Does Anyone Have Experience With Boarding Houses?

Marietta, GA · Member since 2018 · 12 posts · 6 votes

I am analyzing a possible deal for an 8 room boarding house in South Carolina. Motivated seller (property has become a headache for owner), 5 rooms currently occupied, paint and carpet rehab. Would a boarding house be treated as commercial or residential? Is it similar to a multi-family property? Thank you for any advice!

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Jamie Watson

Investor · Fort Wayne, IN · Member since 2014 · 11 posts · 6 votes

@Durante Kirby we owned a 9 bedroom. It was by far the most lucrative property we have ever owned, paid for itself like three times. We sold it because we decided we had done it long enough. We owned it for about 6 years I think. It is fairly labor intensive but not a full time job. We collected rent (in cash) weekly. I would advise trying to get renters on venmo or another platform for safety reasons. Collecting every week can be time consuming and we thought it was a matter of time before we got mugged. Screen your tenants, make sure it’s zoned properly and do regular room inspections. We did “room agreements” rather than leases so the tenants understood the rules. Getting insurance was a little tricky and expect the quote to be high. Message me if you want any other advice.

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Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
8y
@Durante Kirby where is it in South Carolina?
I would absolutely call Zoning first and check with them and make sure it is legal before doing anything else.
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Durante Kirby
OP
Marietta, GA · Member since 2018 · 12 posts · 6 votes
8y
Thank you @Will Gaston. That makes sense.
0 Reply
Durante Kirby
OP
Marietta, GA · Member since 2018 · 12 posts · 6 votes
8y
@Will Gaston it's in Spartanburg.
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Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
8y
@Durante Kirby call Spartanburg County and the city as well and verify the status. Assuming it is legal, I would do a good amount of due diligence on the property with regards to the leases (if there are any), neighbors (who probably hate the house), and the actual property itself.
From what I know about boarding houses is that they are high cash flow/high management propositions. I grew up in Spartanburg and it is definitely not known for it's appreciation.
2 Reply
Ray Harrell
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
8y
If it's a headache for the current owner, what makes you think it will turn into a park visit for you?
1 Reply
Durante Kirby
OP
Marietta, GA · Member since 2018 · 12 posts · 6 votes
8y
@Will Gaston you are a gentleman and a scholar. I'm still a newbie at this so thank you very much for the advice!
1 Reply
Durante Kirby
OP
Marietta, GA · Member since 2018 · 12 posts · 6 votes
8y
@Ray Harrell the owner is elderly and really doesn't have the energy to manage the property any longer.
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Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
8y
Originally posted by @Durante Kirby:
@Will Gaston you are a gentleman and a scholar. I'm still a newbie at this so thank you very much for the advice!
Thanks, although my wife would beg to differ!
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Ray Harrell
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
8y
@Durante Kirby, They are very money and management intensive. You will find yourself managing personal disputes, stealing food, begging and borrowing and a lot of other social aspects. Look for this to be a full time job. Consider you will have to replace bedding every time someone leaves (which will be frequent), provide initial linens, constantly spray/bait for pests (especially bed bugs), and will have to abide by an even stricter set of occupancy rules. It ain't easy!
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Durante Kirby
OP
Marietta, GA · Member since 2018 · 12 posts · 6 votes
8y
@Ray Harrell thanks! This is the advice I'm looking for.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Only experience I have had is a funded a few and ended up owning them.. would not wish this on anyone.
talk about DRAMA and petty stuff.. its not an investment its buying a small business of managing low income to indigent people. @Ray Harrell I have seen people pull it off but its just like in the movies...
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Christopher Bunge
Real Estate Broker · Columbia, SC · Member since 2015 · 148 posts · 110 votes
8y
Be cautious about the difference between rooming houses and boarding houses, group homes for profit, faith-based homes, rehab or halfway houses. Richland County and (probably Spartanburg county) have at least a dozen distinctions and each with different zoning and codes.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @Durante Kirby:
@Ray Harrell the owner is elderly and really doesn't have the energy to manage the property any longer.
My best properties don't take any energy to manage. I would avoid 8 tenants at low dollar amounts. Too many people focus on more doors. It is better to have less doors and more dollars per door.
1 Reply
Jamie Watson
Investor · Fort Wayne, IN · Member since 2014 · 11 posts · 6 votes
8y
@Durante Kirby we owned a 9 bedroom. It was by far the most lucrative property we have ever owned, paid for itself like three times. We sold it because we decided we had done it long enough. We owned it for about 6 years I think. It is fairly labor intensive but not a full time job. We collected rent (in cash) weekly. I would advise trying to get renters on venmo or another platform for safety reasons. Collecting every week can be time consuming and we thought it was a matter of time before we got mugged. Screen your tenants, make sure it’s zoned properly and do regular room inspections. We did “room agreements” rather than leases so the tenants understood the rules. Getting insurance was a little tricky and expect the quote to be high. Message me if you want any other advice.
4 Reply
Ray Harrell
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
8y
@Jamie Watson, labor intensive depends on your clientele. If you're not breaking up fights, buying beds every other month, getting bedbug treatments every other week, etc., then it may not be so bad. If you had longer term occupants then maybe not so bad. But usually these types of renters are looking for quick places to stay because their mother threw them out, or girlfriend, or they have zero credit, or unverifiable income source. I require money orders though and I don't give receipts either.
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Jamie Watson
Investor · Fort Wayne, IN · Member since 2014 · 11 posts · 6 votes
8y
@Ray Harrell it very much depends on your clientele. We had many long term tenants. It was affordable and somewhat close to a smaller college. We had maybe two fights in the time we owned it but we werent there to break them up. We didn’t know until after they happened. We told people we weren’t going to babysit them but they had to keep to themselves and not disturb others. We screened pretty carefully. Anyone with a history of violence or drug abuse was turned away. Bed bugs were an issue once but we made a rule no one could bring their furniture into the house unless it was inspected and that seemed to help. Everyone has a different experience. We certainly learned as we went on some things.
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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
8y
A lot depends on occupants. Is your target occupant students? Older people? Working adults? Like all classes of rentals it is work. If you want to know the issues with the house look in the police logs in the paper if you have them. You can just run a search on the address and see if there are any arrests. Look at the duration of tenancy, this is where long term tenants could be the best asset.
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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
8y
Here's a few little tricks to see about businesses that may be regulated within city limits. First check out the MuniCodes for the city, in this case . If there are general regulations, like rental registrations, etc., then you should see them listed under (usually) a 'businesses' type heading. Second, google the town name followed by "business tax", like this:
With a few clicks, you will find the and see that Boarding Houses are identified (meaning they are 'legal' to run) and taxed at $3.30 per $1,000 in revenue (half that rate if inside city limits).
If you are indeed from Mariette GA, then Spartanburg is a few hours away. Big red flag in my book. As for financing, a Boarding House would not qualify for 'traditional' financing (page 268 of the under ineligible properties) and you'd need seller financing or a commercial bank. Being you are out of town, commercial lenders will tend to say 'no', especially for this asset class.
Hope that helps.
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
8y
It depends on your demographic. If you have a boarding house that focuses on seniors looking for a more affordable option than a SFR, with less maintenance, but like the company, it can be a great business. If it's students serious about saving money while they pursue their education, that too can be a great group. If it's people with serious issues, that cannot function on their own, get into trouble, or are dysfunctional, it can be a nightmare.
My sister rents my house for a sober living home for women. In reality, most are coming from abusive situations, and/or cannot afford to live on their own, or are trying to put their lives together. They're not a problem. Some are employed, others students. There are house rules, and standards, and it works out very well for the most part, and they keep the house immaculate.
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Muroo S.
Investor · Seattle, WA · Member since 2015 · 38 posts · 9 votes
8y
I currently run my primary residence as bedroom rentals in Seattle.
Upstairs(my living area) has separate entrance and downstar bedroom units has its own entrance so i dont interact with tenants on daily basis.
- if you put 50:50 on male vs female tenants, they tend to be more cleaner
- separate bathroom for Men and Women
- shared Laundry and shared kitchen with eating space
- $500k liability insurance from each tenant upon move in
- very detailed house rules added as a clause on rental agreement
i do have my day time job and rental side is not treated as full time job for me. Make sure to interview each applicant to make sure prospective tenant is a fit for remaining tenants. I like to rent it to students or young working professionals. no section 8 etc.
venmo; facebook; square cash as primary rent payment method is a must thing.
if you upgrade each unit with occupancy sensor for heating and electric, and coin operated laundry would be great as well.
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Valerie Payne
Member since 2018 · 4 posts · 1 vote
8y
@Jamie Watson thanks for your detailed answer - I am considering buying a 7-person rooming house. I will live two hours away and maintain some on-going support from the current owner. The area is gentrifying but it’s kind of a rough neighborhood (and I’ve lived in them so I’m not necessarily put off by that). It’s in the process of becoming a legal rooming house so I’m guessing the insurance will go up once that is done. I like the idea of room agreements which I don’t think the current owner is using - he collects cash/money orders monthly. Seems like a pretty stable group but I know (I’ve worked with formerly homeless folks) that won’t last. I know I have to check with local building codes, and likely have to install a better fire response system. What did you use?
1 Reply
John Mocker
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
8y
Durante,
Insurance coverage for a rooming house would be considered Commercial in most Insurance companies. Also, the coverage is more difficult to find then coverage for an apartment building. Many carriers that cover apartment buildings will not do the rooming houses. I would definitely contact several independent agents in the area and find out the availability and cost of the coverage.
As with Apartment buildings, lead paint, knob & tube wiring, aluminum wiring, flat roofs, asbestos shingles, in ground oil tanks, etc. can all be issues.
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Natalie Thomas
Cleveland, OH · Member since 2018 · 2 posts · 2 votes
8y
For me I love boarding homes the cash flow is nice Especially when you owe the house free and clear.i have been doing it for 2 years now and I’m hooked only downside is they move a lot so u are always marketing I do a prescreening over the phone to figure out who good for what house and also the cleaning is a problem but u can use someone in the house to keep up on it and u might want to get mini fridger to keep theft down on food I also supply cleaning supplies for them to use it’s a huge need in my city I keep my rooms full
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