Source: Flatmates.com.au, Australian Bureau of Statistics, Finder
Room rent calculated as a weighted average by taking into account weekly rent and population of different regions.
But is it as straightforward as it sounds?
What home owners should know
Renting out a room can quickly net a home owner a substantial sum.
But while it might help owners pay off a mortgage when they have one – the promise of extra cash from the spare room won’t be considered extra income by the bank when they’re looking to buy in the first place.
As a result those whose income is less than necessary for their dream home won’t be able to point to rental income to get them across the line, Dream Financial mortgage broker Paul Bevan said.
And for those who want to use the income from a rented room to take on an additional loan will also face difficulties.
“There’s only one specialist lender that will consider this type of income and it’s limited to $100 a week and the owner would need to show a lease agreement and that the rental income has been declared in their tax return,” Mr Bevan said.
The additional income would also have an impact when it comes to tax time, and potentially when selling the home, which should be considered before leasing a room.
The income from the spare room has to be declared to the ATO at the end of financial year, and therefore it could be taxable, VJR & Associates and Keshab Chartered Accountants accountant Jeremy Iannuzzelli said.
“It is also an implication for the capital gains tax status of your home,” Mr Iannuzzelli said.
Usually, your home is exempt from capital gains tax – but if you use it to earn income then this may no longer be the case.
In many situations, capital gains tax could be charged pro-rata based on the proportion of the property that was rented, he said.
For instance, if 10 per cent of the property was rented for the entire time you owned your home – then tax may be charged on 10 per cent of the capital gains. The ATO has a tool for working this out.
And, alike to an investment property, the home owner can claim pro rata tax deductions based on the percentage of the space available for rent.
“This would be the same if you rented out a granny flat,” he said.
Renting out a spare room to a tenant isn’t the only way to cash in on unused rooms in the house.
Spare bedrooms, attics, sheds, driveways and storage cages could also be rented out to those looking for storage options, Spacer chief executive Mike Rosenbaum said.
In urban areas, this could net between $250 and $350 a month – without having someone live in the property, which Mr Rosenbaum said would suit empty nesters and retirees.
“Families are also renting out storage cages and garages to help pay for bills, and city professionals who tend to catch Uber instead of driving a car, rent out their spare parking space for extra cash,” he said.
For those renting out a room for any purpose, it’s also crucial to consider insurance policies that cover this activity.
What renters should know
For those who choose to rent a room in someone’s home, there may be some difficulty determining whether they would be legally considered a lodger or a tenant, Tenants Union of NSW senior policy officer Ned Cutcher said.
This definition has a significant impact on the rights of the renter, including notice periods and how bonds are kept.
“The old common law test of ‘exclusive possession’ doesn’t apply to tenancy agreements as defined in the Residential Tenancies Act, but boarders and lodgers are expressly excluded from the Act’s coverage,” he said.
The new test – known as “mastery of premises” – relates to whether the landlord reserves the right to access the room. In this situation, in NSW the tenant is not protected under the Tenancies Act.
In most cases, a renter is most likely considered a tenant if they can lock the room, do not get meals or linen as part of the agreement, have their own cooking facilities and are not subject to “house rules”.
In most other states, including Queensland, Victoria and Western Australia, the specific Tenancy Act does not apply to boarders and lodgers.