Boarding House Investment

[Zachary Brown]

Hello everyone -- this is my first post here on the BP site.

My partner and I are looking into purchasing a boarding house and I wanted to see if anyone else would offer their opinion. The home is located among multi-family properties.

As of right now the property consists of:

• 1st floor is a (3) bedroom apartment leased on a yearly basis for $1,500 per year (going up to $1,700 per year at the end of the month). Has (1) full bath and a full kitchen.
• 2nd and 3rd floors have (8) licensed rooms and (2) non-licensed rooms rented out for an average of $170 per week on a weekly basis.
• 2nd floor - (2) rooms have (1) private bath each. Floor also contains (1) full shared common bath.
• 3rd floor has (2) common baths - (1) Full and (1) Half
• 2nd and 3rd floors have no kitchen or kitchen access.
• Onsite coin operated laundry 
• Parking fee charged for using paved parking the back

I have done the proforma excluding the non-licensed rooms and and came out with COCR of around 15%.

Also ran the numbers excluding the non-licensed rooms and came out with a purchase price of around $360,000 @ 11% cap rate.

The home is in decent shape but will need to be updated and repaired in the future. We estimated the costs conservatively of these repairs to be around $32,000 or 2 years of NOI after debt service.

There is opportunity to add value to the property by increasing the rents or pssibly converting the property from a boarding house to a multi-family property in the future. This could be accomplished by moving from a Class C tenant to a class B tenant.

I can provide more info.

Thanks for you help!

[Roy N.]

@Zachary Brown

Welcome to BP!

My first question would be is this a "boarding house" {usually defined as providing one or more meals per day} or a "rooming house" {provides furnished rooms along with common kitchen and bathroom facilities}?

My second question would be, "Who is the tenant population for this house?"   In our experience, rooming houses tend to serve very specific demographics, such as:

• students - we operate a rooming house which serves international students attending the local universities;
• {a specific} work force:  It is not uncommon to find rooming/boarding houses in close proximity to major employers (factories, hospitals, fish plants; etc);
• seniors:  A rooming/boarding house which serves seniors;
• the displaced & transient:  Rooming houses which serve those on the fringes of society (mental illness, transient, addictions).

The population you serve will very much dictate the type of operation you will run and each comes with its own management challenges and rewards.

My third question is, "Is this rooming house compliant with local zoning and bylaws?"  Your mention of licensed and unlicensed rooms leads the read to believe that it is (more or less).  Many cities greatly restrict where and how a rooming/boarding house may operate, yet will often knowingly tolerate a non-confirming rooming house - until they don't.  Best to know the lay of the land before you commit capital.

Does zoning permit your plans for conversion of the property into a true multi-unit?

Does this house presently have a live-in "Den Mother" ("Superintendent if you prefer) who keeps law-and-order, collects rent, ensures the place is kept clean, serves as the tenants "face" to the business?   Our experience has been it is critical to have a "Den Mother" whom you trust living in the property.

Only knowing the context in which this business operates can you evaluate whether it is a "good business" which throws off sufficient cash to compensate for the elevated administrative effort and risk which comes with running a rooming/boarding house.