Your guide to renting out a room

If you’re going to open your home to another person, you’ll want to make sure they’re trustworthy and won’t default on their rent. It will pay to check over their previous rental ledger to track regular rental payments (if previously rented a property). It’s a good idea to interview them in person. You may also want to call their references for a background check. If you’re going to open your home to a boarder, you’ll want to make sure they’re trustworthy and won’t default on their rent. It’s imperative you interview them in person and check their credit history. You may also want to call their references for a background check and stalk their social media channels to get a feel of their personality.

Get your housemate or anyone renting out one of your rooms to sign a written agreement that outlines both parties’ obligations and any agreed terms for the duration of the arrangement. Depending on the State or Territory and the nature of the arrangement, there may be specific forms or template agreements that are available for you to use. For example, in Queensland the Residential Tenancy Authority encourages the use of a Rooming Accommodation Agreement (Form R18).¹

Under Form R18, the agreement must include:

• The room that can be occupied and what common areas can be used
• Start and end dates of the lease agreement (or state if it is periodic)
• House rules
• The rent and any other costs (e.g. food, personal care, or other services)
• How rent should be paid (e.g. direct deposit)
• Standard terms – what the resident and manager/provider can and cannot do
• Any special terms (e.g. if pets may be kept)
• If a bond (security deposit) is to be charged.

Co-tenants or sharehouses may instead have a written rental agreement with the landlord.

What your agreement needs to look like may vary depending on the nature of the relationship and which laws apply.

It’s important to understand your rights, obligations and responsibilities whether you’re a landlord with an investment property, a live-in owner letting out a room for a bit of extra cash or a co-tenant with a housemate. There can be penalties and unforeseen consequences if you don’t comply with all relevant requirements.

If you’re not sure where to begin, your state government’s website can give a rough guide to assist you with working out what type of rental arrangement best describes your situation and which rules will apply to you:

• New South Wales: Fair Trading NSW
• Queensland: Queensland Government
• Victoria: Consumer Affairs
• South Australia: Information and services for SA
• Western Australia: Commerce, WA
• Tasmania: Consumer, Building and Occupational Services
• Northern Territory: Consumer Affairs
• Australian Capital Territory: Justice and Community Safety Directorate

It’s best to lay down a few house rules with any new housemate before they move in to make sure there’s no ambiguity around what’s expected of all parties. Your house rules can also cover things like cleaning duties, chores, fridge space, use of common areas and rules for having guests over.

Does your home insurance cover you for damages or losses caused by tenants or subletting your rental property? Please refer to the lower section on landlords insurance. Check your policy’s Product Disclosure Statement (PDS) for inclusions and exclusions or call your insurer directly to check out what changes you need to make to maintain adequate coverage for your home and contents.

Do you know the time frames for the completion of repairs or maintenance after lodging a request with your landlord? Or the minimum notice for an inspection? It’s crucial you understand your legislated rights if you’re a tenant. Bear in mind though, these may not apply if you are renting only a room in someone’s home and not an entire property. Each state and territory will have its own governing body for rentals, where you can access things like tenancy information, dispute resolution and bond management services.

Set some criteria around what you’re looking for in a home; do you need to be close to public transport, or want a bedroom with an ensuite? Work out exactly what you want, not only in the property but also in the type of housemate with whom you want to live before you begin your property search. This will save you time by narrowing down your options.

Don’t bypass this crucial step in your search for new digs. You should ask to view any properties you may be interested in to make sure what’s being advertised online matches your expectation and that there are no red flags. If the person who’s advertising the listing denies your request for an inspection before agreement or payment, it could be a scam.

It can be hard to keep track of late rent payments or unpaid utility bills when living in a share house. To avoid any quarrels with your housemate(s) about who paid what and when, you should keep a record of all your transactions and receipts for rent, bills, bond or other deposits. That way, you can always prove you’ve made your due contribution.

Whether you live in shared accommodation or are renting a room from a friend, it’s important to protect your contents from loss or damage caused by events like fire, theft and storms.

If you live in a share house or flat, you can cover your own belongings with contents insurance. There may be a few conditions to be aware of, including:

• That you should be able to lock the door to your room
• That any belongings left elsewhere in your share house or that you take out with you may not be covered (unless you buy specific cover for this, known as personal effects insurance)

Before you consider turning your home into a share house or renting a room in one, you’ll want to make sure you have the right type of insurance to ensure the people and things under your roof are secure and covered.

A homeowner’s home and contents insurance policy generally won’t cover damage to your property or belongings caused by flatmates, a person you’re leasing a room to or anyone living at your residence who isn’t family.

If you’re making an income from renting out a part of your home, you may be considered a landlord for tax and insurance purposes. In that case, you may need landlord insurance to protect your property against loss or damage (whether accidental or deliberate) caused by tenants or housemates.

If you’re planning to open your home as a share house on sites like Airbnb or Stayz, you may need a specialised short-term home and contents insurance policy. It’s vital to check the policy PDS documents to read over what’s covered and excluded.

If you’re earning a rental income from a housemate or anyone living with you, you’ll need to declare it on your tax return under Item 21 (Rental Schedule).² While your rental income is taxable, you could claim some tax deductions for rental expenses like maintenance costs, council rates and more provided that you maintain all required records.

If you’re only renting out part of your home, you may only be entitled to claim the expenses associated with the part of your home that is being leased to another person. This means that you may have to divide up rental expenses based on the floor area solely occupied by your renter(s), with costs based on their access to common areas. Before you deduct these expenses from your tax return, you should consider seeking tax advice from a specialist to make sure you get it right.

Moreover, if you’ve used any part of your home to earn an income, you may not be fully exempt from capital gains tax (CGT) if you decided to sell your property. In most cases, you could be liable to pay some CGT based on the proportion of the property that was rented.²