How to Price a Room for Rent

for rent signNext 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!

 

For Renters

 

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.

 

square footages

BR1 = 200 ft2, BR2 = 125 ft2, BR3 = 125 ft2

BA1 = 50 ft2, BA2 = 40 ft2

common area = 760 ft2

 

rent calculations

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.

 

Bidding

 

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.

 

Comparable Rents

 

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

 

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43 Responses to "How to Price a Room for Rent"

  1. Emily too says:

    On the other hand, I’ve seen over my years in a college town where lots of people are looking for roommates (especially seasonally), and a lot of the people who are looking for rooms in shared apartments with strangers are foreign students who don’t want to spend a lot on housing, a sublet is a lot more likely to get filled if you price it on the low end. The question then is whether you’re willing to give a subletter “discount” to guarantee that you’ll fill the room (we said yes).

    1. Emily says:

      Thanks for your insight regarding subletting! I wasn’t really speaking to that in this post (intentionally, anyway) so I’m glad for the additional info. I agree that seasonal students are often international, although we also get the occasional med student doing a rotation and such. Our place in particular wouldn’t be ideal for an international student as it is not really walking distance to school/commerce.

  2. krantcents says:

    If you have been living there for a while, I would use market rents. Also, I would consider that you are on the hook and you are subletting a room. The rent should be a little higher because of that. Let the market dictate your rent.
    krantcents recently posted..Which countries have the best retirement schemes?

    1. Emily says:

      Definitely with subletting it’s more of the market dictation. I wasn’t explicit about it, but in this post I intended to speak to permanent housing situations (both roommates on the lease).

  3. CashRebel says:

    I like the bidding idea. That’s certainly a unique idea. For my first apartment, I just room the smaller room because I was nice to my roommate. She didn’t pay any extant. Now that were in our second apartment, she gave me the nicer room so its worked out really well just splitting rent down the middle.
    CashRebel recently posted..Earth Day And Corporate Sustainability

    1. Emily says:

      Looks like that situation is working out for you – I guess both you are your roommate are fair-minded!

  4. Sara says:

    Would you consider renting to a couple and giving them the larger room? I’ve been both the single and the couple in these situations, and have never had an issue. But, it’s totally a preference thing. Our roommate pays $100 more than L and I each do, and then we split the utilities evenly.

    1. Emily says:

      Hm, I hadn’t thought about renting to a couple. I don’t really want to live with another guy. Please follow up on your experiences on my post later this week on a similar subject!

  5. SarahN says:

    I love the bidding option, esp in a bigger place! I’d love to ‘profit’ from housemates (lucky I live in a one bedroom place I suppose!). The hardest thing is managing ensuite vs non ensuite bathroom and the amenity of one over the other.

    I was so interested that both my neighbouring apartments are for rent at the moment. And at such different prices, one at $530 and the other at $440. Certainly interesting!
    SarahN recently posted..My household contents vs 21st century US houses

    1. Emily says:

      I’d love to profit from a roommate too so that’s why I’m being systematic about figuring out what the rent should be – to counter my nature! I like the set-up of the second bedroom in our townhouse – the second bathroom has a door directly to the second bedroom and another door directly to the hallway.

      Are your neighbors’ places quite different in size or are they exactly the same? When we found our townhouse there were a few others in the complex for rent, but the ones with the same number of bedrooms were within about $10 of one another.

  6. Pauline says:

    I rent three rooms and they are more or less the same size, so priced the same, except one that is for couples, so $50 higher for utilities. And I include all the bills in the rent, so the roommates don’t have to fight over them and get bitter when one person spends too much time in the shower!
    Pauline recently posted..Little house in Guatemala, stormy edition

    1. Emily says:

      I’ve never rented a place with included utilities but thankfully I’ve also never had a problem with a roommate’s shower length! Why would you not charge the couple higher rent (along my thought line of they both use the common space) – or all three rooms in separate residences?

  7. Whenever I rented rooms with others, I paid based on the the room size and everything else was split. It worked fine all the years I rented.
    Grayson @ Debt Roundup recently posted..Are You Cooking with Gas or Charcoal?

    1. Emily says:

      You probably had places with bedrooms quite close in size, I would imagine. I wouldn’t want to pay proportional rent between two roommates in our place as one bedroom is 2-2.5x the size of the other!

  8. When we rented out our spare bedroom in the trailer, our pricing was simple. There were going to be three of us living there, so I took the estimated monthly cost for mortgage and utilities and divided by three. And that was his rent.
    When we wound up moving, housing costs were double, but we had another bedroom. I just kept his rent the same because even though housing costs per person are higher now, he went from having his own bathroom to having to share one, so I figured it evened out.
    Edward Antrobus recently posted..SmarterBucks vs Upromise: Which is Better for Helping Pay Student Loans?

    1. Emily says:

      Easy but not systematic enough for me! How did your strategy compare to comparable rentals?

      1. Comps are kind of tough to figure. One bedroom if am apartment with it’s own bathroom can go for neatly twice that, plus utilities. But not many people rent rooms from a mobile home which is cheaper. And I couldn’t justify charging 2/3 of my expenses just because that is the going rate.
        Edward Antrobus recently posted..Potato Chip Tuna Pitas

        1. Emily says:

          I would justify it!! 🙂 Or at least give a small discount, not down to 1/3 of expenses. I think the market would really bear out the proper (max) price.

          1. Well, it us kind of a moot point now, since we are now in a house and have an extra person. What was a steep discount for one bedroom with it’s own bathroom is just a little on the lite side for one bedroom with a shared bathroom
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  9. I haven’t lived with roomates in quite some time, so I don’t think I’d be much help in that matter. I would maybe work out some sort of agreement about shared areas like the kitchen and who is responsible for cleaning, etc. I’d also be sure to ask about guests your roommate might bring over. I seem to remember a roommate who always had a boyfriend over, so it was kind of like having another roommate who didn’t pay rent.
    [email protected] recently posted..Is Fear Inducing You To Spend When You Know You Shouldn’t?

    1. Emily says:

      Thankfully I haven’t run into that sort of problem with roommates in the past, though it was something we covered before I chose my roommates. Now that I’m an old married lady I don’t particularly want male overnight guests around. Honestly I’d like to stick to having a Christian roommate but it’s tricky – you can’t publicly advertise for that because of the Fair Housing Act.

      1. Leigh says:

        Is there a way to advertise for a roommate at your church? That would get around the Fair Housing Act 😉
        Leigh recently posted..From the Other Side

        1. Emily says:

          Yep, there is a FB group for young professionals at my church that I can advertise in, and also a Christian group at my university that we’re part of that keeps a small housing database. As long as I don’t explicitly say I’m looking for a Christian roommate that should be OK. We still have to have some conversations about what that means to us regarding being roommates, but at least if they’re monitoring a Christian group’s postings there is a basis for having that conversation.

          Or I can try to recruit someone who already knows me and Kyle, which would be even better.

  10. I shared an apartment with two of my friends When we were in college. The deal was to split the rent and utilities in three equally, regardless who spends more time in the shower or who watches the TV more often. Good thing it worked for us for five years without any problem.
    Cherleen @ My Personal Finance Journey recently posted..Using The Internet To Save On Housing

    1. Emily says:

      With utilities I agree that it’s easiest to just split evenly. I never got into tit-for-tat over utilities with my roommates. Base rent, though, is worthwhile to decide fairly once, I think!

  11. […] of the rent would really help our budget out (to the tune of $350/month or so).  So my exercise on splitting rent wasn’t just for splitting between myself and a roommate, but between Kyle and me together and a […]

  12. eemusings says:

    Most places I’ve lived have been split evenly (though this included one house where the head renter had a room about twice the size and with her own bathroom. I wasn’t there very long though). When T and I lived with others we paid per person not per room, since we were 2 to a room.

    I wouldn’t mind renting out rooms once we buy a house and before we have kids. I’d probably like to charge a fairly high amount that includes utilities, though, to eliminate that hassle.
    eemusings recently posted..Three takeaway foods you can make at home

    1. Emily says:

      Splitting evenly is rarely completely fair! Depending on the room sizes, per person was probably pretty close to the square footage allocation – that’s how it would be for our place.

      I’m open to renting out a room once we have a larger house and pre-kids, but Kyle’s pretty against it!

  13. renee says:

    haha, this makes for an interesting post, for sure… however, I think determining rent prices is neither a “systematic”, nor a “fair” process. It’s just business. If two people are looking for an apartment together, then I think they have to settle on how to split the price, perhaps systematically, once they find a place they like. But if someone already has a place and they’re looking to fill the room, then I believe the standard market practice is that they set the room prices based on what they believe will attract a good roommate (and perhaps have some friendly “negotiation” talk when the person comes to see the place and seems interested).

    1. Emily says:

      You are right that I am sort of conflating the roommates-before-you-found-the-house situation with the looking-for-a-roommate-when-you-already-have-a-place situation and they are a bit different.

      I think part of my difficulty in finding a comparable room, which led me to think what would be more systematic than trusting craigslist, is that the room we’d be renting out is very small but the overall house is quite a nice size. Most rooms I see for rent are not as small as this one so it is difficult to find a price, though we could always just set one and see if anyone agrees to it.

      1. renee says:

        ah, that’s a conundrum!

  14. […] at Evolving Personal Finance ran us through a few different ways to split rent in an apartment with roommates, which is interesting to me, because we’ve always gone 50%/50% even though it doesn’t […]

  15. […] @ Evolving Personal Finance writes How to Price a Room for Rent – There are several methods for how to split rent among multiple roomates or to price a room […]

  16. […] How to Price a Room for Rent was featured in the Carnival of MoneyPros. […]

  17. […] @ Evolving Personal Finance writes How to Price a Room for Rent – There are several methods for how to split rent among multiple roomates or to price a room […]

  18. […] Personal Finance writes How to Price a Room for Rent – There are several methods for how to split rent among multiple roomates or to price a room in […]

  19. […] the formula I provided for calculating rent among roommates and from studying the floor plan dimensions provided by the complex, I figured out how much […]

  20. […] to charge a person who is renting a room from me” – Whatever the market will bear.  Or, use my formula for splitting rent among roommates!  (But you have to use market rent for your house, not your mortgage […]

  21. […] second bedroom in our current townhouse. I’m for it and Kyle’s against it. Having a roommate to split the rent and utilities with would help us not-spend at least $500/month, which would really help to offset […]

  22. Karen says:

    I own my home and would like to rent a room, so that my roommate and I have equal access to everything but bedrooms. None of the rental calculators include things like utilities, which fluctuate through the season. Internet/cable is typically not included, but I would also include that in my rent charge. In my situation, I don’t mind including housekeeping and food/prep because I’m clinically OCD and would love to maintain tidiness. I don’t like the idea of splitting a fridge because I’m more than happy to share my chips or a sandwich, you know. Guests are fine as long as they remain clothed and sober for the sake of my child. Sleep schedules are irrelevant, as son and I are rather quiet and can sleep through anything. I’d prefer a woman roommate, but I’m not against a man that respects boundaries. I’m not sure how to calculate roommate charges with so many inclusions or if these inclusions are reasonable. Would “boarder” be a better term to use for what I’m looking for?

    Average 1 br apartments run $700+ in my area. My home is 1800sqft with an 1800 sqft finished basement, unfurnished. The basement has a private half bath (toilet, sink, and standing shower) with a w/d in it and a full kitchen except for a fridge. I would not like to put another fridge downstairs because of the cost to run. The basement is paneled and does not maintain the central temp of the rest of the home. Also, support beams and a narrow hallway make it very choppy. It costs about $1100-$1400 a month to run my home including food, but not my personal needs. I’m thinking of charging $150-$165 a week for rent, paid the week prior. That’s $600-$660 a month. Does that sound reasonable?

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