Rent by the room is the hassle worth it?

Question

So, I have an option to buy my brother's house and I would buy it subject to. He has a great 2.75% interest rate and a ton of equity that he would allow me to buy him out over the next 10 years at a 0% interest rate on the equity.  This house as is is worth about $340,000 I would be purchasing it from him for about $320,000 with a $30,000 down payment.  Between his normal p i t i of about $1,200 a month and the 1166 a month that I would pay him on a secondary note at 0% my total payment would be about $2,500 a month.  The house is a five bedroom could be converted into a six bedroom three bathroom house about 20 minutes from downtown near schools in a secondary suburb. Rents are about $2,800 to 3,000 a month for 4 to 5 bedroom homes in this area.   The only way this would cash flow much is if I rented by the room I could rent it for about $750 per room if I added the 6th bedroom in the basement. The only reason I'm thinking about doing this is because I would get a ton of loan pay down very quickly because of his low interest rate and 0% secondary note to pay his Equity off.  I don't know if rent by the room is worth it I have. I currently have four properties which are nine rental units that all do just fine but I don't have any experience with rent by the room and I don't know if it is a huge hassle or not.  Any insight on this would be great thanks.

Colleen F. · Answer

@Jeremy Muehlbauer before you do anything check for unrelated persons ordinances in your area, that will tell you if you can move forward easily or you would need something like a boarding house license. Also check for two means of egress in that basement you want to convert because fire code will require it. Lastly If you don't intend to live there you might consider a house manager, and definitely consider additional cleaning costs and parking. There is a need but many towns don't want this type of rental in their area. I know why because not everything goes smoothly but I know there are people who do this and succeed.

Matthew Paul · Answer

@Jeremy Muehlbauer  So you want to put 5 or 6 unrelated people in a house together ?  Different ages , gender , interests , habits  , etc and expect things to go smoothly ?   I am 1 of 5 kids , and life was always peaceful and quiet ...............LOL .  We did have 2 house managers , screw up  and they had the power to get you back in line .

Just put this in mind , 1 bad tenant can cost you the other 4 or 5 tenants real quick .

John Morgan · Answer

@Jeremy Muehlbauer

I have 3 rent by the room houses in the DFW area and make around $1500-$1800/month profit after all utilities and expenses. I throw random people in these 4 and 5 bedroom houses and hope they don’t kill each other. lol. For the most part they get along. I have had to evict one guy for non payment of rent and evicting a woman on Tues for non payment of rent and disturbing the peace with her mental issues. But overall, I would say it’s still worth it. Worst case scenario is if you don’t like it, turn it into a normal LTR and call it good. You got a great deal on your brother’s house and that low interest rate. Well done!

Richard Rao · Answer

What market are you in? Im on my 3rd rent by the room in DFW and its totally doable and dare I say worth it. It brings in roughly 2k for me after all expenses. Will be 3k once I move out of the current one.

Ko Kashiwagi · Answer

Hi Jeremy,

The viability of rent by room is market dependent, so I'd look into similar rentals in the area! If there's colleges nearby, that's also a plus.

Alecia Loveless · Answer

@Jeremy Muehlbauer I had a somewhat similar yet different property type for about 22 years, B&Bs. I had two of them and both had a “small room” compared to the other rooms that we rented on the cheap and there was never any shortage of people who were happy to have a nice, clean, comfortable, affordable room to rent.

I think you will find the same if you rent your house by the room assuming you have a decent sized tenant pool.

I’m getting ready to convert a room in my house over to do the same thing because I believe there is a market for it.

Keep your common areas clean and neat, possibly have a house cleaner come in twice a month for these areas if your budget allows it, have solid house rules that you enforce regarding at a minimum quiet hours, parking, smoking, pets, and visitors just for starters and be sure to run it like a business and decide if you will have month to month terms, 6 month terms or yearly terms.

Matthew Paul · Answer

If you lived there , its doable . If not you have to put someone in charge of the house

Jeremy Muehlbauer · Answer

Ha, yeah that had always been my concern but some of the suggestions on here seem valid about strict rules and regulations on the leases, and I would be providing housing at 20% to 30% cheaper than anyone else could find of they wanted a studio to themselves. I know the demand is there just don't hear too many personal stories from people that have actually done it.

Mason Vitalis · Answer

Everyone seems to sleep on rent by the room. There are always single college students and short-term renters who don't mind renting just a room. Especially because it's tough to find even a studio to rent for anything under $1000 right now. In my opinion, if you have the time to manage a short/medium term rental on this property, it would defiantly be worth your time. Good luck on this investment, it sounds like you've got a great deal!

Rent by the room is the hassle worth it?

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