I’ve noticed that in the street where I live, several of the houses have only one or two people living in them.
Usually, these are older people whose children who have left. They’re left rattling around in a detached family house that is expensive to maintain. Sometimes they live alone in their old family house for years. It looks a bit sad and lonely to be honest.
Why don’t they move? Could be many reasons but I’d guess a big factor is habit. Many older people seem to get stuck in their daily routine and, over time, become scared of change. They also seem terrified of crime…especially crime by young people. Which is ironic as most young people aren’t very scary. To be honest, most young people look to me like they could do with hardening the fuck up.
With a bit of calm and perspective, you realise that many (most?) of the crises
promoted reported by The News are problems that could be solved, often quite easily. Here are 3 crises that we hear a lot about:
1) The Pensions Crisis – people don’t have enough in their pensions;
2) The Social Isolation Crisis – a lot of people (especially older people) are living alone / lonely / socially isolated; and
3) The Housing Crisis – there’s a housing shortage so house prices and rents are too high.
Hhhhmmmm. If only there were some solutions for these seemingly intractable problems…
Moving on to a completely unrelated topic, this week I’ve got a reader to explain an advanced investment technique which has greatly accelerated their progress towards financial freedom.
It’s called: “having a lodger” and it works by sweating an otherwise under-utilised asset…your house.
If you rent out a room for an income of £10,000 per year, that’s like having an extra £1,000,000 in a bank account earning 1% interest. It’s quite hard to save a million pounds. It’s a lot easier to rent a room out. It’s socially useful and environmentally friendly. And it might even be fun 🙂
The Escape Artist
Who’s that stranger in my house? Is it a burglar ready to steal my stash of oats which were on offer at Costco?
No, it’s Phil, my lodger, who’s accelerated my journey to financial independence by over 5 years.
Lodger?! – I hear you say. The very idea of a stranger living in your home may create a sense of fear and panic that often results in the very idea being thrown out the window untried, but just hear me out for the moment and let me share my experiences with you.
We’re a married couple, fortunate enough to live in a 4-bedroom family home.
It is estimated that half of all owned homes are ‘under-occupied’, that’s 7.3 million households with two or more empty bedrooms across the UK, an insane amount of spare capacity for housing which is otherwise ‘dead space’ or heaven forbid ‘storage’ space for all the
shit consumer products you never use.
So, you can do your bit to alleviate the current housing crisis in the UK and provide living space to those who are economically active.
Before you think I’m getting all evangelical, there are financial benefits to you, of course. You can command a market rent for your room which provides a stable income stream contributing towards your freedom fund.
I don’t often praise the Government, but, in this case, they’re on your side too and have what is known as The Rent a Room Scheme which lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This means you could let your room for £625 a month, income in your pocket which is completely tax free! Apart from the tax breaks, another major advantage is you do not need to go to court to evict tenants if they don’t pay the rent.
I’m in the very fortunate position to have two free rooms in my home which means I receive £1,500 a month. That’s significant wonga to go towards your living costs or in our case (ahem, most likely your case too) towards a FI stash.
So what’s the catch? Or more appropriately, what does having a lodger mean?
Finding a lodger can be an interesting experience but there are many ways to help make it relatively painless.
There are websites such as:
or just good old fashioned local shop ads. You could also use Facebook to get recommendations from friends and family of people looking for somewhere to rent.
We met our current lodger from a friend up in Manchester who mentioned he had an old school friend moving south looking for somewhere to stay – perfect! But remember to always do a credit/reference check when you’re vetting a perspective lodger, even if it is a recommendation from a friend.
Once you take in a lodger, you become a live in landlord and there are responsibilities which you pick up along the way, namely:
• Permission to take a lodger in (if you’re in a flat/leasehold property)
• Getting all gas related equipment checked and certified
• Providing furniture which meets fire safety rules
• Create a written tenancy agreement (not as strenuous as a typical tenancy agreement when letting a property).
A lot of these are straightforward administrative areas which can be done with relative ease. I’d recommend signing up to the Guild of Residential Landlords which provides all the documentation, referencing services and phone support you could require when becoming a live in landlord. It also provides accreditation and the annual membership cost can be offset against your rental income.
So, you’re leveraging your home as an asset to provide additional income – great work!
You’ll most likely need to make sure you declare this income accordingly in your self-assessment.
You can find out more on the HMRC website whether or not you need to do this. You may want the help of an accountant to make sure your self-assessments are filed correctly… in most instances this expense can also be offset against your taxable income.
Having another person in your home will mean more expenses in terms of utilities etc. Based on experience of single let properties and Houses of Multiple Occupation (HMOs) which will be reserved for another post, you can very generously estimate £50 per month per person increase to household running costs (FYI – mine have never gotten this high).
Day to Day
This is usually the most important bit for people – what is it like to have a lodger in your property? Surprisingly pleasant is the answer!
Many people have said to me: “why would you take strangers in your home? I would never have a stranger in my home?”
This is, I think, rooted in fear. “Strangers” is a scary word, signifying the unknown, but the funny thing is, once you speak to someone, they’re no longer strangers. You find common ground, common interests and friendship.
That’s exactly what I’ve found from having 3 lodgers over the past three months. They’ve all been normal working folk, looking to get on with life, progressing their careers and saving money whilst doing so. That’s where the most interesting thing is, every lodger I’ve met already has the ‘FI mind-set’.
Why? Well, they’ve decided to rent a room rather than a 1 bedroom or studio apartment for nearly double the cost. Without realising it, all of a sudden you have a FI buddy 🙂
It really can be a great experience if you find the right person, they end up more often than not being a friend to watch your latest TV series / sports with and potentially someone to help around the house with cleaning/gardening. I’ve been a live in landlord now for just over a year and it has really added more social interaction to my life (alongside the extra income).
Downsides? Not really downsides but some things you should consider:
• Alongside renting your room, lodgers will share a kitchen, potentially a bathroom and your living space. Be clear on boundaries and timings, this just helps to create a positive living environment. We decided to invest in a small additional fridge to avoid the ‘who finished all my milk!’ scenario.
• Alongside the formal vetting/referencing process, make sure you sit down with your prospective lodger over a coffee or beverage of your choice and make sure you’re comfortable living with this person and that you get on, on a social basis.
I would say always follow your gut feel. We interviewed 5 people before finding our first prospective lodger. Each individual’s circumstances will be different, whether you’re a newly married couple, single female, couple with small children etc.
Having lodgers is one of our biggest ‘side hustles’ and provides huge social value which we never realised until having our first lodger.
Future FI Landlord
And finally…I did a podcast interview with the Financial Independence Europe podcast: