5 Pitfalls of Renting by the Room (& How to Solve Them)
The rent by the room strategy is a topic I see heating up on the BiggerPockets Forums. Or, maybe it’s the keywords I elected to be notified of when someone posts. Either way, I want to address a few items for a few reasons.
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Here they are:
- I am very passionate about this topic.
- I think it is the best way to rent out a space.
- It is all that I do.
- It can get ugly if you are not prepared.
- A lot of people do not understand the pitfalls.
Pitfalls of the Rent by the Room Strategy
I want to discuss some of the items you need to be aware of when using the rent by the room strategy. I have written other blogs about the benefits, but we should discuss possible issues that you may have, too.
Issue #1: Drama
You will have drama. End of story. You are putting strangers together in an apartment.
Have you watched any reality TV lately? OK, that sounds bad, I know. It is not quite like that, but you will have “tiffs” here and there.
The two most commons issues are cleanliness of the common areas and food stealing. People are not as clean as others. Some just pile dishes in the sink; that wears on others’ nerves. With the food, maybe they have had a few drinks and are feeling hungry. Maybe your roommate Joe’s Chinese takeout is looking real good.
My solution to this? I pay $40 a unit for my units to be cleaned bi-weekly or monthly. It is worth the expense all day.
Should the food stealing persist, I have had people plug in a mini fridge in their room, essentially keeping their food locked up.
Issue #2: Leases
I get asked this a lot. What works for me is having everyone on their own lease. This is what I have done. If you have intel on a better way, then I am all ears. I can tell you that having separate leases is really the only way I can see it being done.
Let’s go back to Joe (in issue #1) and his roommate Susan. If Susan doesn’t pay her rent, why should that be Joe’s problem? When you have separate leases, everyone is only responsible for their portion. If you are getting into a rent by the room situation, more than likely your expendable income is not great. You cannot be bothered financially or otherwise with what your roommate pays or doesn’t pay.
I know some people who put everyone on the same lease. Their thought is that if they do this and someone doesn’t pay, the others will essentially gang up on the one that doesn’t pay and badger them into making a payment. That is not how I roll, but I suppose it is possible.
For me, if you didn’t underwrite and vet your tenants’ finances well enough, that is on you—not anyone else in the unit.
Another question about leases that I get a lot is what to put in the lease about the common areas and who is responsible for what. To be honest, I have little in my lease about that. It might be a bad thing, but I am just being honest.
Another truth is, I have never had one penny of intentional damage to a common area. Yes, I have regular wear and tear but have never had to go CSI (the crime investigation show) on a unit, trying to figure out who put a hole in the wall. That is a lost cause. I do not believe anyone will own up to it, and I would rather fix it myself than listen to the old “blame game.”
Issue #3: Education
Have you ever gone into a store and there is a rep for a product there showing you how it works? Most likely that is because if you just saw it on the shelf, you would have no idea how to actually use it.
I would say all but 10 percent of the conversations I have with prospective tenants require me to educate them on how this arrangement works. Many did not even know it was possible.
I cannot stress enough how important it is to be crystal clear from day one. The first thing I always say is, “Hi, this is a shared space with roommates. You get a private bedroom and the common areas are shared. Is that okay with you?”
This sets the tone and allows the prospective tenant to decide early if it is for them or not. There is usually little convincing going on. They either like the idea or they do not.
Issue #4: Town ordinances
The town I invest in has a town ordinance on this strategy. They allow “four unrelated people per unit.” Meaning, if you have a single-family house (one unit), you can only have four unrelated people in it. If you have related people (part of a family), that is a different story. If you have a duplex, you can have up to four people on each floor, and so on.
Check with your town. Every town is different.
Related: I’ll Never Evict a Tenant—Here’s Why
Issue #5: Tenant turnover
This is interesting because, for the most part, I actually have long-term tenants. I have had many, many people stay more than a year and even quite a few for three years or more.
Generally, what I see is a slight degree of increased turnover over regular per unit rentals from other investors who are doing this strategy. (I have experienced this in some cases, too.)
In almost all cases, a rent by the room situation is not someone’s final resting place. It may just be temporary. Maybe they just need the space for three or six months. I have grown to be somewhat flexible with lengths of leases.
Another reason for turnover could be drama. I had the boyfriend of a tenant clear out an entire unit, including themselves. I basically lost three tenants over one person who was not even on the lease.
I always require crystal clarity on who will be staying in the unit. Generally, a boyfriend and a girlfriend staying in a room together is not a great idea. I have two rooms like that now but do not really suggest it. Usually those who rent from me are young people. Therefore, a young couple living together for the first time could be bad news.
I had a friend once who saw me doing this strategy and gave it a go for themselves. It was literally complete decimation. These tenants tore the place up. They tore my friend up. It got ugly.
I truly did my best to warn them of the possible pitfalls. I believe that given this person’s mentality and personality, it just was not a good fit from the start.
Overall, these issues are ones to keep in the forefront of your mind but should not deter you from this strategy. I truly think renting by the room is powerful from an investing perspective and fully believe that the pros outweigh the cons.
Do you have questions for me about this strategy? Have you experienced or heard about any other pitfalls related to it?
Let’s talk in the comment section below.