Rooming/Multi-Use Housing?

Question

Does anyone have experience and/or a system in place for Rooming/Multi-Use Housing? It seems like a way to drastically increase rental income and not much extra work if done correctly. Im just wondering who's done it "correctly" so I can pick their brain.

Dave Van Horn · Answer

Hi @Robert Norvell

Thanks for starting this discussion.

I actually run a drug and alcohol recovery house as one of my rentals (see my article “My Most Rewarding Rental” or more recently, “My Tenant Died and I cried”). Although the most rewarding part of the experience is helping the residents who come through our doors, it is also a lucrative alternative to a rooming house or a regular rental.

It’s like student housing without the parties or a rooming house without the constant requirements of the township. It operates as a single family dwelling, since the 1988 Amendments to the Federal Fair Housing Act make it “unlawful for any jurisdiction to discriminate against congregate living for the disabled. Recovering alcoholics and drug addicts are within the scope of the term ‘disabled.’ Therefore, Oxford Houses are not subject to zoning laws regulating the number of unrelated individuals who may live in a single family dwelling” (http://oxfordhouse.org/userfiles/file/legal.php).

I’m insured as a regular rental property with increased liability and an additional umbrella policy. And there are other options as well, such as taking title in a different entity or over encumbering the property by utilizing asset protection by debt. And besides, no one says you have to own it, you can rent it.

Best,

Dave

Jon K. · Answer

This.

And you absolutely must have insurance, and good insurance.

Make sure your insurance will even cover you with a rooming house situation. They  might charge you more.

SO much liability with doing this.

And make sure your city allows this with zoning. Some don't.

Liability is huge. Drunk roommates, a roommate leaving a door unlocked and there's a break-in, theft among roommates, one person lets tub or sink overflow, someone causes a stove top fire, someone leaves a candle burning, someone smokes, roommates get in a fight, etc.

Plus noise. Set quiet hours and limits on occupancy and overnight guests if your city allows it. Otherwise you'll end up with a tenant having their girlfriend stay over half the week and annoy the rest of your tenants. Also see what you can do about limiting occupancy per room. If a person with kids lives in one of the rooms, you'll drastically reduce the number of people willing to also live in a house that has kids.

Put a bedroom lock on each door.

Think about showers. Most girls/girls don't want co-ed showers. Think about having an all guy or all girl house or girl bath and guy bath. You don't want one guy in a house and a girl says he tried something, or a girl trying something to the guy. Obviously look into your local fair housing rules.

Set limits on the number of cars. You don't want tenants having 2 cars each and bothering the neighbors who then complain and get your rooming house shut down if it violates zoning.

Only allow non-smokers. No smoking outside either. No drugs.

Put in the lease no swimming pools, hot tubs, fireplaces, fire pits, trampolines, weapons, fireworks, firecrakers, incense, hookah, smoking, underage drinking, etc.

There will be more wear and tear, and it could be harder to charge any one tenant for damages to shared common spaces. Chances are no one will fess up for personally damaging the kitchen.

You're stuck paying for utilities, unless you make all tenants split the cost of them. If you pay them, tenants will absolutely not try to be energy efficient in any way. You'll be paying for high utilities because tenants simply won't care how much the utility bill will be if you are paying the utility costs. They'll keep the house at 65 during a drought-riddled summer, and the heat on 80 during the winter. They'll let all their friends do their laundry on your tab. They'll abuse this.

Hire a housekeeper and factor that into the price of rent. You're also pretty much stuck providing wi-fi if doing short-term, and that's a huge pain in the butt (and more liability too).

Consider furnishing the place.

You'll likely get visiting professionals who need something very short-term or international students.

There's a whole lot of turnover if you're doing short-term like this.

Also consider the area. College town rooming houses are VERY different from suburban rooming houses and attract very different tenants.

Single occupancy is at least somewhat less risky and if a single tenant damages a single family home, you can charge them for damages easier than a rooming house with multiple tenants sharing common areas.

I don't think all the risk, effort, turnover, more people/more  complaints and damage is really worth an extra even $500 a month. It's time-consuming, especially if you're doing short-term tenants. Then you're constantly looking for tenants, screening them, and cleaning when they leave.

Roy N. · Answer

Colleen,

Thank-you for the introduction.

We have both student apartments and two properties that rent by the room - boarding or rooming houses if you prefer.

We fell into the business of student "rooming" houses quite by accident. When we acquired the first of these properties - which is a "duplex" with one 4 and one 5-bdrm unit, I spent months planning to transition it into two completely separate apartments - it would have cost us a bedroom, but would have greatly simplified the administration (number of leases, turnover, etc).

While I was planning its demise, it occurred to me this property met a need our other "apartments" did not and our "boarders" were an entirely different subset of the student population than our apartment renters.

With the exception of one individual, the roomers / boarders / tenants who have rented rooms in this house have all been international students.   They come here from overseas with very little in the way of possessions and they want a furnished room, with utilities and Internet included, close to the university {most have never experienced "winter" and are terrified of it ... seems Canada has this (unwarranted?) reputation for cold and snow}.  These students do not want to stay in "residence" as they want a quite, studious atmosphere.

Another way this property and its tenants are different from our other properties?  We have only once needed to retain a security deposit and that was because the tenant "bugged out" early to catch a flight home for a family emergency.  He called us to apologize and offered to wire money - we settled on keeping his deposit.

Also, the property is a duplex, but vacancy has never fallen below 75% - at the moment we have the opposite problem - we are overbooked {two tenants who were leaving this month are now staying to the end of the year, but we had already filled their rooms}.

Finally, as Colleen and others alluded, the property brings in more revenue as a boarding house ($500/month) than it would as two separate apartments.

So yes, rooming houses can be a good lucrative investment - the key is to choose your area and clientele carefully.  Our boarding houses are very close to the University.   I know another landlord in the City who runs an "upscale" boarding house close to the legislature {we are in the capital} where the junior staff and aids to the MLAs stay when the legislature is in session.

But there is the flip side: There are other rooming houses that cater to the down and out, the {mentally} ill, the convicted, and the addicted.  Sadly most of these are in such dire condition, they would make your average "slumlord" look like a candidate for citizen of the year.  Here you have high turnover, high damage, high violence, high crime, but not likely high profit {though I could be wrong}.

George C. · Answer

I had a 20+ unit rooming house for a couple of years, I picked it up at a good price because it had been run into the ground by the two fighting owners. This was not the student type housing, but the drunk, hanging onto the last rung of the ladder of life type place. The place came with the keys & "Bob", the "manager" of sorts. He rented the rooms, collected the rents and fixed anything that broke. After I took over and started fixing up the place and getting rid of the bad apples, the place was running at full occupancy, with almost half being women who really kept the place clean. Bob quickly learned that I was different & that I gave a damn, he then stepped up his efforts too and began to take pride in the place.

I doubled my money two years later when I sold it. We did have our share of headaches with some of the guys, even the girls, fights, heavy drinking, drugs, smoking. In my tenure (2 years) only one guy left in a body bag, which was a good record for the place. It is not for the faint of heart. You can't control people in their own home as much as you might try & these type have nothing to fear. We had a revolving door with the bars & the jails. I use to call it the heartbreak hotel, guys would constantly be leaving because they hooked up with a girl and moved in with her, only to be thrown out and back they would come. Guys going through divorce would end up there broken and sour. I was threatened plenty of times, and constantly watched over my shoulder when I was there picking up the money every two weeks from Bob. Utilities, especially heat were a killer! Some windows wide open when 15 degrees out due to their high or whatever with the heat going. Talking to these people is like talking to the wall.

One rule was no kids, too easy for one of the whackjobs to mess with a kid, I didn't want to be any way responsible for that.

I could only find one, ONE insurance carrier to handle the place & I called everywhere. It cost me $4K ten years ago. This place was an old hotel from 1900 that became obsolete and continued on as a rooming house.

As far as doing it correctly, I think that I did. I got it with 6 guys, only two  actually paid their rent, two years later it was full, in retail salable condition (lipstick on the pig) and making good money...but I was still always waiting for the next phone call from Bob or the police telling me this or that happened.

The best thing I did to stop a lot of the BS headaches was to install cameras throughout the halls & common areas, it was like someone threw a switch, the cameras went on & the BS went off, it was amazing.

Good luck trying to start one from scratch, you'd probably have an easier time trying to get an adult bookstore / massage parlor past a zoning board.

Ross Leavitt · Answer

I have a brand-new duplex with five beds each side just a couple blocks from the university, and when I wasn't able to fill one side for the following 12-month period, I decided to rent the rooms individually. It was much easier to fill that way than with a group of five who were willing to sign together. I charged slightly more in rent (probably not enough more). I definitely recommend that you charge a flat rate for utilities, or just advertise it as part of the rent.

In the future, I'm going to rent my 5-bedroom units to groups when possible. Setting up utilities, especially TV and internet, is a pain, and sometimes the tech support won't help your tenants when they call, even if you put their names on the account.

For me, renting by rooms is an acceptable last resort when I can't fill my units with groups.

Robert Norvell · Answer

Wow! Tons of excellent information here. Thanks to everyone that continues to inform me.

Ive had a little bit of experience in this style of rental by renting out rooms in my home. The fact that I live here however makes it very easy control the quality of borders as well as the amount of chaos Ill put up with. Its been very beneficial to me, but the insights youve given me has my mind churning over the possibilities.

Roy N. · Answer

@Jon K

All good points.  I opted not to go into that depth above as my earlier post was already too long :)

When we acquired our first student boarding house, I had the same opinion you expressed above; hence I had set out to transition it into two conventional apartments.  However, I have since had my initial assumptions {somewhat} disproven.  Yes, turnover is greater, but not significantly.  We also have students who stay at the house throughout their entire time at university.

"Stupid student damage" is far lower than occurs in our apartments - the international students at the "boarding house" are typically more mature and responsible - at lest they present themselves in such a manner.  Additionally, many do not consume alcohol or drugs for religious or cultural reasons.

The above boarding house is setup as a duplex with the "girls" upstairs and the "boys" downstairs.  Where our clientele is almost exclusively international students, many come from a cultural background where co-ed cohabitation {family members excluded} would be unacceptable.

I'm not saying I'll never see through my initial plan to transition the house into two conventional apartments, but as long as the risk/reward and workload levels remain where they are presently, we will keep things as they are.

Steve Babiak · Answer

@Dave Van Horn - somebody wanted you to join this thread ...

Rooming/Multi-Use Housing?

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