Have you considered generating rental income? What if someone else could help make your mortgage payment while you earn all the equity? Many homeowners rely on others to handle the heavy lifting through various rental strategies. Here’s what you can do.
How can rental income help pay your mortgage?
One method is to rent out part of your home and use the rental income to supplement your mortgage payments. Here’s how:
- Today, a very popular option is to offer guest bedrooms for Airbnb rentals. You, of course, sleep in the primary suite, while your other two or three bedrooms host Airbnb guests.
- You can go the long-term rental route and lease out a bedroom to a family member or even a close friend.
- Instead of a single-family home, purchase a duplex or even a quadplex, then rent out the other units, whether to long-term renters or on a short-term basis via Airbnb.
- Buy a house you intend to stay in only part of the year, and list it on VRBO as a vacation rental for the rest of the year.
Short-term rentals, such as Airbnb, can generate higher rental income than long-term rentals, with higher daily rates, provided you can maintain high occupancy in your bedrooms. Short-term rentals entail more work and management, including washing linens, cleaning, and restocking amenities between guests. Still, if you don’t mind the extra responsibility, you can earn good money this way.
Do your homework
If you think you’d be willing to go the rental route, do some due diligence.
First, crunch the numbers to see what your budget allows you to buy in a home without rental income support. How much house can you afford in purchase price, monthly principal and interest payments, plus property taxes and insurance? Stay within a budget you can afford, excluding rental income assistance.
Then check Airbnb to see what comparable homes are renting for in your area and how much income they generate.
Calculate how much income that could bring in each month, and apply that against your mortgage payment in your calculations.
Don’t assume you’ll rent your bedrooms out every night. Use a conservative figure, such as renting for half the nights in a month, to estimate income potential.
Other important considerations
If you live in a neighborhood with a homeowners’ association, read your covenants, restrictions, and bylaws. Your HOA may not permit short-term rentals. Flouting that rule could lead to stiff penalties.
Research local and federal tax laws. Some cities impose a form of hotel-motel tax on short-term home rentals, which adds some bureaucracy to your efforts and cuts into your profits.
Likewise, you should study up on the federal income tax rules for renting out part of your home. There are specific rules governing how much of the year you rent and the percentage of your space used when calculating taxes owed.
Related – Are You Being Watched? How to Spot Hidden Cameras in Vacation Rentals
