Updated on 09.18.14

Cohabitation as a Financial Tool

Trent Hamm

Over the weekend, I made two brief mentions of using cohabitation as a method for saving money. In other words, if you invite someone to share your home with you (or share someone else’s home with them) and come to a reasonable agreement for sharing the load on the bills of the home, you can save quite a lot of money and often stretch a very difficult situation into a liveable one, at least in terms of the finances.

In response to that article, I received a small pile of emails with a wide variety of thoughts, questions, and concerns about cohabitation arrangements. Since I’ve lived in such cohabitation situations in the past and we’ve recently looked into such arrangements, I thought it would be appropriate to share some of my own key thoughts on cohabitation, how much money it really saves, and whether it’s right for you.

Thoughts on Cohabitation as a Financial Tool

1. Know exactly who you’re cohabitating with

Who is this person you’re going to be sharing your living quarters with? It’s not as big of a deal when you’re in college and sharing an apartment with five other people so you can have a place to sleep for $80 a month (not that I know from experience or anything…), but when you’re talking about monthly housing expenses that run into the thousands, you want a reliable person to cohabitate with.

2. Start looking for potential cohabitants in your family and social network

Sisters, cousins, brothers, aunts, nieces and the like all make great cohabitants – you already know each other and have things in common, so you have a much higher likelihood of success. The same is true with your social network as long as you stay closer to people you know well.

3. If you choose to advertise, be selective

If you are considering a cohabitant and have any warning signs at all that there might be problems before you enter into such an arrangement, don’t enter into such an arrangement. If you do not know the person very well, you should have a legal agreement drawn up between both parties – consult a lawyer to draft one.

4. Make the terms as clear as possible

Even if you choose not to have a contract (if you’re cohabitating with your sister, for example). Make it explicitly clear when you need to pool money for rent or for a house payment. Talk about the amounts before you even begin – don’t just say “half the house payment” because the other person might not understand how much that is. Write it down in an extremely clear fashion. Give some reminders, especially at first. You should also make it clear right off the bat what sort of situation would constitute the cohabitant having to leave.

5. Protect yourself with an emergency fund

If your cohabitant doesn’t come through on an expected payment, you’ll be the one that needs to make up the difference. The best way to protect yourself here is with an emergency fund, so for the first few months, channel the money you’re saving into an emergency fund so that you’re sure you have the cash.

6. Figure out a financial system that works

A barter system might also be a good idea. Perhaps, rather than being responsible for money, your cohabitant can be responsible for some other things – home maintenance, yard work, child care, or so on. Each of these things can save you significant money and time, which has the same effect on your bottom-line personal finances, but also takes some financial concern off of your cohabitant.

Our example For several months, my wife and I discussed a cohabitation arrangement with one of her sisters. Under that arrangement, she would have lived at our home for free while attending classes at a local university part of the time, and “paying” for her room and board with some number of hours of child care per week. This would have basically allowed us to eliminate the cost of child care from our budget.

Our biggest reason for not doing this was actually a personal one. My wife began to strongly consider a semester or a year off from her job during this period instead of having her sister live with us during that year. At the same time, her sister decided to follow a different path and attend nursing school. So, the reasons had nothing to do with the arrangement, which all of us were in favor of (as it would have saved all of us some money).

Prior to that, in my late college years and early professional years, I had several cohabitation situations in order to save money – yes, the typical college roommates. Since the quality and space of living quarters weren’t really an issue then, the big reason for doing this was to save a lot of money. At one point, I shared an apartment with four other people, driving rent down to $80 a month for me.

If you’re considering such an arrangement, good luck. It can be challenging, but the financial rewards are great.

Loading Disqus Comments ...
Loading Facebook Comments ...
  1. triLcat says:

    Just as important as the financial side of it is setting personal boundaries as well. For example, you might not want even your wife’s sister EVER coming into the master bedroom. Or you might think it’s ok if everyone’s watching a video there. Or you might not care as long as everyone’s dressed…

    You might want them using only one bathroom and you use a different one.

    It’s also important to set out household chore expectations.

  2. Johanna says:

    About bartering for home maintenance or yard work: Has anyone here actually done that and had it work?

    I’ve briefly considered the idea of buying a house that’s bigger than I need (as almost all houses are, since I’m only one person and don’t plan to become more than one person any time soon) and renting out rooms at a below-market rate in exchange for the tenants taking some responsibility for maintenance and repairs. (I would have to advertise for tenants, since I don’t have family who live in this area, and all of my close friends are happy with the living situations they have.)

    And then I stopped considering it, because it doesn’t seem workable to me. What incentive would a tenant have to do a good job at, say, fixing the fence, if it’s not their house and they don’t bear any of the consequences of the effect on the property value? How would I, the landlord, spell out in the lease agreement how good a job they would have to do at fixing the fence in order to keep their below-market rent? And would I be flooded with applications from people who just see the cheap rent but don’t know anything about fixing fences?

    I’m not even considering considering this anymore, since I’ve decided for other reasons that I’m happier renting for now, but I’d be really interested to hear from anyone who made an arrangement like this work.

  3. Molly says:

    One other comment – all roommates should be responsible for their own part all the way through. What I mean by this is that if you can, each of you should pay your part of the rent directly to the landlord, and each of you should have one of the utilities in your name that you are responsible for, even if the other roommates pay you for it.

    Reasons for this: you may need proof of prior utility payments to avoid a deposit at your next place, and it DOES happen that a roommate you think you know well will take your rent money and your utility money and spend it instead of paying the bills – leaving you without water or electricity when she unexpectedly moves out. This happened (disastrously) to my sister, and it took probably 2 years to straighten out.

    Then again, I like having roommates. I get lonely without somebody else at home, and of course I like saving money!

  4. DivaJean says:

    Co-habiting is not just for the young.

    When my parents divorced in the 70’s, my mom took in grad students as boarders in our big 5 bedroom home. She was able to keep the house because of it.

    We were exposed to many interesting cultures and people- loved it as an upbringing. My mom only gave up keeping boarders about 10 years ago when my stepfather had a cancer scare (the first of many, which sadly, took him last year). Mom and I have lots of fun chats about the people and traditions we experienced- and how it saved our family having the boarders. But you really need to screen and be open to new ideas…

  5. Shevy says:

    When you cohabit with people from other cultural backgrounds, expect surprises. These may range from what is acceptable food to eat, to differences in personal boundaries, to damages caused by lack of understanding.

    When I owned my condo (and was on council) one owner had a foreign student who caused damage to the bathroom and the suite below by always showering without using a shower curtain. It turned out that this person was used to bathrooms where there was no curtain and the entire bathroom could be wet without damage.

    The owner had no idea (not something you’d think to ask about) and the water that went on the floor seeped underneath and damaged both the bathroom floor and the ceiling of the suite below over time. (I believe the student mopped up the water with a towel afterwards but the damage was being done 5 or 10 minutes at a time. Every day.)

    As for cohabiting with family, my hubby & I, along with our 7 yo, share a house with my eldest daughter & her family. It’s the only thing that allows them to have a large enough home for their family in our city’s very expensive housing market, but it wasn’t easy to find the right house. We looked at over 40 houses before they bought this one! Most places had in-law or tenant suites that could be best characterized as dungeons. Some had ceilings as low as 5.5 feet in places! One had part of a walled-off staircase in one of the bedrooms! Most had tiny windows and no storage. One had floors that visibly tilted! If you already own your home think about whether the space is really suitable for someone you know to live in. Maybe a college student looking for the cheapest rent possible will find it acceptable for a year or so. But would you feel comfortable expecting a sibling, niece, etc. to live there?

  6. Vicky says:

    I am considering cohabiting.

    I have a very small house (904 sq ft) and I live with my husband and pets (3 dogs, 3 ferrets, and a cat) and a very close friend of mine is seeking employment at the same company I work at.

    Because we would be working at the same place, and she currently doesn’t have a reliable vehicle and she lives 1.5 hrs away, we are considering the option of having her stay with us at $50 a week until she can move closer to work (we are helping her search for an apartment, as well).

    I don’t want to ask her for a lot of money, as I want her to save the rest for the move and repairing or replacing her vehicle.

    It is going to be a tad cramped with all of us there, but she is also going to help with housework, cooking, and the like. :) I’ve never had a roommate other than my husband, sooo I have no idea if it is going to work out or not, but it’s a weekly arrangement, paid up front, so hopefully it can’t go too bad.

  7. I think cohabitation is an ideal living arrangement for relatives and close friends. (As far as strangers go, just be sure to vet them carefully, to make sure the situation doesn’t cause more problems than it solves.)

    “Extended family” housing is a fabulous way to save on rent/mortgage, food, utilities, child care, and elder care!

  8. Brent says:

    Done that, will avoid in the future. Sure the living was cheaper, but my roommates were not like me. Shortly into the arrangement we found out what worked best. I paid for everything and they paid me about 1/3 of my household expenses (a fixed and rounded amount). It worked for a while because I could afford that month to month and it simplified their budgets and planning. In theory this was great for all parties.
    Practically this was hell. They were late with the money, they rarely cleaned, they had unsavory friends, and they never had money for emergencies, I was the emergency fund. After layoffs, job transitions, each was behind more than a full months payment. After I had quit my job, I did the less financially savvy move. I kicked em all out. The lease expired a month later and I moved into a 1 bedroom apartment… alone.
    When you cohabit you are making many more agreements than just money. There needs to be standards of cleanliness, maintenance, utility consumption, guests, noise, communal property. And usually a emergency plan. When one can’t come up with the rent. When someone moves out. If there is a fight in the house. If someone neglects one of the agreed policies. Its easy enough to say “evicted”. But the rest of the residents must make up the difference.
    I’m not saying that anyone will have the disaster I did, I just think you need to go far far beyond a “gentleman’s agreement” to be civil and pay on time.

  9. Moby Homemaker says:

    My sons are nice fellas…but, they’re horrible roommates.
    They pay me no rent and regularly destroy the joint.
    Anyone want to trade???

  10. Kai says:

    @ Johanna (#2)
    The bartering definitely sounds questionable.
    But have you considered renting out the rooms AT market value, and then using the extra money to pay a professional to do the work you need done? Takes an extra step, but would accomplish the same end.

    I’ve lived with many roommates, and it’s definitely only for the money. I’ve had some that were awesome, who I could have happily lived with for years, and some who didn’t work out at all. Be sure you know why you’re getting into it, and once you leave the “I’m young and poor and NEED to do it” stage, I’d be hesitant to put yourself in a situation where you *need* boarders to survive financially.

  11. George says:

    In Oregon, make sure you have a tenant agreement otherwise it can be a disaster should you need to evict and the cohabitant doesn’t want to leave. I suspect other states are similar.

  12. Sandy L says:

    Bartering for yard work etc has not worked in my experience. People do as little as possible to get by even if you’re giving them a big discount.

    Roommates are great. I’ve always lived with at least 1 other person, sometimes more. Better carbon footprint too if you’re using/heating/maintaining less sq/feet per person.

  13. Stacy says:

    I have made the decision to never cohabitate again, unless it is with a significant other that I am SURE about. I have had many horrible roommates, and even wonderful roommates who I didn’t get along with. I am not the type of person meant to live with other people long term. It is well worth the extra money for me to live alone at this stage in my life. SO worth it!!!

  14. J says:

    @Johanna – When I see people trying to do cute things like the barter/below market thing, it inevitably leads to weird stuff happening and people getting pissed off. Like the guy I knew whose was boarding and whose landlady didn’t want him to report it on his taxes (in my state you can get a tax deduction for rent). There’s a reason people sign contracts and set up a business relationship as landlord and tenant, it’s based on hundreds or thousands of years of human history and suffering.

    If you don’t want to do labor and maintenance yourself, set the room rate to include the cost of a lawn service and upkeep. You can get quotes for a few landscaping companies to set the rate.

    One of the best ideas I’ve had from someone who had roommates for a while was splitting the cost of a cleaning service. It ameliorated the whole “I live with slobs/neat freaks” discussion very well, since the clean freak didn’t fee like everyone’s mother and the slobs could be slobs.

  15. Johanna says:

    @Kai, J: Well, yes, of course it has occurred to me that I could charge more for rent and pay for maintenance/repairs out of that. But Trent brought up the bartering possibility, so I thought I’d ask if there was a way to make that work that I hadn’t thought of.

    As I said, though, this is all hypothetical for me at this point, since I don’t plan on moving out of my rented one-bedroom apartment any time soon.

  16. Laura in Seattle says:

    Johanna: One of my old landlords had a barter arrangement that worked really well.

    The house we were all in had 6 bedrooms that were rented out. There was also a small trailer in the side yard that was rented out.

    The landlord would advertise the trailer as “X/month or Y/month + labor.” The renter would agree to do some set number of hours of work around the house per month. The landlord set the rent discount based on what it would cost him to hire that labor. So, if he needed 10 hrs of work at $15/hr, it would be $150 off the regular rent price. The trailer renter would then complete that work (repairs, yard work, fixing a busted knob on the back door, whatever) on a month-to-month basis. If at any point either of them was dissatisfied with the agreement, they’d simply give the other 30 days’ notice. It worked out very well.

  17. chacha1 says:

    This is of interest because I can see it as an option for my later years if/when I end up widowed. I’d think a written agreement would be essential no matter WHO was sharing space.

    I would want to already own the property I proposed to share (i.e. I am the landlord). And I think each adult HAS TO have their own bathroom!

    But it seems vastly preferable to living 100% alone in later years when daily interaction with another human can make such a huge contribution to mental health. DH’s grandma had a tenant for a long time, and they weren’t exactly friends, but just having another person around makes a difference.

  18. Kerry D says:

    For #9, what’s up? Are you sons adults? If so, why aren’t they contributing? Maybe they’re still kids… But, this was an important topic for our family recently.

    My oldest just turned 18, and it was an important reality check that room and board in the family home were no longer a given. Amazingly, he went from a rebellious teen to a lovely (seriously) cohabitator nearly overnight… He has agree to the terms of living at home, which are to be a full time college student with passing grades, and to take on some responsibilities, such as picking up brother from school.

  19. Mule Skinner says:

    I translated cohabitation to “shacking up”. Alas you had something else in mind . . .

  20. Crystal says:

    Cohabitation with a significant other can save money too…just be sure to work out all the details beforehand just like you would with any other roommate.

  21. Monevator says:

    Another angle to the barter approach is that it’s tax invisible, too!

    Handy if you’re formerly taking money for providing accommodation to the co-habiter and there are particular income barriers with respect to taxes (this is the case here in the UK).

  22. jgonzales says:

    I think the barter system can work, but it should still be in writing. The family who owns my apartment complex has about 5 or 6 total. On site I have a manager, maintenance man, and landscaper. They all receive a discount on their rent (and possibly free rent, that I’m not sure). They all also do a lot of work for the family who owns it. Both the maintenance man and the landscaper do work on all of their sites. The manager only works here, but she does continual work to keep this place in order.

    It’s written into their lease agreement that they are bartering for at least part of their rent. It works well for them, plus the maintenance man and landscapers are professionals who bring quality work.

  23. ChrisD says:

    My parents have a big house/empty nest and have their name on the register at a brain hospital. We get loads of foreign brain surgeons working/studying in London for a few weeks/months. All these people have family and friends at home and just come here to study/work. They make the ideal tenants. The deal is that they share the kitchen (and are expected to leave it tidy) but they more or less stick to their rooms and don’t have parties or guests. They have no cleaning responsibilities outside of their own rooms and everyone shares two bathrooms which works very well.
    Improving your finances with the rent is so much better than an empty room, not to mention the company and meeting new people. I feel sorry for anyone whose sense of privacy keeps them from this option.
    My parents don’t do background checks or ask for references, or even meet the people before hand, the brain surgeon part seems to work quite well as a proxy for reliability. If you are letting a room in your own home, you have more rights than a normal landlord/tenant agreement and can kick the person out much more easily than if they rented a self contained unit from you.

  24. Nicole says:

    sense of privacy or Home Owners Association

    Some of us can only rent our homes out to relatives because of old prostitution laws.

  25. Jeannette says:

    The few people I’ve known who have done this as older adults (divorced, in forties, or older), who did this because they had to, had the best experiences renting to people who had similar lifestyles and experiences. (Single mom with kid rents to another single mom with kid. Divorced male or female with another divorced male/female of same age group.)

    Even the nicest, most financially responsible people can make bad roommates because of their personal habits, which, while not “bad” can be difficult for the home owner.

    To wit, the issues of noise (playing the TV, music and/or talking on phone and can be heard at all hours of day or nite), entertaining (are you prepared to have your roomie bringing people over at all times of day or nite?), cooking (You don’t have to be from another culture or country to be cooking exotic and/or odiferous foods), food storage space in fridge and the like. Clean up is a key issue for many because some people are both lazy and sloppy as well as outright dirty. And no, you can’t tell that till you live with them. Some people end up not sharing or ending it over the condition of kitchens and bathrooms (sharing bathrooms is VERY difficult.)

    Cause unless you have a big house, really good insulation and a huge kitchen and more than one bathroom, there can be major challenges (Think: Two people cooking two totally different meals in a NYC-size apartment kitchen or even a house without a big kitchen).

    Temperature, believe it or not, can be a flashpoint. I’ve shared with people who hated AC and others who had to have it on practically all year. (An issue whether or not you have central air.)

    In many cases, if it’s about finances, it’s sometimes easier to rent out your entire place and then live somewhere else that is much less expensive. A few people I know have found this easier to do. Depending on rental rates where you live, you can sometimes do much better financially.

    Sometimes, it’s easier for YOU to move in with someone else you already know and rent out your place.

  26. Neal says:

    How do you feel about cooperative housing, in which members own the house via a nonprofit corporation, and allocate maintenance, cooking, and cleaning among themselves?

    They are a great option for college students and I could not have afforded college without them. I do not understand why people in the US are so hostile to nonprofit housing.

  27. deRuiter says:

    House sharing is a great way to save money and not lose a piece of property. If it’s really sharing a house, kitchen, yard, etc, consult tax professional because a house sharing arrangement would most likely no be considered “rental income” which is taxable. Look to renting auxiliary structures: garage space, storage shed, basement storage. ANY shared living arrangement reuqires STRONG written lease agreement. Never do it verbally, and when you write, spend $25. at legal aide to have it looked over by a lawyer because if it’s not legal, you can’t enforce it. Don’t forget the clause which says, “If any part of the lease is unenforceable by law, the rest remains in force.” Also get the highest security deposit allowed by law. If they can’t come up with security, even a relative, YOU DON’T WANT THEM AS A TENANT AS THEY WILL NOT PAY THE RENT. Put in a DAILY late fee and enforce it the first time or evict, it is amazing how people will walk all over you if you let them, but behave well if you treat it as a business. You can discriminate if you are renting out part of your own living space (you and them in one unit), but you are not allowed to mention discrimatory terms in your lisitng. If the person who comes to look does not suit you, do not rent to them, tell them you will get back to them. It is different from renting a housing unit where you can be whacked $10,000 for discrimination. Best plan is to talk to the potential tenant at length over the phone, you learn much this way, people reveal themselves this way, “I need a place because I’m suing my current landlord.”, “My family threw me out for drugs.” and “My two pitbulls bit a kid so the landlord is evicting me.” are all hints that this is not the person for you. As a person with a number of tenants who have lived happily in my rental units for 5-16 years, I can tell you, if you pick a gem, you’ll be happy and prosperous. No point in losing your home if you can save the situation by renting space. “Oh, I could never share my house.” from a person approaching foreclosure, shows a lack of good sense, better to give up a bit of privacy and preserve the real estate is my thought.

  28. deRuiter says:

    Neal, non profit housing is perceived as bad for a neighborhood because it attracts an undesireable clientele who are in that situation because of inability to manage their lives well. Domestic violence shelters bring domestic violence because the women keep telling their abusers where they are, other shared housing is for the mentally disturbed, the emotionally disturbed, alcoholics, drug abusers, and similar people peole who exhibit problem behavior. There is more turmoil around a group home, and the neighbors resent it. Non profit housing attracts those without full time jobs, so you have a lot of poorly adjusted people roaming the neighborhood, clustering in the yard. The neighbors see this as their tax dollars being used against them, supporting problem people who are then foisted, with their problems, on the taxpayer’s neighborhood. The neighbors also see, rightly or not, a danger to their children from people with problems.

  29. John S says:

    Yeah, sorry Trent, but I roll my eyes every time I see you suggest cohabitation. I cannot think of a faster way to turn friends into enemies, nor an easier way to lower one’s overall standard of living.

    What good is saving money, if it drives you crazy and gets you down to your last nerve, and takes away the sanctity of the one place in the universe where you could control your situation?

    That’s what you’re giving up when you cohabitate: control over your last bastion of privacy and personal space. It isn’t worth it.

    Better than being out on the streets? Sure.
    Tenable, if there is any other alternative? Not for me. I’d bet not for most people.

  30. Kate says:

    I think the responses to this post are really interesting, and speak volumes about the things our different cultures value.

    Many of the posters here are coming at the idea of cohabitation as something you have to do because you’re in dire straits, an imposition on freedom and privacy, a set of drawbacks to put up with/avoid at all costsetc. It’s a very individual take on things.

    By contrast, I suspect some cultures (including my own!), come from a perspective where cohabiting is a benefit, an opportunity to grow closer to family, to learn about another culture, to enable opportunities that we wouldn’t have otherwise.

    My in-laws lived with us for a while, and it was a wonderful arrangement. It allowed them the security of knowing someone was home in case anything happened, let us help out as they aged, let us spend time with them as time became a more precious commodity, not to mention the finances…

  31. Ruby Leigh says:

    For the most part, We love having roommates. There are some challenges, but usually it’s like having closer friends. It also saves us money. We own the house so we just set up a landlord/tenant contract for them and their room. I can usually get a pretty good feeling on whether someone is going to work with our lifestyle from the begining and I avoid anyone who want to “barter” unless I know them personally. We don’t have a lot of upkeep at our house, so there’s not much to work with.

  32. Mary says:

    Just want to say I love your posts just for the fact that I learn something new every day,and get to hear other people’s points of views on a myriad of different subject matter. Keep up the good work! Mary

Leave a Reply

Your email address will not be published. Required fields are marked *