Are you ready to hear them? You can binge read this article, or take it one line at a time. Be sure of one thing, there are 13 reasons why (and why not) you should consider renting out your property on a room by room basis.
Many landlords and tenants are considering renting multiple tenants on a room by room basis instead of renting the whole property to one person or a family. This kind of plan benefits both landlords as well as tenants. Landlords have the opportunity to bank higher incomes per month, and tenants get to reduce their monthly rent by sharing it with others.
It’s definitely a profitable investment but there are risks involved. For the sake of simplicity and to accommodate our examples, we’re going to assume you’re renting out a three bedroom property on a room by room basis throughout this blog.
Reasons Why
- There’s surely an increasing demand for room by room rentals. It’s especially popular among millennials and college students because it allows them to reduce their rent expenses, allowing them to save cash for other purposes.
- It’s easier to find room by room tenants due to the high demand for this type of arrangement. It’s usually more difficult to find year-long tenants when you’re renting out the whole house because you’re considering many more factors in long term tenancy.
- You have potential to make more money. For example, you could either rent out your three bedroom property to one tenant for $400 a month, or rent out each of the rooms for $180 each, mounting your rental income to $540.
- Your extra income coming from renting separate rooms can help you pay your mortgage payments.
- It can be fun! Since renting by a room by room basis is not the most traditional form of letting your property, you get to be creative. Whether it’s in marketing your property, or decorating it to accommodate multiple tenants, or thinking of ways to match tenants who will get along, you’ll surely get a kick out of it somehow!
Reasons Why Not
- You essentially have three tenants instead of one. One problem turns into three, one late night phone call turns into two or three.
- Multiple tenants, and a higher turnover rate means higher maintenance costs. You are essentially dealing with more damage and more wear and tear.
- You have extra things to figure out. Who pays the utilities? Or are they deducted from your own net income. Will you ask the tenants to pay it and divide it among themselves, or will you set a meter for each of them?
- Your tenants are usually short term, and while you may be able to figure out an arrangement, it’s temporary. Your tenants will more easily leave the property once they graduate, find a better place to stay, etc.
- Renting on a room by room basis means you will have higher average vacancy rates, especially if you’re renting out to students. You may see your property turn into a ghost house during the summer.
- Irregular tenants may not be of as great quality as longer term tenants that you spend a longer time vetting and screening.
- Landlord Insurance Policy is usually issued and paid per tenant. So if you’re renting to three tenants, you’ll need to issue and pay for three insurance policies = extra costs.
- All of the above essentially means your workload as a landlord and an investor will increase significantly. Landlording will become an even more time consuming job. If you’re managing the property yourself, your workload will multiply significantly. And if you’re using property management, you’ll have to deal with the extra monetary costs.
The How To
If you feel like the benefits outweigh the costs and risks of renting on a room by room basis, here’s you how-to guide for renting residential properties on a room-by-room basis.
Choose a good location
Real estate lesson #1: LOCATION.
Location factors such as how close the property is downtown, public transport, and amenities, are important specifically to tenants. To investors, it’s all about where they can make the most money. Try to locate a property close to a university or college, or specifically invest in a college town. Proximity to college if you’re investing in a college town/city. Moreover, you can go ahead and follow millennials, the real estate investor’s goldmine. Always remember that you can use Mashvisor to optimize your property search, and use our different tools to find the optimal property.
Related: Best Places to Invest in Real Estate: Follow The Millennials
Make sure the property can actually handle multiple tenants
You need to make sure that the property you’re renting on a room by room basis can accommodate multiple tenants. Is there enough area to lodge multiple tenants’ personal spaces and personal needs? Consider shared rooms such as the living rooms, kitchen, dining room, number of bathrooms, etc. These are important aspects that tenants pay attention to and care about. So minding these aspects in your property will definitely make it more attractive and will help you market it better.
Rental renovations that reduce costs
Whether you’re renting traditionally to one tenant, or by room by room basis, you’ll need to renovate your property between tenants. We suggest you choose rental renovations that reduce costs in the long term. For example, choose tiles or a hardwood floor over carpets to avoid cleaning and replacement costs. Additionally, consider using materials such as melamine for kitchen cabinets, doors, drawers, etc. It is a low cost wood that is durable, easy to clean, and easy to re-coat. Always try to use cost effective rental renovation tips when renting on a room by room basis to avoid the extra costs.
Related: 6 Rental Renovation Tips to Know Before Spending Any Money