Every now and again, it turns out one of my readers has themselves a good idea. It’s not just me. I KNOW, I’M SHOCKED TOO.
I think most people would like to decrease the cost of housing. I’ve pointed out an easy way to do that before, which basically consists of six words. Don’t buy so much damn house. You could also move from an expensive market to a cheaper one, which makes a lot of sense once you get married and therefore become lame.
A reader we’ll call James F. decided to do things a little differently. Here’s how he’s able to live for free.
First of all, James F. is much too revealing. Let’s go with J. Fisher instead.
Here’s what J did. He rented out rooms in his recently purchased three-bedroom, two-bath house in a medium-sized Alberta city.
He bought the place a few months ago for $179,000. It needed a bit of work, so he’s spent about $6,000 on renovations so far. He doesn’t envision any other big renovations until at least 2018.
He was also smart when he bought the place, choosing something that was only a ten minute walk away from work.
Kijiji is the ticket for someone looking to live for free. All they do is put a post on there with only a minimal amount of spelling errors and all caps, and they’re in business. That’s exactly what James did. He quickly found a student at the local college who was willing to pay $450 per month for the room. She told her friend, who quickly snapped up the other room.
Because James is a big ol’ softie (and probably because he’s holding out hope for the threesome one day), he cut them a break and lowered their rent to $400 per month. So he’s getting $800 per month in total revenue. That’s probably a little low, but he likes his roommates, and like a lot of landlords, will discount the rent for a better tenant. This plan lets him live for free. He can afford it.
He’s approaching the whole situation from a business perspective, which is smart. He had each one sign a lease that specifically spelled out house rules. When you’re renting out a room, different laws apply versus renting out a whole apartment. In Alberta, the Innkeeper’s Act is the relevant piece of legislation, versus the Residential Tenancies Act.
One interesting thing about the Innkeeper’s Act is the landlord is totally allowed to seize your things if you’re a month behind on rent. FINALLY. I’VE ALWAYS WANTED TO SEIZE SOMEONE’S MEAGER POSSESSIONS.
Can he really live for free?
Enough chit-chat. Is James actually making any money doing this?
Excluding his house renos, he’s almost making enough to live for free. He’s got the following expenses that were all itemized for me on a spreadsheet because he’s 1403% more organized than I am. THANKS FOR SHOWING OFF, JERK.
- Mortgage: $657
- Taxes: $109.73
- Insurance: $100.26
- Utilities: $170
- Internet: $126
- Total expenses: $1,162.99
- Total rent: $800
- Cost to live: $362.99
So James isn’t quite living for free. He’s shelling out $363 per month to live in a three-bedroom place.
If James has a mortgage of 2.7%, and a total original mortgage amount of $143,200 (this assumes he put 20% down on the place), then $4,075 will be going directly to his principal in the first year. Which works out to $339.58 per month.
So James pays about $23 per month to live in his own house, plus a forced savings plan of about $340 per month.
Other things to consider
One thing about such an arrangement is how to handle the house in the eyes of the taxman. If he’s renting out rooms, James should be claiming that income on his taxes. He should also be able to claim a portion of the expenses, too, as well as depreciating down the value of the house.
But he can’t depreciate down the value of the whole house, since he only rents out two bedrooms. Confused yet? Good luck with that, poor sucker who does James’ taxes.
A lot of people in James’ situation just pocket the cash and don’t tell the government, for obvious reasons.
And then there’s roommate issues. James told me the story about how his
two hot potential side pieces respected members of his household decided they were going to get a pet. He immediately put a stop to it. He figures these issues aren’t a big deal as long as you’re firm, cover it in the lease, and get it out in the open immediately. It also helps if you hate cute kitties.
He also recommends spending a little time with potential roommates before making the commitment. If they’re annoying and you hate them five minutes after meeting them, chances are that feeling isn’t going to change. If you can’t envision being their friend, then avoid them.
The bottom line
I realize that for some of you, sharing your house with a couple of college co-eds is literally the worst thing ever. But there are also people out there who like the idea of having people around. And I guarantee most of you like the idea of being able to live for free.