Well, it is that time of the year again. Merry Christmas, everyone!
Are you on the naughty or nice list? I happen to be on the nice list this year (I think).
For anyone else who is not getting coal in their stocking, what did you ask for this year? I only had one thing on my list.
Any guesses? OK, I will tell you, but it stays between you and me.
My Christmas List:
1. More cash flow
End of list.
That is it, folks. Just more cash flow (and world peace).
Just in case Santa doesn’t deliver, I do have a backup plan. That plan is called “rent by the room,” and it has gotten a ton of people talking recently. When everyone starts talking about or asking the same questions, that is how I know I really need to address some of these common talking points.
Here are the most common questions, and answers for each, about renting by the room.
Rent by the Room FAQs
How do you structure the lease?
This is the most common question I get. I tend not to share the lease I use, because each lease should be reflective of whichever state and city you are doing business in. BiggerPockets has leases for each state. That is where you want to start. (Note: These leases are $99 per state, but are a perk of the Annual Pro Membership.)
From there, all my leases are truly “by the room” and individual for each person. I do not have all the tenants on one lease. This way, if one tenant doesn’t pay, it does not affect everyone else.
Now you have a generic, individual lease in hand. I then like to add language in about respecting others’ private property and the common/shared areas. I go on to talk about how any stealing or damage to anyone else’s property will not be tolerated.
You may also want to add in points about cleaning up after yourself in the common areas and maybe even a note about no loud noise/music after a certain time. All of this is really the main differentiator.
You want to stylize it in a way that addresses the individual nature of this rental arrangement and stresses the importance of respecting the space and roommates. I go on to make clear that the rental payment for the individual bedroom is that of their own; it pays for the room, use of the common areas (bathroom, kitchen, living room, etc.), and their share of utilities (if included).
It also wouldn’t hurt to have a local attorney draft one lease that you could just tweak as you see fit. Once you have a solid lease in hand, you can make small changes as you go along and as issues arise.
How do you ensure common areas are kept clean?
Some of the best money I spend is to have my units cleaned twice a month (for college rentals) or monthly. This helps the cleanliness factor immensely.
Tenants will vary in terms of what they consider to be “clean.” I can tell you that making a cute list about who cleans what on which day usually does not work.
Paying someone to clean the units is more than just avoiding arguments about dirty dishes; it protects your investment. It may not seem like vacuuming or wiping the countertops down does much to your bottom line. But if you don’t have someone doing that for a year or two, things are going to really start getting gross.
Whether you do or do not pay for cleaning, it is money well spent to have some cleaning items in the unit for general cleaning by the tenants. Aside from that, and as mentioned before, I have also known some people to include content in the lease about cleaning and how it should be a shared responsibility.
This can get out of control quickly. If you do not have hired help cleaning the units, or language about cleaning in the lease, you may want to select the most responsible person in each unit, put them in charge of cleaning, and take $25 to $50 per month off their rent.
Where do you find people who want to rent like this?
In short, you find them in all of the same places that you find people looking for a whole unit.
I post on Zillow, Apartments.com, and sometimes Craigslist. Zillow and Apartments.com shoot the ad out to other sites like Trulia, ForRent.com, etc. I have no issues at all finding more than enough people for the rooms I am offering within those sites.
There are also dedicated rent by the room sites. I have not used them yet. They are gaining some traction, I understand.
The sites I am talking about are:
Is there any drama between roommates?
Yes—nearly every time.
However, it’s not enough to make the increased cash flow not worth it. There is going to be drama—just like you get with a regular per unit rental.
The most common issues I have are:
- Food stealing (petty stuff like consuming one’s alcohol out of a bottle, stealing individually wrapped items like popsicles, or maybe taking leftover pizza or Chinese food)
- Loud/annoying guests
- Parking (one of my biggest factors when picking out a new property—is there a lot of room for parking?)
Nothing us landlords cannot handle. You want to nip those issues in the bud right away, though.
What I always suggest is that the roommates work it out amongst themselves first before I get involved. If I do get involved, I respectfully ask both parties that the issue stop right away and that both parties (guilty and non-guilty) respect each other, respect each other’s space, and also respect each other’s possessions.
I remind them that we are all adults here and that we should be acting like them.
What I also do is try to pair up like personalities. It does you no good to fill your last room in a unit of middle-aged, working-class women with a 21-year-old partier who bar hops on tipsy Tuesdays, thirsty Thursdays, and every weekend day, too.
While you want to be cognizant of fair housing laws, you may also want to consider simply putting the younger, less mature college guy on a floor with people who he might more closely relate.
Either way, I rarely have any of this “drama” go past me addressing it once or twice. In general, people simply want a quiet, comfortable, safe place to live and do not want any trouble.
To that end, I would be remiss to not address one last point here. Do be careful who your tenants are dating or who their friends are. While this may be hard to screen for, you should ask if there will be a significant other staying over a night or two here and there.
Also, it is not a bad idea to look up the tenant on Facebook and see what their love interest or their friends are up to. I had one tenant’s boyfriend clean out an entire unit of tenants because he was angry, aggressive, and threatening. Bad times.
Do you offer the units furnished?
This is somewhat area-specific, as I have come to realize. In the early days, I did offer units furnished; now I do not because nobody cares.
In general, my tenants bring enough to furnish their rooms, and that’s all they need. Most times, the tenants aren’t sitting around the living room holding hands and telling stories. For the most part, tenants stick to their individual rooms and are not being really social with each other.
I do put out general items though. I include garbage bins, garbage bags, some utensils, some flatware, shower curtains, bathroom mats, outside door mats, and entryway runners. You can add to or subtract from this list as you see fit.
I do not think there is a one-size-fits-all answer. It is area-specific, tenant class-specific, and also up to you.
If you want to include the whole kit and caboodle, that is great. What I think you will find if you do that is you will slowly start subtracting unused or unwanted items from that list, based on your ongoing experience. This will be great, because it will allow you to slowly refine what you want to include until you have it just right for you and your tenants’ liking.
This only works for college kids/in college towns, right?
I only have one college rental. Everyone else who rents from me is a 9-5 worker. I have everyone from construction crew members to landscaping workers to hospital staff members to teachers to bank tellers to IT professionals to coffee shop workers—and beyond.
This is for anyone who is looking for an inexpensive place to call home that is safe and a good way to save money prior to moving on to something more private and/or permanent. I should say, though, that there are numerous tenants with me now who have been with me for many years.
Do not limit yourself to just college towns. What I look for are towns with low to middle income and plenty of employers like hospitals, schools, factories, and the like.
Colleges and college town certainly do work, though. While some landlords do, I do not tolerate the whole “raging college party” thing. I offer a nice and respectable place to live, and I expect that the space be kept that way.
I have run across other people doing rent by the room in expensive areas like Washington, D.C., too. There may be an affordable housing need for these more affluent areas.
Bottom line, see what other people are doing to determine if there is a need for this rental type. Aside from rural areas, I think it is “game on” with this strategy for the most part.
Is this even legal?
Best answer here is to check with your local town on what rules they have on this. If a town has rules on this, more than likely, it is about how many people you can have in one particular unit.
They do this mostly for safety. The last thing they want is to have a unit with three bedrooms, but you split up each bedroom into two and also converted the living room and now you have seven people in one small apartment. This could cause issues regarding safety.
I also think towns want to cut down on blight-related issues. They do not want these seven tenants’ cars crammed into one small driveway, where three of them are parking on the front lawn. This is not a good look.
Furthermore, most towns have regulations on how many square feet is required to truly have a “livable space.”
Check with your town. The last thing you want is the local building department and code enforcement officers on your tail.
What do you charge for rent?
This is no different than regular per unit rentals. Answer is: what is everyone else doing?
Check Zillow, Apartments.com, Craigslist, and those rent by the room sites. Find someone who is renting a similar space to yours, and see what they are offering it for. Copy them.
No need to reinvent the wheel. It is really that simple!
In conclusion, and as I have said many times, this strategy is not for everyone. It takes a certain temperament to be able to handle this.
You will have problems. You will have drama. You will pull your hair out. You will question yourself.
What I have yet to do is find any of these reasons, or combination thereof, as grounds to think it is not worth it—not even close.
Merry Christmas, and Happy Cash Flow!
What other questions do you have about renting by the room?
Ask me in the comment section below.