Renting to unrelated individuals

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Renting to unrelated individuals

Eric FernandoPro Member
Montague, NJ · Member since 2016 · 59 posts · 9 votes

I recently bought a two family unit in NJ.  I live in one unit and the other one is for rent. I have an interest from 3 unrelated individuals who work at the same restaurant interested in renting the unit.

It is a three bedroom unit and I am skeptical to rent out to them - in case one of the individuals moves out then I will be stuck with getting another individual in, or terminating the lease/ evicting the remaining two tenants.

At the same time I see good potential as I can charge little more rent, as it is going to be split by the three earnings individuals.

I don't want to learn the hard way, so I thought I'd tap into the wealth of the forum so I can avoid making a newbie mistake.

I have posted in this in the landlord forum as well as the starting out forum. not sure would be the right place.

Thanks in advance!

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Renting to unrelated tenants is a much higher risk as it usually does not last. One will leave or they will have internal problems and they will all want out. Additionally restaurant staff is extremely transient. They will have difficulty paying rent.

    What you do is draw up a lease that holds them all equally responsible for the rent. You get only one rent check for the entire amount. The tenants determine how they want to arrange the payment and it does not involve you. This way when one does leave the remaining two are still responsible for the entire rent and in finding a new room mate for you to screen.

    Collect the deposit and LMR (if allowed) and when one leaves you hold on to the money until the last tenant leaves.

    Personally I do not rent to unrelated applicants as it is generally a unstable situation fraught with drama.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Eric Fernando yours is a common problem. Multiple tenants want to pool their resources and move into a rental they otherwise couldn't afford. It almost always falls apart and will cause you a lot of headaches and losses.

    I'll keep it short. I basically tell them that if they have three or more unrelated people (not married, not related by blood) then they are held to a higher standard. If a couple (married, dating, co-workers, or whatever) want to rent an apartment then I require them to make a combined income of 3x the rent. If I have three or more unrelated individuals wanting to rent together, I require each of them to make 2x the rent for a combined total of 6x the rent. This ensures they can still easily afford the rent and utilities if one of them leaves.

    Since instituting this one simple change, I have almost no applications from multiple unrelated individuals and the few that have applied have been great renters.

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  • Eric FernandoPro Member
    OP
    Montague, NJ · Member since 2016 · 59 posts · 9 votes
    7y

    Thank you. I value your response.

    In general should I ask a potential tenant to take renters insurance? what $ amount range of renters insurance would be adequate.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I require my tenants to have a minimum 1M in liability. What they want in regards to renters insurance is up to them.

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