Next year when Kyle is living Elsewhere (TBD), we plan to both have roommates to keep our cost of living low, just like before we were married. That means that we will rent out one of the bedrooms in our current townhouse to another woman. We haven’t quite decided which room to keep since they are quite different in size – the larger one would be better if Kyle is spending a good amount of time in town still, whereas I would prefer to live in the smaller one if it’s just me nearly all the time.
I want to come up with a fair way to price each bedroom for rent, because 1) we’re renters and just because we were here first doesn’t mean we should get the better deal and 2) I’m not sure which bedroom to take so I want to generate prices for both.
I admit that with my shared housing before I was married we split evenly or within $25 of evenly as all the bedrooms were quite close in size. But there must be a more systematic way of doing it!
If you are renting a residence, you should start with the total payment set by the leasing office or landlord and split it up in a manner that is acceptable to all the roommates, if they are pre-arranged, or by whatever method the first renter thinks is best. There are a few options, but I think the most fair way is by total square footage.
Total Square Footage
Split the total rent in terms of the square footage used by each renter, both for private (full price) and shared (price divided by number of users) space.
For example, let’s say there are three roommates living in a 3 BR, 2 BA residence with a total square footage of 1300 sq. ft. that they rent for $1000.
BR1 = 200 ft2, BR2 = 125 ft2, BR3 = 125 ft2
BA1 = 50 ft2, BA2 = 40 ft2
common area = 760 ft2
R = rent / total ft2 * (personal space + shared space/# sharers)
R1 = $1000/1300 ft2 * (200 ft2 + 50 ft2 + 760 ft2/3) = $422.80
R2 = R3 = $1000/1300 ft2 * (125 ft2 + 40 ft2/2 + 760 ft2/3) = $334.60
This method wouldn’t work well if the amenities for each room were quite disparate or the common areas were used differently by the roommates (e.g. one person never uses the kitchen), but you could make some slight adjustments to account for them. If you don’t have access to the exact square footage measurements you could try getting the rents from Splitwise. When I plugged our townhouse specs into Splitwise it generated prices within $10 of my square footage method.
Bedroom Square Footage
Another option I’ve seen suggested is to simply split the rent by the relative square footage of the bedrooms alone. While this might be acceptable for dwellings with small common areas and similar bedroom sizes, for those with large common areas will generate rents that are too high for the residents of the larger bedrooms. This method also doesn’t account for spaces shared by only some of the roommates, for instance the example above with one private and one shared bathroom or when you have two people sharing one bedroom.
This is a method I came across when researching this post that I never would have considered! There are a few variations, but basically each roommate decides how much she would pay for the largest/best room and submits a bid. The highest bidder “wins” the room and the remaining roommates move to the second largest room to bid on its value. Repeat until all rooms are taken.
I’m sure it happens more often than not that the total bids don’t exactly sum to the total rent (unless the last person just gets stuck with the difference). You would have to decide in advance what to do with the excess money or whether to abandon the property if your bids come up short.
Update (4/29/2014): An article recently came out about a mathematically substantiated method for bidding on room prices that is superior to what I outlined above. It very well takes into account how much each person values each room and would work best in a situation where the rooms had unequal amenities. There is an associated calculator to help you implement this solution.
For Homeowners (and Renters)
While it might be tempting, you shouldn’t use your mortgage, taxes, and insurance payments to calculate rent since how much if anything you can put toward equity will vary with the market. You should let your local market determine what the rent for your room should be.
The first strategy to do is to find comparable rentals in your area to set your price in a reasonable range or to figure out the going rate for a similar room. In my area, craigslist is the most popular way to find rooms for rent so that would be the first place I would check, but another source may be dominant in your area, for instance housing boards for your local university. Important metrics to compare your room on are location, square footage of room and common areas, furnishings, age and updated-ness of house, access to a lawn, inclusion of utilities, and neighborhood amenities.
Put It on the Market
If there are no comparable rentals that you can find, you can just test out the market! If you aren’t in a hurry to rent the room, price it at the high end of what you think is reasonable and see if you get any nibbles. You can always bring the price down a bit to attract more interest.
How have you priced out a room in your house in the past or decided how to split the rent? What do you think is the best method and why? How do rents compare to mortgages+taxes+insurance in your area?
photo from Free Digital Photos