,
Thanks!

I would definitely get permits for the garage conversion and definitely let your insurance know what's happening. If you plan to run a business, it is best to do things the right (and legal) way from the beginning to decrease your liability in the event something goes awry.

next  Thread will be turning the dog house into a discount air bnb 

Check your city zoning rules. Some allow ADU's some don't. (Accessory dwelling units), and some specifically don't allow renting them for profit.

Search for "accessory building" also.

The issue is more likely to be creating another unit on your property. Start by calling your zoning/building department and ask if adding an ADU is allowed. Don't give hem your name if you want to stay off their radar. If your property is zoned to allow an ADU (and this is a big IF), then ask about regulations for short term rentals. Where I am, short term rentals in a spare room in your house require the owner getting a $25 business license, 7.5% sales tax, and the room can only be rented for 120 days a year or less. Failure to comply can result in a $12,000 fine (and they do enforce the rules, which are easy to enforce seeing as short term rentals are almost always advertised on a handful of websites that anyone can see including code enforcement agents). Definitely check out your local rules and regulations, and if there aren't any yet in your town regarding short term rentals, research whether or not there are any in the works as a lot of towns are adopting similar rules to my area. It would be a bummer to make that initial investment and then have new rules come out that negatively effect your situation, so it's almost better if your town already has rules in place, (at least that way you know what you're dealing with and can make a business plan based on the rules). And yes you should have the proper insurance as well. If you end up doing the work without a permit and get caught you could face hefty fines and have to undo all the work, or if you don't get caught it could cause issues when you sell.

yeah, cities have been scouring websites!

https://www.scpr.org/news/2015/05/18/51728/how-santa-monica-will-enforce-its-airbnb-ban/