If hard times has you renting out that empty room for some fast cash, you could be opening the door to a lot more cost, not less.

The Insurance Information Network of California (IINC) says financially strapped homeowners renting out rooms to help pay the mortgage or other costs may be overlooking key issues that could lead to greater financial hardship.

Community, rental rules

Like opportunistic homeowners renting space to visitors in town for special events or even like charitable homeowners housing temporary disaster victims down on their luck, struggling homeowners looking for a fast buck should check for community, legal and insurance repercussions.

Renters who sublet, owners who live in communities governed by homeowners associations, zoning violators and others living under certain community rules or regulations could lose their home through either eviction or foreclosure if they violate terms of the contract, community edicts or local law.

That's also true in some single-family detached housing communities.

Homeowner's insurance, taxes

When it comes to homeowners insurance, the rental of rooms may be considered a business. However, limits could be placed on insurance coverage, including coverage for contents, personal liability, medical payments and identity fraud.

Policy add-ons or endorsements similar to those offered for home-based businesses are available to help cover a homeowner's assets in case of a landlord-tenant dispute or suit.

When part of a home becomes a business certain tax laws could be triggered. For example to help foot the bill for the "Housing and Economic Recovery Act of 2008" the act eliminates a capital gains exclusion for the portion of gain (during a sale) that comes while a home serves as a vacation or rental property.

"The last thing struggling homeowners need are more ways to lose money," said Candysse Miller, IINC executive director.

She says homeowners should carefully review their insurance policies with their agent or company before taking on renters. Likewise, they should know the local rules and not try to surreptitiously circumvent them.

Renting concerns

Renters should also be aware that the landlord's policy may not cover their possessions or provide liability protection in case they are sued.

On the other hand there's always the possibility of the tenant from hell will wreak havoc and then fall back on legal renters' rights law to over stay their welcome.

Instead of jumping at the prospect of a windfall, first-time landlords should spend ample time researching city and state landlord/tenant laws, tax rules and other related information.

A detailed background check on the prospective tenant can help identify any potential problems that may arise during the tenancy.

Many cities and municipalities as well as apartment and landlord associations also offer landlord/tenant services departments to help with questions and to avert disputes.