More buyers in the U.S. are opening up to the idea of renting out a room as expenses surge.
Buying a home may seem like a distant dream for many in today’s cutthroat housing market. That is, unless they’re willing to share that dream with a roommate or two.
With the average U.S. mortgage rate above 5% and home prices at record highs, homeownership feels increasingly out of reach, particularly for young, first-time buyers. To make it work, some are renting out rooms or basements and using the extra income to help offset their costs.
The practice, which has long been accepted in the U.K. and other European countries, is spreading to the U.S., where the number of buyers who considered renting out a portion of their homes for rental income rose to 31% in 2021 from 24% two years earlier, according to real estate website Zillow’s consumer housing trends report.
“That increase in homeowners becoming residential landlords is consistent with the trend we see of buyers coming from a younger generation of side-hustlers aging into the housing market,” said Zillow economist Manny Garcia.
A Lucrative Side Hustle
Here's why homeowners are renting spare rooms for extra cash (%)
For some, the extra rental income is the only way they can afford to keep up with their mortgage payments and bills that are going through the roof thanks to roaring inflation. That’s why 24-year-old Josh Bowser and his now-fiancé went into the housing market looking for a property with additional rooms to lease.
Bowser knew he had to be strategic with his finances after graduating from college during pandemic-driven economic turmoil and a tight housing market. By living frugally, the young couple saved enough to put a down payment on a three-bedroom townhouse in a North Atlanta suburb in June 2021.
Their $2,200 monthly mortgage cost would have been a “stretch” with their combined incomes, Bowser said. So they found a tenant on Facebook Marketplace who pays $1,000 in rent to live in the second bedroom, subsidizing 45% of their monthly housing bills.
To cover even more of their monthly costs, the young couple plan to rent out another small guest room downstairs.
“My fiancé and I just split the remainder of our housing expenses, which is probably less than what we'd be paying if we were renting. Instead, it’s going to the principal on our mortgage,” Bowser said.
Sharing a Home
Thanks to apps like Uber and Airbnb, younger generations are accustomed to sharing everything with strangers, from car rides to short-term rentals. It’s not a stretch to extend that concept to their own homes, particularly for millennials, who have about 20% less wealth than their parents had at their age and are still struggling to enter the housing market.
A whopping 67% of millennials and 57% of Gen Z in the U.S. said they were willing to share their homes in exchange for cash, compared to just 34% of baby boomers, according to a 2021 Realtor.com survey.
Younger generations are much more likely to rent out their homes
“Affordability was already squeezing people,” said George Ratiu, a senior economist at Realtor.com. “It’s natural to think of their biggest asset — their home — as a potential income stream.”
For Chiffon House-Williams, a homeowner in Teaneck, New Jersey, the extra income erased any doubts she had about having roommates.
“I’d never considered renting out my basement to a stranger before. It’s my house; that’s my safe haven,” said House-Williams. “But after I had to quit my job, I thought, ‘Wait, this can be my income.’”
After the 36-year-old mom stopped working to take care of her son while he attended school virtually during the pandemic, she and her husband hired contractors in March 2020 to transform their basement into a one-bedroom apartment, outfitting the space with a standing shower, a kitchenette and a separate entrance for about $22,000 total.
The couple used the app SpareRoom to find 42-year-old tenant Laura Martin, who has been paying $1,100 in monthly rent since 2021. House-Williams says they will have earned their money back and turned a profit by the end of this year.
They’ve decided to do more renovations to make even more space to rent out. With plans to let her attic as well as her basement, House-Williams expects she’ll be raking in $21,000 a year in rental income.
“I’m always thinking about how I can make money without putting in too much effort, that’s just how my brain is wired,” House-Williams said. “By renting out rooms, I’m literally making money in my sleep.”
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