How To Pay Off Your Mortgage by Renting Out Rooms

Written by Jason Michaels Last Updated: May 8, 2024

Renting out rooms in your home can drastically reduce the time it takes to pay off your mortgage loan. For example, let’s say you’re paying $633/month on a 4.5% loan with a balance of $100,000. You have 20 more years to go.

But if you rent out one bedroom at $500 per month and put that toward the loan, you’ll be free-and-clear in 9 years! You can use a payoff calculator to calculate various other scenarios.

Now imagine if you rent out two rooms or more. That’s what I did to pay off my first mortgage in just a few years. In fact, by the time I moved, the rent collected was more than double what I paid for the home! And this was before Airbnb.

What about Airbnb? Kelly Kampen made $41,879 through this popular platform, and if you’re up to the task of essentially running a hotel, it’s not a bad way to go. But you have to live in a tourist area (and it should be noted that Airbnb closed Kampen’s account without explanation).

What if you don’t live in a tourist hot spot, or you simply don’t want daily “hotel” work like cleaning rooms and sheets? You can still make good money from your extra bedroom(s). I’ll tell you how I did it, along with some things you might want to do differently. I’ll also give you some ideas on how to pay off a mortgage even faster from renting out rooms.

How Do You Rent Out Your Rooms?

Even when you choose long-term rentals instead of Airbnb, you still have several decisions to make. Do you have tenants sign a lease? Do you collect a security deposit? What do you include in the rental payment? Have you considered what house privileges your tenants have? What kind of house rules will you have?

There’s more than one right answer to each of those questions. In other words there isn’t one “right way” to rent out rooms. But here’s what worked for me…

Learn the Market

I became friends with many of my tenants, and I can tell you that most of them had trouble predicting their own future and/or planning for it financially.

Some also had previous problems sharing an apartment (and splitting all the bills) with roommates. So I tried to make it as easy as possible for my renters, which kept them happy and so helped me charge higher rates.

Read: Top 5 Most Overlooked Ways to Save on Airbnb

Don’t Have a Lease

Some renters, even if they end up staying for years, aren’t sure what their plans are, so they don’t want a lease. As a landlord I never wanted one because then it would be difficult to ask someone to move out. Remember, unlike tenants in an apartment, room renters share your living space, and that may not work so well in every case.

Don’t Take a Security Deposit

Unlike a separate apartment, when you rent out a room in your own home you easily monitor what’s going on, which makes a security deposit less important.

A deposit also makes it more difficult for some tenants to rent the room. I wanted to make it easier in order to collect higher rent. Also, there are laws about security deposits and where they have to be held. Why complicate things?

Always Include Utilities

Who wants to argue about how long a shower should be or which lights should be turned off? If your expenses increase, just raise the rent, but always include utilities. By keeping it simple, with a weekly payment that included everything, I had tenants who planned a short stay but were with me for years.

Rent According to Payday

Some people rent a room because they aren’t good at saving up for a big monthly rent payment. Renting a room might cost less, but you can help them out even more by charging according to when they are paid. Most of my tenants had weekly paychecks, so I charged by the week. Again, this makes it easy for them.

Read: 35 Work From Home Gigs That Pay Once a Week or Daily

Have Clear Rules

Quiet after 9 p.m., no drugs in the house, no shoes in the living room, wash your own dishes, respect other people’s things — those were some of the rules I had posted by the front door.

My renters had full use of the common areas inside and the yard, and were allocated one parking spot. No pets. You know how you want to live and what you can tolerate, and in your house you get to make the rules.

Can You Share Your Space?

One young woman to whom I rented a room went to jail for writing bad checks — but not to me. The worst financial problem I had was a renter moving out while still owing me $10. But there were a few loud or messy roommates among the 16-or-so people I rented rooms to over the years, which brings up the question:

Can you comfortably live with strangers and their strange habits?

The answer to this question may depend on who you rent to, and tenant selection process is covered in more detail below. But think about the day-to-day experience.

Do you want to share the TV control with other people? Will you walk around in your underwear or get upset when your tenants do? If you can’t comfortably live with strangers you might need to find another way to make money.

On the other hand, there are solutions to some of the specific problems of sharing your space. Clear rules are a good start. Putting a TV in your bedroom is another good idea. A separate refrigerator for tenants might be feasible.

When I got married, my wife quickly grew tired of all the people in our home, so I built an efficiency apartment at the back for us. We still had to share the laundry room and yard, but the situation was better. We had more privacy and we were able to quickly pay for the addition by renting out our previous bedroom.

How Do You Find and Choose Your Tenants?

My coworkers often became my tenants (I was working at a casino at the time). Renting to people with whom you work has some advantages, including the fact that you tend to know a little about them and their finances.

Another strategy: When a room was empty I asked my best tenants (previous or current) if they knew of anyone looking for a place to rent.

Advertising on Craigslist is perhaps the easiest way to find tenants, and it’s free.

Once you have some prospects you have to make a decision. If dealing with complete strangers ask for references and call them. Google the names of applicants along with the names of cities where they’ve lived, to see what you find.

Check websites like Mugshots.com. I’ve found two prospective tenants staring back at me from that site.

You can decide for yourself what matters and what doesn’t. I didn’t care if a tenant had a minor problems in his past, but I wouldn’t rent to someone who had a record of violent crime or serious theft (especially if it was from a landlord). You can pay for a formal background check, but I never did, and I never had any serious problems (of course, that could be dumb luck).

In addition to this DIY criminal background check and a call to a previous landlord, you also have to consider how a renter will “fit” with your lifestyle and with your other tenants (if you rent out more than one room). For example, if you have thin walls, renting to someone who comes home from work at 3 in the morning could be a problem.

Talking to prospective tenants on the phone is a great start, and enough to eliminate some of them from consideration, But you should always meet in person before agreeing to rent out the room.

And although you’ve heard the advice to “trust your intuition,” I would add “only if it’s trustworthy.” If you have a history of poor judgement with people, stick with more objective measures like a good job, good references, and no criminal record.

What Does the Law Say?

I’m not a lawyer, so everything I say on these matters is just my best guess or opinion.

I operated informally, without any written rental agreement. The rental rate was clearly known and the house rules were posted. I also had at least a couple phone numbers of a tenants’ relatives, in case those were needed.

Although tenant rights apply to room renters just like apartment dwellers, I suspect a judge would favor a landlord a bit when the renter is in his own living space. Of course that’s just speculation, but my experience tells me that when the arrangement is more like a long-term hotel room rental, tenants see it that way.

I never had to resort to legal eviction measures. Asking a renter to leave was always enough, and there were never any big arguments. Naturally I tried hard to be fair and flexible on the departure date. My opinion: If you don’t have respect for people whether or not you like them, you shouldn’t be a landlord.

What about local zoning and other regulations? If houses can be rented where you live, rooms can normally be rented out. However, some localities have ordinances about how many unrelated people can share a house. A dozen noisy relatives can share a home without concern while the police can come to the quiet house next door because the three people there don’t share DNA.

You can decide for yourself whether that unfairness justifies calling your tenants “cousin.” In any case you should at least learn about the local regulations and what happens if you are caught violating them.

How Much Do You Charge?

You can determine what to charge by studying your local Craigslist listings. I live in Tucson, Arizona, and here are the first four room rental ads that list the rate:

• Bedroom in a house: $400; utilities and internet included; lease
• Bedroom in a house: $375; utilities included, $375 security deposit
• Shared apartment: $500; utilities and internet included; no security deposit, lease
• Shared apartment: $570 plus $20 utility fee, all freshly remodeled, 12-month lease, no security deposit

Read: 41 Unusual Ways to Save Money

Tucson rental rates are much lower than in most cities, but a decent room here, with all utilities included, should still get you $400 per month.

If I wanted to rent rooms again I would charge $100 per week instead. Weekly rent is easier for tenants, but there’s another advantage for a landlord. Tenants tend to see $100 per week as $400 per month, but it’s actually $433 per month ($100 multiplied by 52 weeks and divided by 12 months). Even if you explain the math it still “feels” like $400 per month to most renters.

How to Pay Off Your Mortgage Even Faster

Okay, maybe you’re convinced that renting out rooms in your home is a great way to pay down that mortgage. Want to pay it off even faster? Here are some possibilities…

Buy a Rental-Efficient House

My first home was a $19,500 mobile on land, and at one point I was collecting more than $10,000 per year renting out rooms in it. If you don’t yet own a home, why not make rental-potential part of the selection process? For a shorter route to a free-and-clear home look for the most rentable bedrooms for the lowest price.

Read: 16 Energy-Efficient Products Under $50 That Will Cut Your Utility Bill

Move to Another Room

I moved into a tiny bedroom because I could collect more rent from the larger one I had been occupying. If you want to collect the maximum rent possible, be sure you’re not in the best room.

Add a Room

I built a shed and rented it out as a bedroom — and then moved into it myself to collect more rent from the inside room. You don’t have to get that extreme, but if you put up a cheap wall in the basement to create a bedroom, and then apply the rent from that to your mortgage loan, you’ll be mortgage-debt-free a lot sooner.

Create Additional Income

I sold cold soda to my tenants, and ran a closet-grocery-store. Too much trouble? Put a couple small sheds in the back yard and rent them to your tenants for storage.

However many rooms you rent out and whatever extra sources of income you develop from your renters, the key to quickly getting rid of that mortgage is to use every bit of that extra income to pay down the principal on the loan every month.

Read: 25+ Survey Sites That Will Make You $600+/Month in Extra Income

Have you rented out rooms in your home, and did it help you pay off your mortgage? Tell us about your experiences, and happy frugaling!