Rent entire house vs by the room

[Ben Sorochuk]

I've got my first house a few months ago, and currently househacking it. It's going great, it's got 7 rooms. I'm living in a room and renting out the rest. Mortgage: $3650. Rent income: $5100. I'm seeing other houses that have a lot of rooms relative to the square footage, like houses that are 2000 sq ft and 7 rooms and considering buying more houses and renting them out by the room. If I rented the house to a single tenant I'd get maybe $3000/month. If I rented by room I could get $6000/month. Obviously I will have to manage more tenants and deal with more short term type tenants but it seems like a slam dunk home run. Is there a reason this isn't done as frequently? Obviously it's more involved but the way I see it, if I buy multiple properties and rent out each entire house to a single tenant, I'll basically have to deal with more hassle when I could get comparable cashflow with just one property that's rented by the room.

[Bruce Woodruff]

For a typical long term rental, you would have a market for some of the lower income folks.

For a STR, you would have almost zero market IMO. Vacation guests do not want to stay in a house with other guests they don't know and have to share a bathroom and kitchen. At least I don't know anyone who would.

You can rent a nice little house in most areas for $100 a night. Anyone who is travelling for vacation can afford that. You are competing with hotels, remember?

[Michael Baum]

Hey @Ben Sorochuk, I assume you are doing this in Tacoma, WA? Where is the house located? What kind of clientele? Are you close to PLU or UPS for student housing?

Need some more deets!

[Ben Sorochuk]

Quote from @Michael Baum:

Hey @Ben Sorochuk, I assume you are doing this in Tacoma, WA? Where is the house located? What kind of clientele? Are you close to PLU or UPS for student housing?

Need some more deets!

It would be catered to students of UW Tacoma, or other single people who want a cheap roommate type of living situation.

[Michael Baum]

Ok @Ben Sorochuk. Now we are getting somewhere. The per room rental idea will work just fine. I assume it is walking distance to the campus.

There are roughly 5k students in attendance there. What I would do next is check with the campus housing department there and see what the need is. How many places are available?

Remember that UW Tacoma caters to students who live at home in the general south sound area rather than going to UW proper in Seattle. They usually are watching their pennies and saving for tuition. Our son goes to WSU, which has over 25k students and the housing is setup for students coming from all over and living there.

Frankly you are not going to use it as a tradition STR. Vacation rental is out of the question. Mid term rentals maybe for traveling nurses/docs/PA's/PT etc. seeing as Children's is right there as well, but that would preclude students IMHO. No professional wants to deal with 20 something students when they get off a 24 hours shift.

So if the traveling person idea is appealing, check with Children's and see if they have any kind of dept or HR staff who help find short to mid term housing for traveling med folks. That could be a sweet spot for you. It will require a nicer place overall and upkeep vs students, but they would do far less damage and it could be fun.

You could offer up BBQ's on the weekends or other perks to make them feel at home. It would be much more hospitality rather than just a place to stay.

[Don Konipol]

Quote from @Ben Sorochuk:

I've got my first house a few months ago, and currently househacking it. It's going great, it's got 7 rooms. I'm living in a room and renting out the rest. Mortgage: $3650. Rent income: $5100. I'm seeing other houses that have a lot of rooms relative to the square footage, like houses that are 2000 sq ft and 7 rooms and considering buying more houses and renting them out by the room. If I rented the house to a single tenant I'd get maybe $3000/month. If I rented by room I could get $6000/month. Obviously I will have to manage more tenants and deal with more short term type tenants but it seems like a slam dunk home run. Is there a reason this isn't done as frequently? Obviously it's more involved but the way I see it, if I buy multiple properties and rent out each entire house to a single tenant, I'll basically have to deal with more hassle when I could get comparable cashflow with just one property that's rented by the room.

“House hacking” or renting rooms to long term tenants is one thing; renting rooms in a property in which you do not reside is quite another.  Without your presence problems with and between your tenants will magnify.  Right now your tenants are like kids with a parent present.  Leave the kids to themselves without parental supervision, living in close quarters, sharing facilities, and you may have created a near full time job.  

[Ron Brady]

@Ben Sorochuk

My wife and I rent several furnished homes by the room and have found it to be a good fit as part of our portfolio for several reasons.

They are located in a working class area that is also appealing to new-to-the-workforce individuals. An area around a university should have a similar market. This niche results, for us, in lower vacancy rates because an affordable room is always in demand. There is higher turnover though, but we manage that and word-of-mouth amongst our residents proves very helpful in filling vacancies quickly. We allow any resident to leave with 60 days notice and we almost always back fill by each resident's departure date. Some elements we enjoy most about this niche include a) a single room non-payment for one month allows us to still break-even on a property for the month because the other paying residents cover all our costs b) existing residents help with turns and thus turns tend to be very cost-effective, c) there is a big market beyond students or new-to-the workforce for rooms.

The risks to this approach is managing residents. We screen diligently and conduct house meetings when a new group is put together in a home and thus set out ground rules.  We have to intervene when there are conflicts, which are inevitable. My wife used to be a school disciplinarian so she is used to this. But if you truly dislike dealing with adult conflicts, you will tire of this niche.  We find that when we a) set out ground rules from the beginning, and b) allow existing roommates to interview and give us feedback on potential new roommates, conflicts are minimized. We, on the other hand, are willing to deal with the conflict for the added yield that you've cited. For us, its worth it.

Happy to answer any questions, share our roommate meeting agenda and anything else if you PM me.

Best wishes to you?

[Bradley Dosch]

Hey Ben, that sounds like an amazing house hack! I do the same rent by the room strategy with my house in Tacoma. I'd say the only reason is that it's just unknown and scary to most people. It requires slightly more work upfront but once you get your systems down, it's pretty smooth sailing. If you get good tenants, communicate well, provide them with an awesome place to live, and just be a good person it'll be a very rewarding experience. Hope this helps! Good luck Ben

[Sherief Elbassuoni]

@Ben Sorochuk, I have rent by the room properties, and also properties that I am renting the whole house to one family. Rent by the room is getting me cash flow (I do Medium term rentals on Airbnbs, with average stay is 1 to 3 months). Most of my Airbnb tenants are either young professionals (young Software engineers, traveling nurses, ...). Although rent by the room is getting me more money, it takes more time to manage. 

[John Thompson]

Is this being handled as a legitimate rental business reported on a tax return? I ask because I am looking into this and have read the IRS can look into your finances (purchases of property) if audited. 

Insurance issues as well if have a tenant.

Zoning (many areas are zoned single family homes or limit the number of non-family residents). If neighbors find out you have turned the property into a boarding house they may complain. 

Many cities also require a business license if have more than a certain number of non-family members renting in one residence.