New Landlord - Roommate Lease

1 Reply

Hello everyone,

I am working on getting my first deal under belt. This first deal will be done using a USDA Loan on a 3/2 single family which I will have to live in for a year (according to the loan). During that year I want to rent out the other two rooms. I have had a long standing agreement with a good friend to rent a room out to him when the time comes. He does have a stable job, pretty good credit, no criminal convictions (that I know of), and is generally a honorable person (as in I lent him money in the past and it was always paid back with interest). So I have no qualms what so ever renting to him, but he also knows that I would only do so under the conditions of a lease.

So my question is, what does that type of lease look like? What types of provisions should I include in it? Also would a house rules list be wise to work with him on and include as a part of the lease?

Some more technical questions:

  • Do you include provisions for added utility costs if he gets a girlfriend?
  • Are there any sorts of well known traps I should protect against (myself or him)?
  • Would you do this on a month to month basis or would you do a year contract?

Any wisdom you have to share would be greatly appreciated.

Well, don't tell your lender you're going to rent out or have other occupants on a USDA.. I rent rooms in my PR to young professionals my own age. I find them on CL or word of mouth. I don't keep leases when they live with me. One reason is that it reverts to state statutes, and it's easier, if worse comes to worse, to evict on an oral, month-to-month. Mainly it's that I live with them. If I get 3-5 applicants that meet the basic criteria, I pick the one that's most in line with my living habits (level of cleanliness, how much time they spend cooking, etc). In 3 years, I've never had a problem. One month one of the guys had car problems- we sat down and came up with a payment plan to get him back on track. Now he pays a week early and budgets better. My big piece of advice is pick your battles. If your lifestyles turn out to totally grate, just end it and find someone else.

And about the girlfriend.. I've always said no. You now have to live with another person in your house (extra car, more noise, more depreciation, possible drama, etc). Typically, and this is my opinion, couples won't hang around for too long. Soon enough, they'll want their own place anyway. You also have to watch your local zoning in terms of max unrelated persons in a SFR. I also once had a tenant in another property go through a domestic violence incident. Turns out the girlfriend moved in with the tenant, then filed her restraining order from his unit. So he paid rent, meanwhile he couldn't go to the property. Took him 4+ months to get back in. I lucked out that he paid rent, because it would have been an ugly eviction since technically she wasn't a tenant but had a cable bill in her name..

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here