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Double the Tenants, Same Rent

Brendan O'Brien
3 min read
Boy, it would be great if the financial crisis and general economic slowdown meant I saw more qualified tenants to rent my apartments. The theory is that increased foreclosures and tighter credit will result in more people looking for apartments. The problem with this theory, at least in my little corner of New Hampshire, is that most of the people looking for apartments now have very little money. The foreclosees lost their homes because they didn’t have any money. The regular renters can’t spend a lot on housing because prices of their other necessities have risen, and their wages have stagnated.
How do these folks get housing with very little money? In many cases they do it by doubling or tripling up – getting only a small share of the apartment each, but also paying only a share of the rent.

Two Women by Beige Alert

These nice ladies want to share a new apartment –>

This is different than the situation I described in my last blog post. That covered an existing tenant wanting to add a roommate to share the rent. And, of course, you will have situations when an existing tenant wants to add a roommate for romantic or family reasons. Both of those obviously present different issues.

However, roommate situations from the beginning of a lease present plenty of challenges of their own. You can avoid some of them by setting clear rules and having an appropriate legal arrangement. You will also do better with certain kinds of roommates than others. Note here that I’m not talking about married tenants who obviously (unless they are separated) will be sharing the apartment.

But generally, the best roommates will be those who have lived together before. These folks already know each other really well, and are unlikely to discover unpleasant things about each other that make one of the roomies move out early.

What’s Not Your Responsibility?

I don’t think you should spend any time at all figuring out how the roommates are going to share the apartment. For example, you don’t really care who uses which bedroom or how they figure out long distance charges. There are excellent Roommate Agreements, arranged strictly between the roommates, which they can find on the Internet.

What is the Financial Arrangement?

The simplest arrangement might actually be to get a completely separate lease, with separate payments due, for each of the roommates. In this case, you are treating each roommate as a separate tenant.

One problem with this is that the tenants may earn very different incomes, so that one can afford all or half of the apartment, and the other cannot. Frankly, however, such disparities make for very temporary roommates. Unless they are in a romantic or family relationship, when one roommate depends on another for support, the arrangement almost never lasts.

Another problem is that if one of the tenants moves out, the remaining tenant or tenants still have valid leases. Suppose you have two separate leases, each calling for $450 per month. One of the roommate/tenants moves out. Now you are getting $450 per month, total, for a unit that should bring in $900. And you probably can’t do anything about it.

A better bet, I think is to have one lease, signed by all parties, with one rent payment they are collectively and individually liable for. This means that if you have three people in a unit with a lease for $900 per month, it is up to them to come up with the $900.

What Happens If Somebody Moves Out?

Using the one-lease arrangement, the remaining roommates or roommate still owe you the full rent. Realistically in that situation, you’re probably going to give the remaining tenants a chance to find a new roommate. However, this is not something to stress before anybody signs a lease! You want the new tenants to believe they have a financial stake in getting along – that way they will treat the commitment more seriously. And, of course, you may want to evict remaining roommates if one of the original two or three breaks the lease – it may be an opportunity to find new, better, or just better paying tenants.

If you do allow the remaining tenant to find a new roommate, you have two options. One is to have a new lease supersede the old one, but with the new names. Cancel the old arrangement, and create a new one, only if the tenants’ do not owe any rent for the current or previous months under the old lease.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.