Wednesday, February 25, 2009

Renting a room for a fast buck? Think twice

Renting can get risky.
Financially strapped homeowners are renting out rooms in their homes and condos to help pay for the mortgage. But they may be violating local law and community rules and have some coverage gaps in homeowners insurance that could lead to bigger financial hardships.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - If hard times has you renting out that empty room for some fast cash, you could be opening the door to a lot more cost, not less.

The Insurance Information Network of California (IINC) says financially strapped homeowners renting out rooms to help pay the mortgage or other costs may be overlooking key issues that could lead to greater financial hardship.

Community, rental rules

Like opportunistic homeowners renting space to visitors in town for special events or even like charitable homeowners housing temporary disaster victims down on their luck, struggling homeowners looking for a fast buck should check for community, legal and insurance repercussions.

Renters who sublet, owners who live in communities governed by homeowners associations, zoning violators and others living under certain community rules or regulations could lose their home through either eviction or foreclosure if they violate terms of the contract, community edicts or local law.

That's also true in some single-family detached housing communities.

Tenant from hell.

Homeowner's insurance, taxes

When it comes to homeowners insurance, the rental of rooms may be considered a business. However, limits could be placed on insurance coverage, including coverage for contents, personal liability, medical payments and identity fraud.

Policy add-ons or endorsements similar to those offered for home-based businesses are available to help cover a homeowner's assets in case of a landlord-tenant dispute or suit.

When part of a home becomes a business certain tax laws could be triggered. For example to help foot the bill for the

"Housing and Economic Recovery Act of 2008" the act eliminates a capital gains exclusion for the portion of gain (during a sale) that comes while a home serves as a vacation or rental property.

"The last thing struggling homeowners need are more ways to lose money," said Candysse Miller, IINC executive director.

She says homeowners should carefully review their insurance policies with their agent or company before taking on renters. Likewise, they should know the local rules and not try to surreptitiously circumvent them.

Upstairs neighbor from hell.

Renting concerns

Renters should also be aware that the landlord’s policy may not cover their possessions or provide liability protection in case they are sued.

On the other hand there's always the possibility of the tenant from hell who wreaks havoc and then falls back on legal renters' rights law to over stay their welcome.

Instead of jumping at the prospect of a windfall, first-time landlords should spend ample time researching city and state landlord/tenant laws, tax rules and other related information.

A detailed background check on the prospective tenant can help identify any potential problems that may arise during the tenancy.

Many cities and municipalities as well as apartment and landlord associations also offer landlord/tenant services departments to help with questions and to avert disputes.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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patti wilson said...

I disagree with the basic premises stated. Insurance of course it good and correct to do. But zoning laws are archaic and wrong. A dwelling zoned single famly means a gay couple cannot legally liver there. This zoning was created for different times and a different America. I'd be happy to challenge any zoning law and think I'd win showing how bigoted and discriminating they are.

Deadline Newsroom said...

Perhaps, but until that legal challenge is upheld, a zoning law is still law. I doubt someone renting a room would want to get into a costly legal battle with the local jurisdiction just to make a few bucks. And some zoning laws simply say you can't rent a room without being licensed or otherwise permitted to operate a business enterprise. Lots of second, home vacation home markets are facing this zoning dilemma.

See: Hawaii Vacation Homeowner Squeeze Exands

Deadline Newsroom said...

Also federal fair housing laws supersede zoning ordinances that discriminate. However, zoning typically pertains to land use, the type dwelling or business or use of the property, including, perhaps, how many people live there or capacity issues, but now who lives there or who uses the property. Correct me if I'm wrong.