Wednesday, October 20, 2010

Make Money At Home! (No, Really!)

The Internet is full of ads enjoining you to " make money at home!"  But they are all cons, without exception.  There is one way to make money at home - and that is to rent out part of it, or part of the time!

As I noted in a previous post, owning a house - even one free and clear - can cost you several thousand dollars a year in property taxes, insurance, and other costs.  One way to recoup some of these costs is to rent out a portion of your home - or rent it out seasonally - to make money.

At first, most people cringe at this thought.  "This is MY HOME!  These are MY THINGS!  I don't want some STRANGER in my HOME!" 

And again, the owning of "Things" turns out to be an expensive waste.  In order to preserve your precious $500 Hummel collection, you forgo $5000 in rental income.  Sure, that makes sense.  Learn to "let go" of things in your life, as they will weigh you down and eventually kill you.

Many people have rented a part of their home and made money, and there are multiple ways of doing it.  Consult with your tax adviser about using a depreciation deduction to get a tax break, as well as other deductible expenses and tax consequences.  And talk to your insurance agent to see if it will raise your insurance rates very much.  And make sure you are not violating zoning laws as well!  Presume you can clear those hurdles, here are some scenarios to really "Make Money At Home!"

Example #1 - They Rented Out My Room!

When I went away to college, the large suite of rooms over our garage where my brother and I lived was now vacant.  It had a separate entrance and room for a small kitchenette.  My Dad and I sealed off the apartment from the rest of the house with a lockable door and he had a local carpenter build a small kitchenette.

They rented this out for several hundred dollars a month - more than enough to pay the property taxes, the excess utilities, and also the added insurance.  It saved them thousands of dollars a year.  And since the tenant had a separate entrance, they really never saw him very much at all.  The only question is, of course, why they didn't do it earlier?

When they traveled, they did have the peace of mind in knowing that someone was "at the house" to make sure pipes did not freeze or anything.  So it actually was a bonus to have someone around.

If you are an "empty nester" then downsizing to a smaller, less expensive home might be a good idea.  But if you want to keep your existing home, think about whether an "in-law apartment" can be carved out of the space, without too much difficulty.  It could add a lot of money to your bottom line.

Example #2 - Peak Season

Edna and Bill own a house in a resort area.  They love it, except in peak season.  At that time, the place is crowded with tourists, and its hot!  Edna and Bill don't understand why all the tourists like it on the days when it is least desirable.

They took some time to make their house a little less personalized (they took down the wall of baby pictures and put up a picture of a sailboat they bought at Michael's) and installed a dead-bolt lock on one closet to store things they wanted to leave behind.  The house was ready for seasonal rental!

They put an ad in - the Vacation Rental By Owner site - and were able to get a nice Canadian couple to rent the place for two weeks during peak season, while Edna and Bill went off to visit relatives.  Under the IRS code, that rental might not even be reportable income! (consult your tax advisor).

UPDATE:  Since I wrote this, AirBnb (Expedia owns both AirBnb and VRBO) has become popular for overnight and weekend guests.  We actually rented someone's boat this way.   It was fun.  Be sure though, you don't annoy your neighbors with raucous partiers who take over your house and have a hootenanny.

One year, they decided to take an extended vacation overseas, and were able to rent the place for a month and a half - which not only covered their taxes for the year, but their airfare and part of their vacation as well!

Part-time rental, as well as renting out part, are both ways to make money from your home.

Example #3 - Special Events

Sara and Joe live near a college town.  During parent's weekend and during graduation week, people are desperate for places to stay!  Many families like to rent out a house and have their whole family with them for graduation.  Sara and Joe usually like to be out of town those weeks.

They rent out their home, using leads from the School's Alumni and Student Housing offices (as well as an ad in the campus paper) for those two weeks of the year - and charge thousands of dollars.  Again, this could be tax-free income, and it more than covers their property taxes.

Jim and Sam have a nice house near a golf course and do the same thing when the PGA "tour" comes into town.  They get out of town to avoid the madness and make over $5000 in the process.

Example #4 - Storage

Alma is a divorced mother of two, and needs to scrimp and save to make ends meet.  She rents out her two car garage to a local car collector who needs a place to store his classic hot rods during the winter and when he isn't using them.  He has a key to the garage, and she parks her car in the driveway.  The few hundred dollars a month he pays is enough to cover most of her grocery bill.

Example #5 - Roommate

Ed has a big house he bought once he started making good money.  But he wants to buy a newer car now, and is finding it hard to save with the big mortgage payment.  He lives near a big city, on a commuter line.  He puts an ad up at work and is able to find temporary roommates who have transferred to the city, looking for temporary housing.  They pay well, and since they stay for only a few months (until they can find housing of their own) he can live with them, even if they have annoying habits.

UPDATE:  Example #6 - House Swapping

Joe and Enda are retired and want to travel.  It is sure expensive, though!  On a house-swapping site, they find a French couple who want to "swap" houses with them.  The French couple flies to Florida and spends a month in Joe and Edna's condo in Ft. Lauderdale.  Joe and Edna has a month in Paris!

Pretty sweet deal.  Some people even swap cars, but that makes me nervous from an insurance point of view.  Of course, you may run afoul of your condo rules or zoning, so check this out carefully.  Some argue that since money doesn't change hands, it isn't "renting" but I am skeptical of this defense.

And again, you have to depersonalize your house somewhat, or at least should.  I rented a vacation home in Sitges (near Barcelona on the Mediterranean) and it was a lot of fun.  The owner even left the condiments in the refrigerator, which was kind of funny.

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These are just some ideas. Not all may work for you, depending on the nature of your home and how it is configured.


You have to be very businesslike about this as well!  Being a landlord is no easy task, and no place for the soft-hearted or soft-headed.   But check your local laws, though.  A lot of what applies to commercial landlords may not apply to a homeowner renting out part of their home.  The law recognizes that a homeowner has a right to toss out bad tenants on short notice, particularly roommates. It may work in your favor!

But you have to pick tenants carefully (again, you may have more flexibility here than a regular landlord).  Renting out your spare room to a 21-year-old pothead is going to be nothing but a nightmare, as he plays his VanHalen records all night long, never pays rents and accuses you of "harassing" him.  Finding the right tenants is key, and if in your market, there are no strong draws (jobs, colleges, resort area, etc.) then you will likely be stuck with bad tenants.  Be careful and be proactive!


In looking back at our Vacation Home experience, we realize now that we could have covered our expenses merely by making the bottom level (the walk-out basement that is my office) into a full-time apartment or an apartment for a local college student (we are 4 miles from a college).  We also could have rented out the house for graduation and homecoming weekends and made more money.  And during the local pottery barn sale, we could have rented the whole place out for a lot of money as well.  We had an apartment in the barn that could have been rented out to a full-time resident or a seasonal college student.  And we could have rented out the rest of the house in the winter to one or more college students with no difficulty.

Depending on which technique or techniques we used, we could have paid our taxes, covered all our costs, or even made a profit.  And we could have depreciated the property as a tax write-off and possibly deducted the loss when we sold on our taxes as well.

Instead, we paid a lot of money to own empty rooms that sat vacant for more than half the year.  Not very bright!

We made a LOT of money in Real Estate by flogging it - renting it out, keeping it rented, and not letting it sit vacant.  We sold out of that market in the nick of time and put the money into the Vacation Home.  It was not a bad ride, but we probably would not be selling it right now, if we had properly utilized the space.

When we had our Vacation Condos in Florida, we rented the snot out of them.  If we weren't there for a week, someone else was, and as a result, they cost nothing to own and provided a nice tax deduction!  If we let them sit vacant, they would have been an albatross around our necks!

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If you have empty space in your home, make money from it.  If you can't or don't want to, and are struggling with debts, then ask yourself why you are paying taxes, utilities, insurance, and a mortgage on an empty room.  It makes no sense.  Use the space or downsize.

And no, filling up an empty room with junk is not "using" it.  That's just hoarding disorder!