Boarding house idea from Rachel Richards on the BP podcast?

Question

I heard a BP podcast recently with Rachel Richards as the guest. She mentioned that she had bought a house and converted it into a boarding house type arrangement. She rented the bedrooms, and tenants had access to the common areas. She said the cashflow was really strong using this approach.

Anyone here try that? Is it as simple as just buying a 3BR house, and renting to 3 separate tenants? Are there laws limiting this?

Interested in your thoughts.

-Steve

Steve Arnold

Edit s

Will Fraser · Answer

Hi @Steve Arnold, yes and yes. I don't do this personally but I have a few clients who do and there are MANY laws and nuances around this. From city to city you'll find distinctions on how many people can live in a place, how many unrelated vs related people, number of cars, number of people per bedroom, etc. Even within a city there can be distinctions based on zoning.

All this to say: it is a need and in certain settings it should go like gangbusters, but I'll emphasize the diligence in doing your due diligence on the purchase.

All this to say: it is a need and in certain settings it should go like gangbusters, but I'll emphasize the diligence in doing your due diligence on the purchase.

Joe Splitrock · Answer

@Steve Arnold a boarding house by definition includes amenities beyond a room, typically food and sometimes cleaning services. I am sure you have heard the term "room and board" and that is why it is important to differentiate that board is extra beyond sleeping room and common areas. Boarding houses have been around for hundreds of years.

As far as rent by the room, this is an arrangement where you have separate leases with each room tenant. So you rent a three bedroom house to three people and have three leases. One may move out and the other two will stay. The landlord selects each tenant independent. This is different than a roommate situation, where all three tenants sign one lease and move and out together.

Rent by the room is a way to maximize rental income, because generally speaking the total of room rents exceeds what you would charge renting the whole property as one unit.

The downside to rent by the room can be tenant relations. You have people in close quarters sharing a space. Everyone may have different cleanliness or noise standards. One roommate may eat another's food or may have guests there all the time. They may hog parking spaces or spend too much time in the bathroom. They may disagree on temperature in the property. They may argue over utility bills if someone is abusing. Personalities clash and since you selected the tenants, you are stuck in the middle.

As far as legalities, it varies by city and county. My city doesn't allow more than 3 unrelated adults in a single family home. This is due to traffic, parking and neighborhood quality concerns. Room share arrangements are almost exclusively single adults. Some are college student housing, but it is also common for young professionals.

As a general rule, when you increase the number of occupants or decrease the length of stay, either factor increases rent. It also increases management resources required, so it is a trade off.

Jonathan Greene · Answer

As @Linda S. said, I think the most successful model with this is more of an Airbnb, business-stay, temporary area worker type of situation in a decent area where you clientele is easier to deal with. The lower the rent on the rooms, usually the more damage, the more transiency, the more uncleanliness of the group amenities. As she said in the podcast, running one you become a parent, therapist, dealmaker, it's time-consuming. Personally, I would never do it, but I can see it working on a not hating it end (I think the money end will work fine either way if you can stand it) with a more upgraded concept.

Linda S. · Answer

@Steve Arnold,

IMO this only works in high demand area, so it's got to be a nicer/highly desirable location to rent rooms.   Have you heard of PadSplit, kind of like AirBnB but more towards landlords?

I inherited a house with a guy renting a room, and it was a C/D area, it was like pulling teeth to get someone to live there by being the house manager, eventually I just gave up and told him he'd have to rent the entire place himself.

Good luck!

Max T. · Answer

@Steve Arnold

There seems to be big demand for this. But neighbors hate it. Good luck!

Boarding house idea from Rachel Richards on the BP podcast?

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