I plan on living in Plano, TX for a W-2 job, and I am eager to buy a property in the city. I have been considering trying to leverage an FHA loan; however, there are not many affordable duplexes in the areas (to my knowledge).
I was wondering if it is a bad idea to buy a single family home, live in it, and rent out the other rooms.
I assume that it is more tricky with regulations and simply having a greater number of tenants, but I just wanted to get some opinions. Thank you!
@Christopher O'Brien Yes, you can rent out the rooms, but first, check out your city's occupancy limits and HOA is if there is one.
I've done it successfully here in Denver, you just need the right systems in place and house rules to establish guidelines for all roommate-tenants to abide by. The key is short-term leases (4-8 months) because it can give you flexibility if it isn't working out for either you the landlord or the tenant, so you can not renew the lease at the end of the lease term.
Also, most rent by room people move a lot, so not having a 1 year lease is better for them in most cases.
My first house purchase was an old duplex with a three stall garage. I rented the upstairs to a friend, lived in the downstairs and rented an empty room to an acquaintance, used one of the garage stalls and rented the other two. I basically lived there free with the exception of paying my telephone bill. My second house was a single family and I rented out the basement to a friend while he built a house himself. It is a great way to start out if you do not mind sharing your house.
Life is all about strategy-- and playing the cards you're given! Make sure to get a 3/2 or 4/2, bathrooms really matter!
I watched something last night on this, and all I could think was... wow, we should be renting out rooms! lol Definitely opt for the multiple bathrooms, have specified food areas, NO PETS, month-to-month leases, no couples, no drama-- and absolutely hire a cleaner every week or two. I think roommates are best when cordial, but not friends, so stick to professionals!
Yes, you can and you should if you want to. I don't know about your market, but we have a lot of young buyers doing a rent-by-the-room house hack in Denver and Colorado Springs where we work, and most are living for free plus some extra cash. A couple thoughts:
Like Jeff said above, check the local laws for the number of unrelated adults that can live together. For instance, in Denver and Colorado Springs it's 5. But there are other localities that only allow three or some that allow only four. Now, whether you actually abide by the rules is another issue. Before Denver passed a new law increasing the number allowed to 5, they only allowed 2 unrelated adults to live together, but that didn't stop thousands of people from doing what you're doing.
Also, be sure your lease agreements are catered to this rent-by-the-room house hacking model. You can use a standard lease but with two additions:
Address how shared costs and shared-space damage is handled. Who's paying for the stain on the couch? Who's paying for TP, and paper towels and dish soap? Set the expectations in the lease so there's no disagreement later.
Address the liability resulting from tenant choice. What do I mean? I mean that you are the one likely choosing each individual roommate. Each roommate doesn't have a choice in who else is staying there. This opens you up to liability in the event that one roommate attacks another or there's some other inter-house problem for which they may blame you for choosing that "bad apple." I know Denver real estate attorney @Drew Fein has a house hacking lease that addresses these issues. Not sure if that works in Texas.
I’m moving on to my second house hack in Denver and it’s the single best financial decision I’ve made up until this point in my life. Sounds like a no brainer, however, I’m understanding, from all the responses, that in some cities or counties, there might be restrictions that make it a tad bit more difficult to use this strategy. Obviously, understand what those restrictions are and decide from there.
It’s easy to think about everything that could go wrong. Our brains are wired that way, but try to see all the positives that could result. Certainly, roommate turnover can be a stressor, as can many other things. Granted, It’s not very difficult to find tenants in Denver, however, there are plenty of resources all over the internet that you can use to find roommates. Taking really good photos of your place can make it easier.
House hacking allowed me to save almost 60% of my salary which I’ve been saving to buy more property. Eliminating your largest expense can be a game changer. Set your focus on the big picture and visualize yourself 3 years from now and what your real estate journey might look like. Thats what I did, and house hacking turned out to be the most logical, easiest, and proven- to-be-successful way forward. Best of luck to you!
Be sure that you can pay the whole mortgage each month without roommates. This will make it much less stressful when you have turnover and will make you less desperate to find someone which should lead you to picking more quality roommates.
@James Carlson thank you so much for your fantastic advice!!! I will definitely look further into the legality portion further now that you mention it. Thank you again!!