How renting out a room could help pay off your mortgage

How renting out a room could help pay off your mortgage

A swathe of interest rate hikes and sticky inflation means many Australian households are struggling to manage their finances. However, renting out a spare room in your home could potentially bring in thousands of dollars of extra income that could be put towards paying off your mortgage.

Inflation in Australia remains persistent, increasing the likelihood of further rate hikes. Homeowners could be facing an additional $1,815 in monthly mortgage repayments since the cash rate began rising in May last year.

Data from reveals 1 in 9 members on the share accommodation website picked up a new flatmate in 2023 to help curb the rising cost of living. Property listings on the site rose 10% in October and are up 38% year-to-date. Despite this, residential vacany rates across Australia sunk to just 1% in October, their lowest point in more than 17 years, according to SQM Research.

Leveraging extra space within your home may be a viable strategy for those looking to offset rising mortgage costs. But before you start posting ads and inviting people around for inspections, it may be helpful to investigate the legal, financial, and practical aspects of this decision.

Is anyone allowed to rent a room in their home?

Homeowners in Australia typically have the right to rent out a room in their property, but there might be specific conditions governing this activity. Those residing in strata-titled properties or leasehold homes should review their agreements as they may need to seek permission from relevant bodies before initiating the process.

For example, some strata or owner’s corporations may not allow homeowners to list their properties on share accommodation websites such as or Airbnb. Others may impose limitations or other restrictions. 

Additionally, there might be zoning or local council regulations that apply, particularly in certain areas, so it might be wise to check these constraints.

What are the costs of renting out a room in your home?

Renting out a room can be financially rewarding, but it's also important to consider the expenses involved in the process. Sometimes the costs can outweigh the advantages. Here’s a breakdown of what to anticipate:

Preparation expenses

Getting the room and your home tenant-ready might require refurbishments, furnishings, or repairs. These initial investments can enhance the appeal of the space and attract potential tenants. Ensuring the room is in good condition can go a long way to ensuring a successful rental agreement.

Increased utility usage

Having an extra person in the house will likely lead to increased utility usage. Utilities such as water, electricity, and gas might see a rise, and you'll need to account for this in your budgeting. Being aware of these added costs helps in setting the right rent to cover these expenses.

Additional insurance considerations

Renting out a room might necessitate adjustments to your home insurance policy. You may want to consider separate landlord insurance. This extra coverage can protect you against potential risks associated with having a tenant, such as property damage or liability. Speak to your insurance provider to understand coverage options for your situation.

Property management fees

If you opt for property management services, there might be fees involved. Property managers can handle tenant interactions, property maintenance, and other related tasks. Understanding these costs and services can help decide whether professional management is a viable choice.

What taxes do you have to pay to rent out a room in your home?

The rental income you receive is generally considered assessable income by the Australian Tax Office (ATO). However, there are provisions that may allow homeowners to claim tax deductions on this activity. The ATO offers a simple fact sheet which summarises what you can and can’t claim when renting out a room.

You may be able to claim deductions on a proportion of expenses including:

  • Council rates
  • Interest on a loan for the property
  • Electricity and gas bills
  • Property insurance
  • Cleaning and maintenance costs
  • Fees or commissions charged by the platform you’re using to rent the room

How much of the expense you can claim will depend upon the number of days you rent out the room during a financial year and the size of the portion of the property you’ve rented out.

It may be sensible to consult a tax professional to understand your tax obligations, deductions, and benefits associated with renting out a room in your home.

What are the steps involved in renting out a room in your home?

Renting out a room might seem straightforward, but there are several steps you can follow to help make the process a smooth and mutually beneficial arrangement for both you and your tenant.

Prepare your home

Before listing a room, it's ideal to ensure your entire home is in a welcoming and habitable condition. Think about what you’d expect if you were the one moving in. Clean thoroughly, address any safety concerns, and make necessary repairs or improvements. Oftentimes you're not just renting a room, you're including the use of communal spaces, like the kitchen and living room. 

Determine a competitive rent

Setting the right rent is a balancing act. Consider the current market rates in your area, the amenities you offer, and the overall condition of the room. You want to be competitive but also reasonable. If the amount you’re going to be bringing in, after tax, isn’t going to make a significant dent on your mortgage repayments, you may want to reconsider your decision. has a “value my room” tool, which shows the current average weekly room rent by suburb or postcode and what the equivalent annual income might be. Be aware that these figures are before tax and don't include additional upfront and ongoing expenses.

Draft a detailed rental agreement

This step is crucial for both parties. A comprehensive rental agreement should cover rent details, house rules, responsibilities, and the terms of the tenancy. Be as detailed and clear as possible to avoid misunderstandings later on. Consult with a professional if you have any doubts.

Advertise and interview

Once the room is ready and the terms are set, it’s time to advertise. You can use various platforms such as online rental websites, social media, or community boards. When potential tenants show interest, conduct interviews to gauge compatibility and reliability. Don't be afraid to ask questions. It can save time and hassle down the track. For example, you may have an inclination not to allow pets, or it may be a rule stipulated by your strata corporation. Transparency between homeowners and prospective tenants is key. 

Perform background checks

Don’t underestimate the importance of a background check. This can include verifying employment, checking references, and running a credit check if necessary. It ensures that the potential tenant is reliable and trustworthy.

Finalise the agreement

After finding a suitable tenant, it’s time to finalise the agreement. Go through the terms together, address any remaining questions or concerns, and make sure both parties are clear and comfortable with the arrangement.

Tips for renting out a room in your home

Renting out a room can be a bit of a balancing act between being a welcoming host and a responsible landlord. Here are some tips to help make the experience successful:

  • Legal awareness: Understand and adhere to local laws and regulations to prevent any legal complications.
  • Screening: Screen potential tenants rigorously. Consider background checks and references to ensure a good fit.
  • Agreements: Develop a comprehensive rental agreement that outlines expectations, rules, and rental terms.
  • Communication: Establish open communication with your tenant to address any concerns or issues promptly.
  • Boundaries: Respect your tenant's privacy and ensure a healthy living environment.
Product database updated 01 Dec, 2023
Fact Checked

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.