You have retired, you are not keen on downsizing your home as it holds many fond memories, all the necessary conveniences are close by, you feel safe, and you have known your neighbours for what seems a lifetime.

You are very comfortable where you live, but there is only yourself and your partner living in a very large home with a couple of unused bedrooms and an extra bathroom that does not get used but still requires cleaning.

Have you thought about renting one of the bedrooms and the unused bathroom?

No doubt the extra income would certainly come in handy, but how would you feel having a stranger living in your home encroaching on your privacy and space? When your children come to visit what happens when they find out that they are no longer able to stay in your home because you have rented out their old bedroom?

Your household building and contents insurance may also be affected, and your premiums even increased. And remember that this extra income is also taxable.

If you are in receipt of the age pension the extra income is also assessable and could affect your entitlement.

For example, your new tenant is paying you $200 per week for their own room and bathroom, from a Centrelink perspective as you are not providing any meals this income is classified as lodgings so 70% of the $200 per week would be treated as income.

If you chose to provide breakfast as part of the agreement with your new tenant then 50% of the $200 per week would be treated as income. This type of arrangement means that no part of your home is assessable from an assets test perspective, however if you were to build a separate self-contained flat the situation does change.

Now, 66% of the rent which you receive be assessable under the age pension income test and you would also need to value the self-contained flat from an assets test perspective.

So, you now maybe thinking that renting a room does seem to be more trouble than the value of the of extra income it could provide.

Is there any other upside to renting a room other than the extra income?

• If you are a widow or widower, the extra person would no doubt provide company for you
• An extra pair of hands to help with the chores around the home
• A chance to broaden your horizons by taking in a tenant with a different cultural background to your own
• Extra safety and if you do go away someone to look after your property

It is extremely important whatever you decide that the agreement between yourself and the new tenant is in writing, sets out clearly the rules of your home, what is expected of them and of course what is expected of you in return for the weekly rent.

Undertake a thorough vetting process when advertising for your tenant, ensure they do have references and if need be, you can ask for a National Police Check which may cost approximately $30.

Talk to an accountant or your adviser to understand what exactly the extra income will mean from a tax and age pension perspective. And if you do have a self-contained area that you are going to rent, how this may affect your home when you do sell in the future from a capital gains tax perspective.

I would also talk to your children to ensure that they are happy for you to rent their old room and that you have limited their ability to free accommodation in the future.

From a personal perspective, I am not sure I would be able to cope with a stranger in my home encroaching on my privacy, but I know several people who have had very positive experiences in renting the extra bedroom either on a full-time basis or on Airbnb as short-term holiday rental.

Everyone is different and you need to ensure you have thought about all the pros and cons before renting any part of your own home and your own space.