Starting a "Group House" (Rent by the Room) Questions

11 Replies

Hi all,

I am buying a massive 4 level row house in Washington DC and I will live in the basement apartment unit and rent out the six bedrooms available on the three upper floors. 

My questions are--

1) Do you have the tenants sign a lease or just a roommate agreement with the house rules? I recently spoke to a friend who runs a group house and she said she doesn't have any leases with her current tenants. Does anyone have a copy of the lease/rental agreement they use for a group house they could send me?

2) Do you still ask for pay stubs and proof of employment when you are renting a room month to month? Do you still run a credit and background check as well?

3) I assume you still collect one month's security deposit from each tenant. How do you handle damage to the common areas since if someone breaks the dishwasher for example they probably won't admit to it?

4) I got an overwhelming response to the rooms for rent postings I did on Facebook and Craigslist last night, what is a fair and efficent way to deal with the dozens of responses?  Discard anyone who has pets and doesn't have a job (some people noted they are just moving to DC to start their new job or to look for a job)? Are their any qualities you would favor and select on?  For instance, since one level has 4 bedrooms sharing one bathroom maybe a guy would be more tolarant of sharing a bathroom with 3 other guys then 4 girls trying to share a bathroom. I was thinking of adding some questions to the rental application like - What times do you usually work and what times will you be home? Then I can pick people on different schedules so the bathroom shower won't be occupied at the same time. Then I can pick a few 9 to 5ers and a bartender and a waiter, etc... who will be working different schedules.

5) Bonus question- I see on roommate listings online "Females Only" quite often. I did a little research and I was surprised to learn that you can legally discriminate when looking for a roommate and that fair housing laws don't apply.  I am technically looking for 6 roommates so while I don't plan on discriminating on any other factor than their ability to pay rent and maybe a person's work schedule, I am curious if fair housing laws apply to me in this situation? 

Thanks in advance for any advise!

Ron

I would still use a lease agreement, not just a roommate agreement. As for the screening process you need to be VERY careful.  You need to treat everyone the exact same way.  What I would do is first come first serve on an evaluation basis.  Meaning I would evaluate the first person that responded first, if they meet your criteria then they get a room.  If they do not then they don't.  Then you go to the next person.  You need to write down exactly what criteria you want to judge people by that way you have a reference and can treat everyone the same.  You can not favor a male over a female, or a certain race over another.  It is discrimination and you can get in big trouble.

A few suggestions would be:

1. Have gainful employment and can prove it.  (Pay stubs)

2. They make 2-3 times the rent you want to charge (take home)

3. No prior evictions.

4. No criminal history (or whatever level you are comfortable with)

Speak with past landlords, employers and have a background check completed. 

Hey Ron,

You have a great plan here and definitely a good setup. I own and rent out rooms in my place here in Washington, DC as well (Petworth) and it's gone really well for me. For the most part. 

One thing I would stay is do a ton of research before you start bringing people in. DC is a city that is HUGELY in favor of tenants over landlords and if you get a bad apple you can be in a really, really tough spot with little reasonable recourse on your part. I've had one bad roommate here and it was a nightmare to get him out. 

Check these out:

https://www.lawhelp.org/dc/resource/frequently-ask...

https://www.nolo.com/legal-encyclopedia/overview-l...

You 1,000% percent want a lease. My understanding is that you still need a lease with a tenant, and the roommate agreement can spell out in more detail the day to day behavior and living conditions within the house - diving of chores, noise, etc. A lease wouldn't include those things, but a roommate agreement isn't the same as a lease either. 

Absolutely do credit and background checks. I've used MySmartMove before and it's super easy to do, you can set it up so they pay or you pay, or you split it. What I've done in the past is I have someone pay upfront, and then if I select them to move in I would either pay all or half of the cost of the credit check to them. Depending on where your spot is, and the number and quality of the folks, you don't have to refund that money to them by any means. It'll add up if you're paying $30 bucks for credit reports multiple times a year. Get pay stubs as well, and you can even ask for someone to provide a proof of employment letter. Their HR department can draw one up in 5 minutes for them. 

I'd be cautious of getting super wrapped up in picking the right people based on their schedules. You can only predict how well other people will interact. I get the idea of trying to plan out schedules for the bathrooms, but if you have people coming home at 3 am from their bar tending shift to people who are getting up at 6am to shower, that could actually be more frustrating for the roommates. A thought here, and I'd love to see if others think this is a good/bad idea is - pick a couple of quality tenants (good jobs, seem stable/normal/nice, etc.) and then involve them on picking the other roommates? People know who they connect with and who they will like to live with better than you can judge for them. Ultimately it's 100% your call, but if you're building a small community within that group home getting their buy in on new roommates can make the whole house function much smoother for you. Think of it this way, if you have 5 great people and one terrible person moves in, your ability to kick that terrible person out is virtually none as long as they pay their rent on time. But all 5 of those other people can move out pretty easily. 

As for damage to common areas - clearly state that it will be spread out evenly among the tenants unless one person is responsible and admits it. 

With regards to 'females only' I would shy away from that. Most people who are getting roommates on craigslist are just doing it for him/herself, and those kind of postings about females only usually aren't legally ok. It makes sense and it's not really an issue that anyone would find worth pursuing, but as a business owner (this is definitely a business) you have many more legal obligations and oversight from the city, and you have to be completely on point with your paperwork, filing, advertising, and how you handle things or you could wind up losing out in court. Not trying to scare you, but if you're here at BP then you're trying to do this in a professional manner, which means more work to do things the right way. I'm not a lawyer by any stretch, so take this as just friendly advice. 

There are a ton of great landlord resources out there for you, and also take some time to look over tenants rights info for DC, once you know their side and their rights you'll know better what obligations you need to meet to be a fair and upstanding landlord. 

Best of luck with this, and keep us updated on how this goes for you! Every time I pass by a huge row house I think about venturing down this path!

Rob


I know a guy who operates a rooming house. His answer for #3 is miniature security cameras. He has them recording all over the house in the common areas. Anything breaks, and he just speeds through the file and finds out what happened.

Check your city's legal occupancy laws.  7 unrelated people in one dwelling is unlikely to comply.  The most generous I've seen in any city statute so far (where statutes exist) is 5 unrelated people in one dwelling.  Other than that @Robert Brown and @Michael Badin give excellent advice.

I have several by-the-room properties in Colorado and they work very well.  I have leases for each room, but allow them to convert to month-to-month after a relatively short period (6 months).  That way, removing a troublesome roommate becomes relatively easy.

Thanks for all the great advice. It seems like I am in the clear as far as the occupancy laws go:

According to zoning regulations, no more than six unrelated people can live in a single-family home (a rowhouse is considered a single-family home.) More than six related people — two parents and six children, for instance — can live in a single home. If a basement meets DCRA requirements, which generally means it has a separate bedroom, kitchen and bathroom, it can count as a separate single-family home. Any more than that, and a property owner would need to obtain a permit, such as a rooming house license.

The basement unit I plan on living in has a separate bedroom, kitchen, and bathroom.

I recently started doing group homes. Usually in 3 bedroom houses. Only 1 person per bedroom. I use leases month-to-month. Putting 3 unrelated people together can create problems and I want to have the option to give someone 30 days notice, if they are trouble. Have already used that. 

I use SmartMove by TransUnion and explain to them that I do that to everyone, so, they can be assured that they have housemates that don't have eviction or criminal history. Credit I take case by case. 

I do 'creative houses', meaning that everyone has to be an artist/musician/creative of some kind. I already have a whole creative community and am starting a 2nd one. The tenants in the creative houses also have access to the compound and can interact with the other creatives. 

It has brought up the level of tenants, because this was a D area, that is now gentrifying. But tenants are still D type. I now pull in creatives from all over Atlanta, who want to live with other creatives. 

I get higher rents and have better tenants. And I have a new niche in this neighborhood that nobody else can really duplicate here, unless they have a lot of properties grouped together.

Hi Ron--I have a DC lease I'm happy to share w/you & also a background check form. Message/email me. 

1) Do you have the tenants sign a lease ---YES! 

2) Do you still ask for pay stubs and proof of employment---YES. ALSO ASK FOR THEIR CURRENT BANK ACCOUNT STATEMENTS, & LICENSE/ID COPY. 

3)---YES TAKE THE 1 MONTH'S SECURITY DEPOSIT. 

4.) WITH SELECTION TENANT--HAVE AN OPEN HOUSE TIME (BUT BY APPT. STAGNATE SO YOU GET 10-15 MINUTES WITH EACH PERSON, GET THEIR BACKGROUND IN ADVANCE WHEN YOU MAKE THE APPT W/EACH--WHERE THEY WORK, WHEN THEY PLAN TO MOVE IN,). WHEN YOU MEET EACH IN PERSON, YOU CAN ASK THEM MORE QS. ALSO SEE IF THEY HAVE LOTS OF Q., OR IF THEY ARE TOO PICKY & MAKE A FUSS ABOUT YOUR HOUSE--THEY ARE LIKELY TO BE A TOO DEMANDING TENANT. 

Good luck!

Hi Sara,

Thanks for the info. I don't see your email or contact info in your profile. I would love to see a copy of your applications and leases.  Can you email me at my email address on my profile here on BP?

Thanks!

Ron

This is a great question. I have been doing this since mid-2016 in my owner-occupied residence with up to 3 roommates living upstairs, I live in the basement but share the common area (kitchen) with the rest of the house. 

1) Yes, use a lease. I customize it for each room and other parameters. I also don't allow my tenants to enter the basement without prior permission. I use EZ Landlord Forms dot com. 

2) I have only done tenant referrals by word of mouth so far. I have been lucky in that regard and have yet to actually advertise. This gives me piece of mind as the referrals usually come from friends, coworkers, and the other tenants. That being said, I take care to treat everyone the same. My situation is a bit different, but if I was to rent out to a random person from Craiglist, I would vet them to the nines. 

3) Yes. Unclear on common area damage. It hasn't happened yet. The micro-cameras are a little creepy IMO. 


4) Let tenants sort this stuff out. You have enough on your plate and can't predict the future. Things change so much, it's almost impossible. 

5) I only do word of mouth and ask for guys only. I live with them in the same space so the laws technically don't apply to me since they are my "roommates". 

Bonus- 

One issue I have run into for those out there who rent rooms and owner-occupy is the insurance issue. I notified my insurance company after the fact about roommates and they told me I could be dropped from my insurance. This scared me and I haven't found a solution yet. The one thing I have done is to require renter's insurance though. This gives the tenant liability coverage and CMA in the process. So if something were to happen to them, they could go through their rental insurance company. Also, I make then sign a waiver of liability.

Here is the post I made. I still have yet to find an answer, unless renter's insurance is the answer...

https://www.biggerpockets.com/forums/52/topics/497275-insurance-for-roommate-tenants-in-owner-occupied-sfh-washington-d

Lastly, I am unsure of if you need this, since it sounds like your basement is a seperate unit, but you may need a Basic Business License. Finally, I did attempt to contact an attorney to touch base on my specific situation. They informed me that I needed to register with the city. I am working to figure this out. Please feel free to message me with other questions. I'm still learning myself on these issues.

A group house is when you do not live there. You will be living in your property, so you are renting out rooms. Either way, you want a lease. Your lease should state that they are renting out a room in the property located at {Address} and they have access to all common spaces. Or if there is a common space they don't have access to, you list that...such as your basement. Your lease should state parking. Have your lease state house rules. Make everything you expect clearly written.

You may find you adjust rules/other things as you go. For example, at one point I felt I was doing all the cleaning in the kitchen--and when the roommate did clean, he'd just screw up my pans/gadgets/etc--so we had a talk about it and he paid for a maid to come and clean the kitchen and his bathroom twice a month. It kinda helped... lol

And I would HIGHLY suggest your leases be month-to-month. You do not want to commit yourself to sharing your home with someone that you are not comfortable living with (even if they pay the rent).

Being that you live there, yes, you can be more specific such as only wanting certain genders.

When I rented out rooms, I only allowed one person per bedroom. No couples. Ever. I once had a pregnant girl want to move in but I had to politely decline that. I also once had a military guy want me to put quiet hours and laundry hours in the lease. I politely declined him too because I could see myself walking on eggshells in my own house with him around.

We would get a lot of email response too. Some I wouldn't even answer, honestly... Others that sounded promising, we'd talk more, and arrange to have them come see the house in person. During that time, it let me get a feel for the person, and after that they'd give us all the info we need such as copy of their ID, proof of income, etc. We collected first month's rent and security deposit before they'd get a key.

I'm getting close to creating a completely self managed rent by the room houses in Austin - tenant replacement / repairs...everything...its awesome.

I was able to do this by adding a rule in which the roommates are responsible for finding their own replacement prior to leaving - I highly recommend requiring 60 days notice so you aren't rushed (credit/background checked / interviewed by me as the final step).  I think getting to that position is the key advantage of what @Robert Brown mentioned - having the roommates involved in helping choose their fellow roommates from the very beginning.  The more tight and self sustaining community you build the more self managed the community can become once you eventually move out (if that's your goal - it was mine).

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