Taking in a boarder or lodger is a great way for home owners to make some extra cash, but do your homework before opening up your home.

Just boarding
If you have a spare room in your home and you’re keen to make a few extra dollars, why not take in a boarder or lodger? This additional income could help offset your mortgage or perhaps provide additional disposable income. But like all investment strategies, taking in a lodger or boarder is not a simple process – you need to understand the personal and financial implications.

Who are they?
Boarders and lodgers live in premises where the landlord keeps control of those premises. You qualify as a boarder or lodger as opposed to a tenant if you rent a room or part of a house and you aren’t legally the tenant – you probably share a bathroom, kitchen and or living areas with the landlord. If you’re considered a lodger or boarder you do not have the same legal rights as a tenant.

Friend or stranger?
Should you rent your room to a friend or would a stranger be more suitable? It’s personal choice, but consider it carefully. A friend may not make an ideal lodger or boarder – you don’t want to lose a good friend over a rental dispute or argument over who’s turn it is to wash up. Some home owners prefer to live with a stranger as there is little pressure to socialise with their lodger and both can enjoy a higher level of privacy.

Interview time
Take your time searching for and selecting the right person to share your home. Conduct a thorough interview, ask the tough questions and be up-front about your expectations. Who will pay for what? Will you share food costs? Will you cook your own meals? What are the house rules? When should the rent be paid? Will they contribute to utility bills? What about visitors and noise? Make sure you know the answers to these questions before choosing a boarder.

RTA protection
In Queensland, people who rent housing are covered by the Residential Tenancies Act 1994. This act sets out the rights and responsibilities of tenants and lessors. However, while the act applies to all residential tenants, some parts of it are different for some types of tenants. The act does not apply to boarders and lodgers (except for the section about rental bonds). Bonds for boarders and lodgers must be lodged with the Residential Tenancies Authority. Find out more at www.rta.qld.gov.au.

The paper trail
Because the Residential Tenancies Act doesn’t cover lodgers and boarders, it’s best to get a legal agreement outlining the rights and responsibilities of the lessor and lodger. This agreement should stipulate things like rent, payment frequency, inclusions and exclusions, behaviour expectations, eviction and intention to leave notice periods. You should provide a receipt when your lodger pays the rent and you’ll need proof of this income at tax time.

Tax time
If you do rent out a room in your home, you may be entitled to claim a proportion of expenses relating to the space used to earn this income. How much you can claim is worked out on a variety of things such as the floor space being rented out – how much space your lodger occupies. For a lodger, you have to be able to convince the tax office that any money you receive is going towards household expense – otherwise it will be classified as rental income. This means you may lose a portion of your capital gains tax exemption as you’ll be seen to be running a business from your home. Seek professional advice.

Short stays
A handy little earner is attracting short-term lodgers to rent your spare room. Students or visitors from overseas generally fit the bill. Speak with the university – it might have a student accommodation program in place.

Rental rules
The above rules apply only if you’re the owner of the house. If you’re a tenant and you’re looking to rent out a room, you’ll need to obtain approval from the landlord. If you get this approval and agree that the new resident has ‘exclusive possession’ of all or part of the house, they are a sub-tenant. If the tenant has obtained the landlord’s approval and the new resident is staying in a room and paying rent to the tenant, but does not have ‘exclusive possession’ of any part of the house, they are a lodger.